Forex Strategies – Page 10 – 2nd Skies Trading

Trading & Thinking in Probabilities

The A+ Setups, The Trades That ‘Kick You In The Chin’

There is one mistake I see beginning traders constantly making. They wait on the sidelines for days, waiting for A+ setups, waiting for setups that ‘kick them in the chin‘, or ‘knock them over the head‘.

If you need to get kicked in the chin or knocked over the head to act, perhaps you should consider MMA, not trading. If you need this to actually do something – you really are missing the most basic thing of being a successful trader.

Your job is not to sit there like Johnny Bench waiting for the delivery of the perfect pitch. Your job is to think in probabilities, to think in numbers and expectancy. This is one advantage for becoming a better trader by learning how to play poker.

poker playing probabilities trading dev2ndskies.wpengine.com

Positive Expectancy
In poker, they have this rule about positive expectancy. It basically involves not waiting for your power hands to arrive before you play. You should [pay your medium strength hands in the right environment because they have positive expectancy.
Sure, you can wait for AA or AK suited before you get involved in the pot, but you are passing up many hands that make money in the long term. You are passing up hands that have positive expectancy. This doctrine about waiting for A+ setups is a fallacy espoused by people who really do not understand trading. It is important to remember trading is not a fashion contest.
Trading is thinking in probabilities and finding setups that make money over 100, 1,000 or 10,000x.
You have to understand, that you may not make money on the trade right now, or even the next one, but if it makes money over the long run (has positive expectancy) then you need to pull the trigger.

Beginning Traders vs. Professional Traders
Beginning traders make the mistake of waiting for setups which have 60 or 70+% accuracy, trading at 1:1 or 2:1 reward to risk ratios. Sure…mathematically these will make money, but guess what – did you know you could have a system which is 35% accurate which still makes money (and a lot of it) over time?
Although losing 65 trades out of 100 may seem daunting, a professional trader doesn’t skip these trades – because they know they make money. This is the difference between a beginning trader and a professional – they think in probabilities. They are comfortable with uncertainty, because they trust the process.

Breaking It Down
To look at it mathematically, if you take 100 trades at 35% accuracy, you win 35 and lose 65. Now if you always target 3x your risk (meaning if you risk 50 pips, you target 150 pips each time), this system will make money. Although you may lose the next 6-7 trades, all you need to do is win 3 or more, and you’ll make money over those 10 trades.
This is the difference between a professional & beginning trader. They understand the risk of ruin principle, and are not worried whether they will win the next trade. Beginning traders rationalize losing the next 6-7 trades as being bad for their overall trading, when mathematically you can still make money.

What Separates Beginning Traders from Professional Traders
Professional traders are not worried about the next trade winning or losing. What they care about is making money long term and over time. They want to maximize their profits by playing the mathematics – by thinking in probabilities.

Although beginning traders hang their entire psychology, confidence and performance on the next trade – you have to look at the next one as just one free throw in the thousands you will make over time.

A Single Grain of Sand & Your Positive Sloping Equity Curve
One way to relate to an individual trade is to see how really unimportant one trade is in the grand scheme of things. A good visual for this is – if you are currently holding a hand full of sand you picked up from the beach – that each trade is like a single grain of sand.
If you are using proper risk management and thinking in probabilities, that one grain of sand is really insignificant. Put them all together, and it adds up to something more substantial, but by itself, it really means very little.
Now imagine your positive upward sloping equity curve over the next few years, with hundreds of trades per year under your belt. That one grain of sand really means nothing in the entire equity curve of profitability. It’s just a tiny data point in a very large set.

After a Long Trading Career

If you can really grasp this, I guarantee after you have a long trading history with hundreds (if not thousands) of trades under your belt, one little trade will not mean anything to you. But what will matter, is if you pass up trades that have positive expectancy with lesser accuracy, you may lose massive profits over time.

Thus make sure to let go of whether the next trade will be a winner or a loser. Try not to invest too much energy in this. Start to think like a professional, and pull the trigger whether your next setup has high or low accuracy. If your price action strategy has positive expectancy, then that is what you need to know. When you do, you’ll realize a huge piece of the missing puzzle as you’ve started to think like a professional, and started to think in probabilities.

What You Need to Do to Make Money Trading (Part 2)

In part 1 of What You Need to Do to Make Money Trading, I wrote about how you need to get comfortable – particularly with uncertainty as to what will happen next. Your ability to sit in the saddle of uncertainty will determine your ability to make good trading decisions which leads to more profitable trades.

In part 2, I will delineate why you need to get comfortable with yourself in trading and what this means.

Getting Comfortable With Yourself
When I first started taking archery classes, I had to decide if I wanted to shoot a recurve or compound bow, as they definitely differ in their shooting styles, techniques, handle, potency and uses.

My teacher asked me which I prefer after a few classes, and I took a moment to think about why I was taking archery classes in the first place.

For me, I was taking classes for twofold reasons;

1) As a complimentary skill for trading (concentration, focus, precision and awareness in the moment).

2) As a meditation practice

To this end, the recurve bow felt more suited to this. Even though it’s not as powerful, or cannot shoot the same distances as a compound bow, power or distance was not the motivation behind my archery training. Hence why I shoot a recurve bow to this day.

This process for you getting comfortable with yourself has to be done in a similar way. You have to really understand who you are, how you best operate, what environments does your natural talents/skills/intelligence prosper, along with what are your specific trading goals for trading.

My guess is when you have figured these things out, the system and method will be just naturally arise and be obvious. But don’t fall into the trap of thinking you have to gun for ‘the most profitable’ system, or trade on any time frame to be profitable. You’d be amazed how many times beginning traders ask the question of ‘what time frame do you trade‘ or the more common is ‘what is your most profitable system‘.

Anytime I see this, I can see they are asking the wrong questions. Making money is not time frame dependent – as if one time frame has a monopoly on making profits. And looking for the ‘most profitable system’ really is ignoring the fact it may not be the best one for you.

It may trade only when you are asleep, or at work. Or it may force you to hold trades for days when you prefer to be out out at the end of the day. What use is it to you then?

A Good Trader
I can always tell a really good trader when I talk to them. They are never worried about what someone else is doing, how much they are making, or what system they are using. I personally know a trader that did 3000% one year with over 90% accuracy making at the end of the year over 200k a day.

