Forex Strategies – Page 14 – 2nd Skies Trading

How Many Patterns Do You See Here? A Forex Trading Quiz

I have been working really hard lately on my upcoming book ‘Trading Price Action‘ which I am seriously looking forward to finish and deliver to the world at large. Currently I am dissecting a chapter on pattern recognition and came across this interesting chart. In trading, we often look for fixed patterns we are trained to see, such as;

Inside Bars
Pinbars
Outside Bars
etc.

Although this has its benefits to spotting key formations in the market which can lead to good price action setups, we can actually get stuck into a routine of just looking for patterns with relatively fixed variables. This can actually hinder our overall pattern recognition skills to spot newer patterns and this is one of the most important skill sets of a trader – pattern recognition.

I have talked about methods to build this pattern recognition ability, such as brain gyms, like Lumosity as a way to build up the neural connections and spot patterns more easily in the market as one method. Another is going back and looking at historical price action, and in I thought this would be a good exercise for you to work on a particular chart I am writing about in my book.

The Exercise

First off, you will need a watch or a something that keeps track of time as you will want to time yourself on this. If your phone has it, set the stopwatch feature whereby you hit go, and it starts counting the time. For this forex pattern recognition quiz you will also need either a sheet of paper and pen, or a word document open to type your answers.

What you are going to do is for the next several minutes (as much as you need) look at the chart below and tell me what patterns you see in the market. Not what kind of bars you see, (pinbar, inside bar, etc.) as that does not take too much skill and is something that can be easily learned. Practicing something that is easily learned does not breed new neural connections which is what we want to do here.

What you are looking for is patterns in the price action behavior, what do you notice about the price action, what patterns are you seeing that repeat themselves. There are actual behaviors in this chart you are about to see that repeat themselves. This is what you are looking for – patterns in the behavior. They can be of any kind, but ideally, the ones you find that are most useful for trading.

Remember, if something happens once – its an occurrence. If it happens twice – its a pattern. If it happens three times, its a program derived from minimally one pattern. So what you are looking for is anything that repeats itself 2x or more. Thus, take as much time as you need.

Write down or type all the patterns you can find in this chart. I am going to cover up the name of the pair, and the dates, but I will tell you what the time frame (1hr chart). There is one line on the chart which is a 20ema which can be used if you so wish in your discoveries.

Keep in mind, I have gone back anytime in the last 30yrs to find this chart, so even though the prices may seem like they offer a hint, there are a lot more possibilities of pairs that had these prices so try not to think about the pair. You are just looking for patterns in the price action behavior.

With that being said, get your stopwatch, pen/paper or word document open. As soon as you begin, start your stopwatch and begin to write or type as many patterns as you can see. Once you are done, then mark down the time as you will need this later.

Ready? Begin with the chart below.

Ok, now that you are done, make sure to write down the time and how long it took you to find all the patterns that you did.

The next step is to look at all the patterns and price action behaviors, then come up with a few strategies based on what you noticed. This is because I am going to show you the very next candle in the chart, and if you really did a good job at isolating some key patterns, you probably have at least one strategy for the next candle (regardless of what it is).

Once you see the following chart with the next candle in this series, the go back to your list of strategies, and decide what you think is the most appropriate for the new candle. Make sure you have written all the rules for the strategy, such as your entry, stop and limit. Position sizing is not important – just that you can isolate a pattern, make a trading strategy off this, then apply it on the next candle.

Ok, so you should have all your strategies and rules in place for taking (or not taking) a trade on the next candle, which you will see in the chart below.

So this is the chart one bar later. To make it a little easier for you to make a decision, I have decided to provide the data on the last blue candle with the black dot above it which has the following pieces of data;

Open: .8275
High: .8285
Low: .8260
Close: .8280

One more piece of data, the low on the red candle prior was .8259.

So armed with all that data, along with all the patterns you recognized in the price action, and with the strategies you came up with, take a moment to figure out what is the best strategy to trade this blue candle. You can either decide to;

a) trade this blue candle
or
b) not trade this blue candle

If you decide to do A and trade this blue candle, then what you are going to do is decide what is the best strategy to trade it. This means having all the rules for entry, along with placing your stop and limit. Now here is the kicker;
Whatever strategy you use, has to be out of the position in 3 candles.

Why?

Because these are the last 3 candles for the week, and the market will close for the weekend which is also a holiday weekend and there is a G20 meeting which will have a major impact on the market.

So, that is the challenge. Come up with a strategy that you think is best to trade this pair now that the blue candle is closed. You have to be out of it in three candles so you can be out for the holiday weekend, hopefully in profit with a smile on your face.

With that being said, I am going to post the next three candles tomorrow on the following page around this same time;
https://dev2ndskies.wpengine.com/strategies-for-forex-trading/forex-signals/

You will want to look for the post which will be called ‘Forex Trade Signals and Setups Feb. 21st‘

In this post I will provide the chart with the next three candles, and then you can compare how your strategy did and share with me what your strategy was, rules for entry, stop and limit, and what the final result was.

What I am going to do is share with you my strategy, what patterns I isolated to come up with it, and how it played out. I will give you a few details ahead of time, but want to explain the background to this challenge:

I came to this chart as I was doing some practice through my charting program, which will take any pair, hide the dates, the actual pair, change the numbers on the prices, but will correlate them to the real historical price at that point in time.

Then what it does is challenge you to trade that chart in that point in time bar by bar. If you want to trade at the end of the bar, you do, if not, you don’t. It does a very good job at giving you real practice in reading price action because you are trading bars as they come in real time, just like real trading.

Sure, its not real money, but the point is to learn to find patterns in the price action which is a great exercise to do, especially when the market is closed on the weekends.

Now here are some points I’d like to share;
1) When I started looking at this chart, in < 1 min, I was able to isolate 4 key patterns, even though there were many more
2) from these 4 key patterns, in < 1 min, I was able to come up with a trading strategy for the next bar if it had certain characteristics
3) with this new blue bar, I was able to trade it having a R:R ratio of 3:1 based on the strategy I came up with

And I will leave you with that for now. So make sure to come back tomorrow to the link I shared above, to see the next 3 bars, and how your strategy did. Then make sure to leave a comment how your strategy did, what was the entry, stop and limit, or if you didn’t trade at all.

Remember, there are no points for cheating, so only honesty here. It really does nothing for your trading process if you are;
a) not