Yet he is an engineer who is highly mathematical, and employs a system that took him 8 years to learn with his level of mathematical skills (way above mine). Using that system would actually be counter-productive for me, my time and my natural way of thinking.

Eventually, a good trader has settled into two things;

1) They’ve settled into how they operate best when trading

2) They’ve found a rule based system that works for them

To do this, you really need a little bit of trial and error, but it also takes some self-reflective ability as to how you are as a being.

Do you prefer to micro-manage things, and does this usually work out for the better?

Or are you best using set and forget strategies?

Are you really available to trade several hours a day, and do you want to?

Or would you prefer to only ‘participate’ in the markets a couple hours per day?

Are you really risk averse, or are you comfortable with risk and volatility?

Answers to the above questions could determine what is the best strategy, pairs and style of trading you engage in on a daily basis. The bottom line is, if it’s not a fun car for you to drive, it doesn’t really matter what kind of car it is.

You can always tell if you are uncomfortable with a system, if it racks your brain, patience and emotions using it. If you feel drained trading it – regardless of profit or loss, then it’s likely not for you. However, if you feel this with every system you use, then the issues may be more on the psychological level with how you relate to trading. This is simply because the common demoninator is you – not the system.

I myself trade both intraday price action strategies, along with higher time frame methods. I also trade both price action and ichimoku models because the combination of the two is what works for me. I like a balance between being engaged for a couple hours per day, while also holding positions overnight so I can make money sleeping, and just let them play out.

In a recent article called The Ideal Trader, I explained how combining intraday + daily and 4hr price action strategies, is ideal because it allows you to quickly grow your account (via intraday trading), while also making money sleeping. But the key for you is to find a system and style that is tailored to you across the board, and provides the soil for your natural talents, skills and intelligence to grow and flourish.

Until then, trading will likely be an uphill battle against you – not the markets. But once you’ve found a balance of what’s most natural for you – it will result in you being consistently profitable, while finally feeling settled with trading and the markets.

The next article for this week will discuss always trading and thinking in probabilities.

Kind Regards,
Chris Capre

Forex Strategies, Trading Mindset & Risk Management

What You Need to Do to Make Money Trading (Part 1)

Happy New Year of the Snake!

NOTE: For this new year, I’ll be writing a blog post and article every day of the trading week to launch the Chinese/Tibetan New Year off with verve.
Today’s article is about what you need to do to make money trading (consistently). Did you know about 35% of all retail participants make money trading? This is true, but what you need to know is in the details, that ~half of them (17.5%) make money on back to back quarters, and ~half of them (7.5%) make money on multiple back to back quarters.
This should communicate to you consistency is hard to achieve in this market, however it can be done. But you have to do some key things to make money consistently. In reality, there are many things you have to do, but these two things are critical to make money trading consistently.
So what are these two things?
I can sum them up into two words: Getting Comfortable.
Yep, that’s right – getting comfortable.
What this implies is really twofold;
1) Getting Comfortable with Uncertainty
2) Getting Comfortable with Yourself
I’ll briefly talk about the first one today, and tomorrow dive into the second. But i’ll begin with why the first one haunts beginning traders.

Getting Comfortable with Uncertainty
When you look back on a chart, everything seems so clear. You can see where your price action systems made winning trades. You can see why that key support and resistance levels held, why it was a great time to get in, why the trend was going to continue, or reverse. It’s all so clear…after the fact, and it always will be.
Why?
Because right side of the chart represents uncertainty, while the left cannot be altered. Our brains are so hard wired to look for structure/patterns/order, that any chaos, lack of structure/solid ground is unnerving for us. The reality is, we are used to setting up our lives for predictability.
We often look for jobs that have the same schedule, the same pay, the same rules – all predictable for us to plan and live our lives.
Trading forex professionally is just the opposite and requires us to re-wire our neural programming.
It guarantees no return, no fixed salary, no predictability. It is a constant sea of uncertainty we are swimming in. The only thing that allows you to make profit, is you learning to make consistently good decisions (being disciplined, following your system, managing the trade well). But to do this, you need training, practice, and to get comfortable with not knowing what is next.
Ever Flowing River
The money is there to be made, and you sense this…you sense the potential. You just have to learn how to make it. But first, you have to get comfortable with uncertainty.
Much of developing a successful trader mindset is getting comfortable standing in the ever flowing river of uncertainty. It is standing at the precipice on the waterfall into the next moment. This river, or waterfall, is often referred to as the ‘right edge of the chart‘. But in reality, it is the absolute potential of the next moment.

Most of The Time
For most of the time you will be trading and sitting in front of the charts, there will be less clarity, and more uncertainty.
If you get anxious, feel pressured, upset, or worried not knowing whether you will make money on your current trade, then you will likely make a bad decision. These often lead to losses as you probably have experienced already.
But if you can get comfortable with this uncertainty, and comfortable with losses (which are inevitable), then you will find yourself making good decisions more often than not.
Good decisions lead to better trades. And when you start doing this consistently, the money will come. The destination will always take care of itself, but the process from here to there is what you can influence.
Ask yourself which end of the statistic of profitable traders you want to be on, then ask yourself what you are willing to do to get there.
Kind Regards,
Chris Capre

Forex Strategies, Trading Mindset & Risk Management

End of The Trading Week – What Are You Doing?

Hello Traders,
It is now the end of my trading week and I wanted to ask a critical question:
When the trading week ends, whether it has been a winning or losing week, and you know you will not make any more trades, what do you do?
Most typically shut down the charts, close the platform down, exhale and then walk away.
If it has been a winning week, I’m guessing many of you go for a drink to celebrate your hard work. For a losing week…I’m guessing many of you go for a drink to forget about your mistakes and what you lost.
Instead, I suggest trying another path.
Reviewing the Tape
I noticed a long time ago the best players and athletes spend tens of hours per week reviewing tape. They are looking for what they did well, but also zoning in on their mistakes, so they know what to spend energy on correcting. Ironically, some of the best traders I know do the same.
If you are really passionate about this, and are excited to get back to the chair (win or lose) after the day, week or month – then you’ll come back and work on your mistakes while re-enforcing your successes.
Oftentimes, the difference between a successful and unsuccessful trader, is doing all the little things which add up to a big result. Taking time to review your trades and performance is one of those little things that has a far reaching reward.
There are many ways you can do this easily, using programs such as Jing, Screencast or Camtasia, which are all done by TechSmith (some are free).
How I do it is I have a folder, with sub folders for each month and week. After a trade is done, I take a screenshot (or video), color code the trade (green for a win and red for a loss), and put them in the trading folder for that week. Below is a screenshot from a live trade I video recorded, which I shared in the member traders forum.

When trading is done for the week, after getting a brief cup of tea, I come back and sit down for my analysis on what I did well and what I need to work on. Sure, at the end of the week, I’m a bit tired. But I love what I do, and dedicate a ton of energy to becoming a better trader each day, to increase my skill and craft.
What I often find is there are patterns in the price action, or Ichimoku, that repeat themselves in my winners and losers. These patterns get stored in your long term memory and central nervous system.
If you do this enough, when you are trading in real time, you will be better able (and prepared) to spot patterns, either consciously or unconsciously, which will lead to finding and making better trades.
You will spot patterns on whether it’s time to reverse and go short, or time to exit a current trade, or time to enter before a big move. All of this review builds pattern recognition skills which lead to automaticity – a critical tool for success and mastery of any skill.
Trading is a constant learning process – it never ends, and that means a constant effort and fine tuning of your skills. So the next time your week ends, consider taking a moment to review your week of trading, and build a little habit that goes a long way.
Kind Regards,
Chris Capre

Forex Strategies, Price Action Trading

2 Tips for Placing Highly Effective Stops

One of the more difficult aspects for traders is placing highly effective stops. Either most beginning traders place stops too tight or too far away. Place stops too close to your entry and they are likely to get hit. Too loose and they unbalance your risk/reward ratios.
In today’s article, I’m going to share 2 tips for placing highly effective stops and how these can help you increase your accuracy and profit potential.
1) The Reason You Entered the Market
You should always have a reason to enter the market. Ideally it based on a price action pattern that has repeated itself in the past, and will likely do so again. All patterns have variables that repeat themselves, and it is this ‘repeating‘ we want to happen again, thus allowing us to profit from a predictable event.
If the reason you bought a pair was because the dynamic support and 20ema was holding on the 4hr chart several times, then your reason to exit should be a violation of this.
I recently wrote in my market commentary how the S&P 500 bounced 4x off the 20ema. If the reason for buying was the anticipation price would bounce off the 20ema again, then my reason for exiting would be the opposite of this happening. Today this is exactly how it played out, bouncing for a 5th time, and offering a trader to profit from it greatly (see chart below).

Now if the price action breaks and closes below the 20ema (something it has not done in 11 days), then the pattern has broken down, and it is no longer a tradable event.
But in terms of placing a stop with this trade setup, we could have looked for the largest breach below the 20ema over the last 11 days, and placed our stop just below this upon entry. Had you done so, you could have easily grabbed a 3x reward play on the last 20ema touch.
2) Stops Are Best Placed Above/Below Support & Resistance Levels
Institutional traders place their orders around levels more than anything else. When many orders from a lot of players with a lot of money, occur at a particular price, it often creates a strong reaction at a level. And when price ‘reacts‘ to this level more than once, it often becomes a key support or resistance level.
Thus, stops are best placed above or below key support and resistance levels. It is here that the larger players are placing their orders, and thus likely to defend your entry and stop.
If you do, then in following the logic of rule #1, we should be getting out of the trade if the level is clearly breached.
Lets take both sides of a potential trade below and see how we could have placed our stops effectively buying or selling.
EURUSD 4HR Chart

Starting with the left side of the chart above, we have a strong impulsive price action bull run, that finds sellers just below 1.3400 , or point 1. This selling pulls back to A where it finds support around 1.3250, and then re-attacks the sellers just below 1.3400 again at point 2. Now if you were a seller, and had seen price hold just below 1.3400 2x, and sold at pt 2, the logical place would be to put it about 10 pips above the round number, while targeting the buyers around 1.3250.
Why 10 pips above 1.3400?
Because this is a round number, statistics show typical stops for selling orders placed at round numbers are often within the first 9 pips above (so 1.3400-1.3409). Of course, always make sure price action confirms this, but this is a general rule you can use.
Now if you want to be a buyer in this case – taking a with trend continuation play, then buying at B or C, with a stop 10-15 pips below 1.3250 would have also worked out, targeting the resistance at 1.3400.
Now trades will not always be this clean in terms of support and resistance levels, which leaves you two options;
1) Only trade when the price action is really clean
or
2) Learn to place really efficient stops
I understand the latter may be more difficult to do, but you can find more high probability setups by adding a key component.
Impulsive Moves
One way to increase your chance of having a profitable trade, and placing an efficient stop, is to trade with trend more than counter-trend. When trading with trend, the majority of the order flow is already on your side, so look to consistently trade with impulsive price action moves, not corrective ones. If you can do this, then you will build your confidence in placing efficient stops, because you are getting in with the larger players.
A great example of impulsive and corrective moves is in the chart below.

You will clearly see how much more profitable one would be selling the impulsive moves (white boxes), and not the corrective moves (green ones). When you can learn to spot and trade with these moves, you will find your stops tend to get hit less, and your full profit targets achieved.
One Final Note
It should always be noted, when a beginning trader looks at a trade, they see profit first, and risk second. A professional on the other hand, looks at controlling risk first, then profit second. So once you have a trade idea and potential entry, figure out your stop – which should be placed where the market should not go if you are correct.
From here, calculate your risk in pips, and then find a target which can be easily achieved with consistency. If the math works, then pull the trigger, and let the trade play out.
In Summary
Placing stops tends to be one of the more confusing things for beginning traders, as they are often placed too far or too close to your entry. By learning to place stops close to key support and resistance levels, you will find they are more well defended than it no-mans land.
Also, by placing stops based on what the market should not do if you are correct, then you will find your stops get hit a lot less.
Lastly, when trading with impulsive moves, you increase the probability your trade will be profitable since you are trading with the flow of the larger players.
To learn rule based systems for placing effective stops, limits, entries and exits – make sure to check out my Price Action Course.
Kind Regards,
Chris Capre

Forex Strategies, Trading Mindset & Risk Management

Trading Is Not A Fashion Contest

There seems to be some fascination with newer/beginning traders to find this perfect setup, this small set of circumstances that give price action the appearance of a great trade opportunity. You’ve probably heard about these patterns and setups before, often referred to as Pin Bars, Engulfing Bars, Inside Bars, etc.

Beginning traders become hypnotized, thinking these price action patterns are all you need learn to trade the market, as if trading were a fashion contest, and your goal is to find the best dressed setup.

The problem is, this is a really confined view as these patterns are more often the result of order flow – not the cause of it.

A Means, Not the Reason
These price action setups discussed above, are a means to get into the market, not the reason why you should be. And it’s often the case, they are the secondary reason why you should be entering the market.
The reason why you should be getting into the market, is because your understanding of the price action & order flow in the overall market, gives you an over-weighted picture as to a clear direction in the market.

This direction could be for 20 minutes, hours, or even days. The amount of time it will likely maintain that direction is not important. That the price action gives you an over-weighted picture of the direction IS!

And when this happens, there is a trade opportunity. If that opportunity offers you a good mathematical reward/risk play, then you should be trading it – not because of some picture perfect setup.

Trading is Not A Fashion Contest
How many times have you seen a picture perfect setup that completely failed? I’m willing to bet dozens of times, and if you trade long enough, hundreds or thousands of times.
Why is that?
Because trading is not a fashion contest where you are looking for the best dressed setup. Because price action setups can and will fail, which should communicate to you – not to become fascinated with finding the perfect price action setup.
What it should mean, is you want to develop your ability to read the overall picture of the market, understand the order flow behind it, learn to read the impulsive and corrective price action. Then, look for an over-weighted scenario. Once you find it, check the math to see if it’s favorable. If so, then take the trade.

Missing High Quality Signals
If you are always on the hunt for the perfect setup or trade, you will likely be completely missing high quality signals passing by right in front of you.
The greatest mistake of higher time frame traders is they often do not take great trades that are right in front of them, because they are waiting for the ‘perfect‘ setup – one that will hit them over the head.
The problem is in passing up these trades, they are also passing up high quality signals that offer a mathematical edge and profits.

Ironically, the greatest fallacy of intraday traders is they will often take trades that are not there, or not of high quality. Although it may seem like the former is better than the latter, both are the same!
The higher time frame trader makes a lot less profit because they pass up really high quality signals, looking for their perfect match.
Meanwhile, the intraday trader while often having more profits, generally has slightly more losses, because they are taking trades that are not there. Their upside is higher for executing their edge more, but the extra losses pull them back.
Thus, when you really see this clearly, these are two sides of the same coin! The trick is to find the balance and wisdom of the two, not to stay on one side of it. This is the knot of trading you have to untie.

A Fantasy World
Spending your time looking for the perfect setup is living in a fantasy world. It’s like looking for the perfect partner – how many people have you really met that have one? How many people have you met thought they found one, & were completely wrong? Food for thought – but trading is not a fashion contest, and it’s not about looking for the perfect setup.

Same Setup – Different Result
There are many times several of my price action traders spot the same exact setup, yet end up with completely different results.
How could that be?

Because they managed the trade differently. One took profits a little early (but still ended up profitable), while the other caught a huge portion of the move.
Although it may seem like this one trade may not mean much – it means a lot if its repeated.
When trader A encounters a series of losses (and you will, regardless of your strategy), their downside will be more severe and they will take more time to recover. However when trader B encounters the same downside period, their recovering will be faster, because they padded on more alpha to their trading account. For them, it only takes a few large wins to erase a lot of losses.
Keep in mind, they both spotted the ‘perfect price action setup‘, yet they both had different levels of profits.
What was the difference? In how they managed the trade.
This should be communicating to you, what is far more important than finding the ‘perfect’ price action setup, is learning how to manage the trade. And this really comes down to three things;
1) Understanding Risk Management
2) Learning to Read Price Action In Real Time
3) Managing Your Emotions/Mental State

Perhaps you can find the perfect setup, but fail to do the three above, & your perfect setup is powerless to deliver consistent profits. Bells should be going off in your head now about what you should be spending your time studying. It’s not how to spot a pin bar, or engulfing bar, or some other magical bar. It’s about setups, price action and context.
These pin bars, engulfing bars, or any bars are easy to find, and take little mental effort. The learning process for this should be short.
But the learning process for the three things I listed above prior, should be never-ending.
I understand why many of you have made this mistake. There are these so called ‘authorities‘ and ‘masters‘ (notice self-labeled as no peer will call them that), who claim you only need 3 of these ‘setups’ to understand the market. That these great setups only occur on higher time frames, that intraday price action trading is to be loathed, that accuracy and profitability has a linear relationship with time frames.
Ah yes, and don’t forget the three golden setups – how convenient! As if a market with over a million participants, composed of retail & institutional traders, hedge funds, banks/brokers, pension funds, HFTs, intraday traders, swing traders, long term position traders, etc. are all subdued by these overlords of price action patterns.
High quality signals occur on every time frame, and there are profitable traders across the world trading on almost every time frame. Intraday price action trading is not to be loathed – that is just a personal feeling of some, while a ATM machine for others.
Who is right? Neither – thus don’t hate intraday trading because it doesn’t work for you. The greatest mistake a trader can do, is to think their world and thoughts about reality – ARE REALITY! As if your wisdom and insight is so brilliant, so total, so complete, that it has a monopoly on the truth about trading.
Does that sound reasonable to you? Or does it seem more likely there are many ways to trade successfully, and the best way is what’s comfortable for you.
Just remember, what may be comfortable for you, may not be for another, and neither one individually is reality by itself.

Heed the wisdom of Obi-Wan Kenobi who once said, ‘Only a Sith sees in absolutes‘. Don’t be the Sith in trading, or follow a Sith.
Find wisdom in things, then find what is most comfortable for you, while constantly challenging yourself to take things to the next level. Rarely ever where you start this journey (both in trading and in life) is where you end up. Thus remember, trading is not a fashion contest, but it is about managing risk, your mental state, and learning how to read and trade price action in real time.

Forex Strategies, Price Action Trading

2 Price Action Tips For Beginning Traders

Today’s price action tip article is designed to give any beginning, or non-profitable trader, 2 critical tips to help accelerate your learning curve and avoid the pitfalls almost everyone falls into. If you can learn to follow these two beginner forex trading tips, then you will find yourself making more winning trades, along with less mistakes that tend to get you in trouble.

Trading is already hard enough, regardless of your level, so integrating these two tips will help you to make more winning trades.

Tip #1: Trade Only When The Price Action & Direction Is Clear
Although this may seem confusing for the beginner, as price action rarely seems clear, there is actually a simple model to determine whether the price action and direction is clear.

The model I use daily to determine the direction/clarity of the market is looking for impulsive price action moves. To briefly sum it up, impulsive price action is when the institutional players (those that move the market) are either heavily buying or heavily selling the market. You can spot these moves by three simple characteristics;

1) The bars are quite large

2) They are mostly one color

3) They have closes towards the highs or lows (in the direction of the move)

When you see these three things, you almost always have an impulsive move. And when you have an impulsive move, those that move the market are predominantly pushing it in one direction, which is the direction you want to trade with. When you can find the correct direction, and trade it, you give yourself the greatest probability of making money.

An example of some impulsive moves are below, and you will see when looking at the chart, you will definitely want to be trading in that direction.

Silver 4hr Chart

Looking at the chart above, you will see two colors of boxes; White and Green. If you look at all the white boxes above, you will all notice they have the three characteristics of impulsive moves described above.

Compare them to the green boxes – these have the opposite of the 3 characteristics of impulsive moves. These are called corrective moves, and for beginning traders, they should be avoided as a whole. When in doubt, if you do not have a clear market or impulsive moves, avoid trading.

Often times for beginning traders, finding the right direction is difficult, and it seems like you tend to find the opposite side of the move. By learning to only trade with impulsive moves and the price action is clear, you are saying to yourself, ‘I’m only going to fish when the easy fish are around’.

Tip #2: When Trend Trading – Best to Buy or Sell When the Prior Bar Closes in Your Direction
This is a general rule I suggest to use until you get really good at trading trends. The reason for this is simple;

a) If you are looking to buy in an uptrend, you have a greater chance of being correct when the last bar to close, closed bullish.
b) If you are looking to sell in a downtrend, you have the greater chance of being correct when the last bar to close, closed bearish

If you think about it – when looking to buy in an uptrend and the last bar closed bullish, it is a confirmation for the last candle (and time), the bulls were in control. This bullish close is more likely to inspire bulls the trend is still alive.

Contrast this to buying when the bears demonstrated control on the last bar. This means they dominated the order flow for that bar, and may be pushing against your orders. This increases the chance the bulls will take profit after seeing a bear bar as opposed to a bull bar (continuation).

However, if the bulls demonstrated control on the last bar, then they are likely still present pushing the market in your favor, so this gives you a greater probability to have follow through on your trade when you enter the market.

Two examples are below.

GBPJPY 4hr Chart

In this chart, we clearly have an uptrend, which offers a couple of with trend pullbacks. In these pullbacks, you will see two PBL’s (Pullback Lows), which led to a breakout of the prior SH (Swing High) for the trend. You will notice in both of them, the low for the pullback was a bull candle, and the follow up price action was a strong series of bull candles to follow.

Another example is in the chart below on the EURJPY 4hr Chart

In this chart, we have 3 major with trend pullbacks, and in two out of three of them, the PBL’s had a bull bar at the bottom, also demonstrating this principle. As a general rule, bulls will feel more confident buying a pullback (or breakout) in a trend, when the last bar closed bullish. This is a stronger communication the bulls have been able to take control of the price action and order flow for the last bar.

In Summary
Trading is already challenging enough, and finding the right direction is one of the most crucial aspects to making good trades. In the beginning, you already have enough to think about, so try to keep it simple, and trade when the direction is clear. Look for impulsive price action moves as much as possible, and when you find them, trade in that direction.

However, when the price action is not clear, try to stay out until a clear signal and market emerges.

When trend trading, you have a much better chance in the beginning, if you buy/sell when the last bar closes in your direction. This closing in your direction is a clearer communication from the market, the bulls/bears are more likely in control, and in your favor.

I hope these two beginner forex trading tips help you.

To learn more price action techniques and systems, make sure to check out my price action course where I have a large community of traders, posting live trade setups daily, and I teach them how to read and trade price action.

Forex Strategies, Trading Mindset & Risk Management

Developing A Successful Forex Trading Mindset Pt. 2

In my previous article Developing A Successful Forex Mindset Pt. 1, I discussed how your trading mindset is essentially a product of three things;

1) Your Neuro-Physiological Wiring

2) Your Mindset of Level of Mindfulness

3) Your Psychological Conditioning

I focused specifically on how your Neuro-Physiological Wiring, specifically how your mind and brain are integrated and help in your development as a forex trader.

I also talked about the three main fundamental functions of your brain (regulation, learning, selection) and how these mental functions are critical for building a successful forex trader mindset.

Today I’ll focus on number two from above – how your level of mindfulness helps to build your trading mindset – gearing it towards success or failure.

Your Level Of Mindfulness
As a general definition of mindfulness in trading, your mindfulness equates to the degree of awareness and attention to both your inner and outer worlds. Although this is particularly critical during the trading process (including just before and after), it is also connected to your mental activity and thoughts separate from trading.

Why?

This is because there is no compartmentalized section of your brain just for forex trading. We didn’t evolve to be forex traders sitting in front of a computer for our survival, so we are using skills and neurons from all portions of your brain. Because the brain is an interconnected whole, our experiences in life around wealth, mindset of abundance, family, memory, fear, greed, confidence, and more, all effect our trading mindset, and thus – how we make trading decisions in the moment.

Particularly true for trading (but also in life), your brain learns primarily from what you attend to in the moment. In an ode to Star Wars fans, Qui-Gon Jinn once stated, ‘your focus determines your reality‘. Thus, since your mind essentially learns from what you focus on in the moment, your level of mindfulness is the gateway to taking in helpful information (and avoiding non-useful info). How you perceive information (internally and externally) via your level of mindfulness, is what facilitates your learning process and thus trading mindset.

30-80x a Second
I’m going to be sharing a few ways you can build your level of mindfulness to sharpen your mental faculties, but wanted to briefly mention the potency of mindfulness practice.

In a study in 2004 by Lutz et al., he examined various Tibetan meditators as they went deep into their meditation and he found something highly impressive. Lutz noticed these meditators produced an uncommonly level of powerful and pervasive brainwaves, whereby unusually large regions of neural connections were pulsing in a ballet like synchrony. These large regions of neural connections pulsed at 30-80x a second allowing them to unify large territories of the mind.

Part of Einstein’s incredible mental faculties were his ability to involve large regions of his brains to work together via the cerebral cortex. His level of activity and connection (or higher) has also been found in those meditators who have build up their level of mindfulness via a sitting meditation practice. So a genius level IQ or mental abilities, along with highly perceptive qualities are not reserved for people born with these gifts.

Like all things in the mind, they can be learned and developed, particularly through mindfulness practices.

Mindfulness & Wisdom in Trading
As a whole, trading wisdom and mindfulness is not your ability to spot price action patterns in the charts, or understand proper risk management. Trading wisdom and mindfulness comes from a few steps;

1) Understanding what hurts and helps your trading process

2) Based on this understanding and experience, letting go of those habits which hurt your trading process

3) And strengthening those that help move your trading forward

As a whole, mindfulness and wisdom in trading are supported by the three basic functions I mentioned in the last article (regulation, learning and selection). Your brain learns through forming new circuits, strengthening new ones and weakening others. It selects through experience what is valuable and what is not.

Mindfulness in turn leads to new (and accelerated) learning, since your attention shapes what neural circuits are built. Regulation is done through a combination of excitatory and inhibitory activity. Thus, by learning to improve these three processes, you will improve your neural functions, and thus improve your trading mindset.

Two Methods For Building Mindfulness
Although there are dozens of methods to help you build mindfulness which will flood into your trading, I will talk about the two that I have practiced for over 12 years now; Yoga & Meditation

Over a few thousand years old, Yoga has hundreds and hundreds of scientifically proven benefits, such as reducing fat, increasing muscle tone, improving digestion, enhancing your sex life, glandular function, and relaxing your central nervous system (or CNS).

Your CNS regulates an enormous amount of activity from motor to mental activity to breathing. Are you mouth breathing rapidly? If so, you are likely to be more excited, emotional and less relaxed/focused during trading. Yoga is a great practice to help build both a relaxed CNS, but also to build awareness, both physical and mental.

To really do yoga well, you have to maintain awareness of your entire body, and control your internal energy. Any inability to do this will manifest in your yoga practice. Don’t believe me, try and do a balancing pose (like tree pose) and see how long you can hold it? I’m willing to bet almost any experienced yoga instructor can hold it for much longer than you. How so? Through a greater ability to relax their body, mind while maintaining awareness.

Thus, Yoga is a fantastic option for building mindfulness as that is the root of all yoga practice.

Meditation is another alternative, particularly silent sitting, sometimes known as vipassana, shi-ne, zazen or many other names. More than likely there is a center around you that offers a silent sitting practice, but those who engage this practice fully not only notice mindfulness benefits, but greater clarity, happiness and without a doubt – better neural functioning.

The general goal of any silent sitting practice is to build your mindfulness and awareness in the moment.

Many people wonder how I became a successful trader being self-taught. I am unlikely smarter than many of those I teach. Nor did I take a single economics or business class in college. But one edge I had for sure, was my yoga and meditation practice over the last 12 years.

This helped accelerate my learning curve as I figured out much quicker what to focus on, what price action setups were high probability, how to build my trading skills and trading mindset to be successful. If there was one key edge between me and others, it would be this, and the benefits continue ad infinitum – probably the best investment and ROI I could have ever come across in my life.

Regardless, these are a few options for building a successful trading mindset and your mindfulness in trading.

In Closing
Your mindset, brain and mental activity is what forms your trading mindset, and thus – determines your level of success. Mindfulness in trading equates to the degree of awareness and attention to both your inner and outer worlds. This would mean your emotions, your level of relaxation or excitation, your ability to focus in the moment and detect the order flow in the market, along with how your mental activity is helping or hurting your trading decisions.

Mindfulness increases your learning process by focusing on what is beneficial and profitable for your trading process, while avoiding what sets you backward.

Two practices you can engage in to build your mindfulness are yoga and meditation, which will sharpen your focus and mental activity so you get more out of your brain and mind when trading.

This is part two of the three part series on Developing A Successful Trading Mindset, so stay tuned for the last edition soon. But I hope this gives you some ideas of looking beyond the strategy to what may be keeping profits and success in trading just out of reach.

Kind Regards,
Chris Capre

Forex Strategies, Trading Mindset & Risk Management

Setting Trading Goals for 2013

Now that 2012 is wrapping up for traders, I’m guessing many of you (like myself) are dying to get into the new year of trading. During this time, it is a fantastic opportunity to reflect upon what successes you had last year, but also what you need to work on.
A common practice and tradition for people before the new year is to set goals or what some refer to as ‘resolutions‘. Did you know that over 80% of all New Years resolutions around losing weight or getting into shape fail? Similarly for traders, virtually the same amount of profitable accounts last year (avg. 28%) is virtually identical to the year before (avg. 26%).
Yet I’m willing to bet most of you made trading resolutions last year that were all designed to help you become successful. Being that around the same amount are, it’s safe to say these ‘resolutions’ failed, so why do you think that is?
The key is around setting proper goals, for if they are done incorrectly, you will move forward without a real plan of action, just attacking the charts hunting for profits and intraday price action setups, but no real progress towards your trading.
This article is designed to share with you an easy 5 step strategy for setting proper trading goals in 2013. This is so you can make the significant changes to your trading you feel is possible.

Step 1 – Make Your Goals Specific
If a goal is not specific, there is no way to focus on it, or take specific actions to achieve it. Your efforts become dis-coordinated towards achieving your goal, and your energy never drives home any specific change. Stating to yourself;
“I will stick with my trading method“ is too general and not specific enough.
Sure, your method may be to trade price action, or the ichimoku cloud, but that is too vague. Does this mean one system or many? Does this address risk parameters? No. Does it address the specific rules of your system? No.
You have to be specific with your goals, otherwise your efforts will be scattered and ineffective.
Although the most common goals will be numbers oriented, try to avoid these typical ones below;
I want to make a 100% gain on my account
I want to make 10% profit a month
I want to make 500 pips per month
Why?
Because you cannot know what the market will bring. You may have a goal of 20 pips per day, but what if the market is offering you 100 pips on your price action setup? Why would you not take what is offered?
Consequently, the market may have low liquidity and be in a super small 15 pip range, perhaps waiting for a big announcement. So why try and force more out of the market then what it is offering?
Focusing on performance means you may sacrifice technique to get there, and this leads to bad habits in trading which will cause greater losses down the line.
Instead, set some clear ‘process‘ oriented goals which focus on technique instead of result. If you do the technique correct, and trade following your rule based system, then you trade the system as is, and build positive habits towards trading successfully. I always suggest – focus on doing the technique correctly, and the money will come.
Some examples are;

-I will execute proper risk management targeting minimally 2x my risk on every trade
-I will stay in a winning position until my system gives me an exit signal
-I will spend 30 minutes each day preparing for my trading day, and 30 minutes reviewing my trading day
Not only are these ‘process‘ oriented goals which build positive behaviors to improve your trading, but they are specific. Instead of saying, ‘I will use ‘better‘ risk management techniques‘, they state specifically what they are. ‘Better‘ is ambiguous and hard to define, so how do you know if you achieved the goal?
Specific goals (both small and big) are critical because you direct your efforts in a specific direction where the goal is clear. Each smaller goal is simply a step on the path to a larger goal and gets you that much closer.

Step 2 – Goals Need to Be Measurable
Along the lines of goals being specific, they also need to be measurable. For example, maybe for the last year, across all your trades, you achieved a 1.5:1 reward-risk ratio for all your winners. Well, with the goal of having a 2x reward-risk ratio, this is something you can measure.
You can also challenge yourself by adding a time value beyond ‘for the year 2013‘. An example would be;

By March 1st, I will targeting nothing smaller than 2x my risk

or
By March 1st, over half of my trades winners will be 2x my risk, and the other half no less than 1.5x my risk
You may accomplish these goals earlier, but by having a goal be ‘measurable‘, it becomes a measurable indicator directly related to your goal, which will provide you with clear results and a feedback loop which communicates how you are doing, and what specifically you need to work on. You can even get specific by making smaller measurable goals which are just one step on the way up towards your bigger goals.

Step 3 – Make Your Goal Attainable
Ask yourself, ‘is your goal attainable?‘ Saying you want to achieve 70% accuracy with all your trades may be difficult if you’ve never had a year (or even month) above 50%.
The questions you have to ask yourself ‘Am I prepared, capable and have all the tools needed to achieve my goals?‘
Maybe you do not even have a rule based price action system with an edge to begin with. So how can you say you want to achieve 70% accuracy when you a) do not even have a system and b) have not tested your system on demo or live to see how it performs?
Perhaps one of your goals is to write in your trading journal every day. Well, ask yourself – do you even have a trading journal?
First figure out what you need to achieve your goals, then determine whether you have everything you need or not. A goal must be attainable, but only if you have the right tools in place.

Step 4 – Make Your Goal Realistic
It is easy to make a goal, just like it is easy to make a new years resolution. But setting a realistic goal is a completely different thing. Just like a goal needs to be attainable, having a realistic goal keeps you honest about where you are and what is workable to you without putting undue stress on yourself.

For example, using the goal, ‘I will spend 30 minutes every day preparing for my trading day‘, what if you work 9 to 5, and your trading day starts at 5:30? Maybe it takes you 15 minutes just to get home, so spending 30 minutes preparing for your trading day may not be realistic if you need to be trading at 5:30 when your price action setups form.
This is the failure of many exercise or weight goals. Saying you want to lose 50lbs in 3 months is one thing, but maybe it would be unhealthy for you to lose that much weight so quickly.
The same is for trading – make your goal realistic. If you are going to make your goal a performance number, like 1000 pips per month, yet you’ve never made over 200 pips, you may be setting yourself up for failure and disappointment which will have a negative psychological impact on your trading.
Thus, find a goal that is achievable, but will force you to work and stretch your current abilities.

Step 5 – Make Your Goal Timely
Obviously you will start working on these new goals beginning the new year, but what is your deadline or finish line? Would you ever join a race if you had no idea how far you had to run? Of course not. Thus, not having a finish line for achieving your goals can cause your motivation to wane, or discipline to slip by taking breaks from working on your goals consistently.
Remember, the finish line is not just an ending you are moving towards passing. It is a guide on how to manage and use your time and effort. Most traders fail to manage their time effectively, both in front of the screen (trading, analyzing the market for setups), and away from their screen (reviewing trade journal, analyzing performance/stats).
It is common to think ‘next week, or next month I will use proper risk management, or write in my trade journal‘. How many times have you said this to yourself, and how many times have you not hit your goals on time?
The difference between successful people and those who are not, is successful people know how to manage their time well, set small goals that lead to the larger goal, and constantly make progress towards them. By knocking down the smaller goals, it makes the larger goal seem much more possible.

Each step you take should have a finish line for achieving your goals, so you know how to effectively manage your time and build towards your new heights.

In Summary
Creating resolutions and goals at first seem simple and straightforward, especially if they are just done in your head. But you’ve committed to becoming a successful trader.
You’ve spent money, time, and made many sacrifices to complete the journey. Why waste that time and effort to fall short and not get the financial freedom you want? Why spend so many hours and dollars to not get a return on your investment which is the the best kind of all – independence for both money and time?
Thus, make sure you know what you need to achieve your goals, that they are specific, measurable, attainable, realistic and timely.
I always suggest starting off asking, ‘What Do I Need To Trade Successfully‘. This is a critical step towards achieving any goal. But once you’ve asked these questions, then you know what you need to do and where to go. Now you just need a map and to set your goals for getting there.
Maybe you want to achieve your goals in a few months, a year, or maybe a few years. Regardless, you need a map, and clear goals/steps to get there, so make sure to make your plans and goals workable by following the five steps above. Doing so is the fastest way to reaching your goals and crossing the finish line.

Thus in 2013 accept the challenge to become a successful trader by working with a trading mentor, study a rule based system, do the work, and enjoy the rewards as they are more than worth it.
I’d like to end with a quote that was inspiring for me in my early years of trading from Hannah Moore:
“Obstacles are those frightful things when you take your eyes off your goals”
Kind Regards,
Chris Capre
Make sure to out my latest trading articles:
My Top Trading Mistakes for 2012
Developing a Successful Forex Trading Mindset Pt. 1
The Ideal Trader

Forex Strategies, Price Action Trading

My Top Trading Mistakes for 2012

The learning process never ends for a trader. The market is always evolving and you have to adapt. Algorithmic trading was about 3% of the FX market in 04′. Now 28% of it is just HFT’s alone! Think that has changed the intraday price action? Absolutely!
Thus, you must always be learning, evolving and challenging yourself. There are always refinements and greater depths to what you are doing, whether you are trading price action, ichimoku or other rule based systems.
Regardless of your skill level in trading, you are going to make mistakes. I make mistakes, but I learn from them with alacrity. I quickly analyze what I did wrong, visualize what I would do differently, clear my mindset and get back to business. The difference between a professional & beginning trader is usually two-fold;
1) they make less of the typical mistakes beginners do
and
2) they rebound much faster, control the damage quicker and get back to business
Analyze your last year of trading in your journal. I’m willing to bet if you eliminated just one or two mistakes you continually repeat, your current losing year would have been a profitable one. If you ended the year break-even, then it likely would have been highly profitable.
Eliminating mistakes is one of the fastest ways to profitability. The sooner you discover, eliminate and transform them, the faster your equity curve will climb.
Thus, in the spirit of this, I will share my top trading mistakes for 2012 in the hopes you can learn from them.
1) Trading and Investing are Two Different Things
I am a trader first and foremost, but I also am invested long term in physical gold.
To ‘invest’ in physical gold, you constantly have to understand what is happening in the physical AND paper market. It helps to study central bank buying of gold, physical supply, how it is used as a safe haven against bad governments, etc.
However, I also trade gold using intraday price action strategies, and sometimes my methods/opinions on one get mixed with another. Long term I am a bull on gold, and have been since 2004/05 back at the $400 levels.
Many times in the last 3 months, I was long paper gold. Yet intraday price action would be screaming for me to get short. My broker allows hedging – so why wasn’t I shorting physical? Because my long term investing bias was interfering with my short term trading methods.
One of my top trading mistakes for 2012 was forgetting that I am a trader first and foremost, and to not let my bullish bias or investing strategies interfere with an obvious price action setup.
A good example is I bought paper gold at $1633, which I blogged about as a high probability breakout. At one point I was up 51x my risk, meaning for the 300 pips I was risking, I was up about 15200 pips.
By the time I walked away from the trade, I was only up 6500 pips. I didn’t follow exit rules because of my long term investment bias.
Remember, a trader and investor are two different things, and you must understand the difference.
2) Trading Against Impulsive Price Action
One of the base models I use for trading is understanding impulsive and corrective price action.
To sum it up briefly, impulsive price action moves are when the institutional market is heavily buying or selling and driving the price action directionally. With training and practice, you can learn to read the order flow behind price action, particularly by identifying these impulsive price action moves.
A few times this year I traded completely against these moves. Case in point – meet exhibit A, ironically on……wait for it……Gold!
Gold 4hr Charts

Looking at the chart above, you will notice on the bottom left points A and B which showed strong price action rejections. Buyers stepped in at this level, driving prices almost $50 higher in about 6 days.
At C you will notice the pin bar at C which was the second sign the bullish move was ending. Any idea what the first was?
Regardless, after the pin bar, price action failed to make a HH (higher high) and started with selling off impulsively at D, then more sellers came in at E, and by F, once it broke the role reversal level, price got monkey-hammered dropping $30 in 4 hours.
I had a buy order at the support level at G, so made some profit on the bounce, but missed the fact the market was still showing impulsive price action selling.
So at H what did I do? I bought some again, hoping for a similar move. The result is below, but you get the idea.
Gold 4hr Chart Exhibit B

At the support level where my first long worked out, I went long again at H and the same level. Shortly after I was stopped out.
Instead of realizing I was trading against the trend and impulsive price action, I was looking for a reversal. I consequently missed the obvious breakout pullback setup at the same level I was looking to get long, which then became a role reversal level. This is what happens when you trade against the trend and your system.
Not only do you miss several good with trend setups, but after you get stopped out, you usually miss the follow up trade from your price action system to take advantage of the move.
3) Let Your Trade Run Until Your System Tells You To Exit
Barring any extreme or black swan event, I usually just let my trade run until my rule based system tells me to exit.
However on a recent buy on the GBPJPY, after getting a great entry and banking about +300 pips, I exited the trade, even though my system was still telling me to hold long and hadn’t given an exit signal.
Looking at the chart below, you can see on the top left at B a critical resistance level which started the massive 300 pip sell off.

Price started to show signs of exhaustion, and started a reversal. My ichimoku strategy picked up a buy order just above 126.60. Shortly after, price climbed rapidly gunning it for the same resistance level at 129.50. After the weekend gap rejected, I took profit banking about +300 pips.
Not so bad you say…until you look at the chart below.

Not only did my system hold on for another + 300 pips, but it gave me a re-buy signal around 132 and is still currently long today. I missed that one as well from being ‘upset’ about exiting early. Needless to say this would have over tripled my profits. Even though my system never gave me an exit, I got out of the position.
Not letting runners run is one of the most costly mistakes a trader can make. Yes, it is important to understand what is a high quality signal, but I’m guessing if you let just 10 of your trades run until the system gave you an exit, you would have made almost double your profits on those 10 trades. For me, it was actually 2.4x more. Food for thought.
In Closing
Part of trading is making mistakes, but a key component of your success is learning from your mistakes and making less of them over time. Regardless of your skill level or how long you have been trading, you will make mistakes. Anyone who only posts their successes and doesn’t admit to their failures is hiding behind a wall of fear and a false reality.
I make mistakes and I’ve been doing this for 12 years. But I learn from them continually and make less of them as time goes on. This translates into more profits, smaller drawdowns, less emotions, and a smoother equity curve.
Eliminating mistakes is the fastest path to making more profits. But the first step is becoming aware of them. This is where the trading journal comes in handy. If you’ve made 300 trades last year, are you really going to remember every mistake you ever made? Unlikely, this is why you have a journal, to help you become aware of your mistakes.
The second step is to actively work on eliminating and transforming them. If you repeat a mistake over and over again, then the cause is likely psychologically, and something that can be re-wired through ERT training and developing a successful trader mindset.
But the bottom line is you can transform your mistakes into strengths, and most definitely into greater profits. In almost all cases, making less mistakes can be the difference between a winning and losing day, month or year. And in almost all cases – will lead to significantly greater profits.
Kind Regards,
Chris Capre

Trading & Thinking in Probabilities

What You Need to Do to Make Money Trading (Part 2)

What You Need to Do to Make Money Trading (Part 1)

End of The Trading Week – What Are You Doing?

2 Tips for Placing Highly Effective Stops

Trading Is Not A Fashion Contest

2 Price Action Tips For Beginning Traders

Developing A Successful Forex Trading Mindset Pt. 2

Setting Trading Goals for 2013

My Top Trading Mistakes for 2012

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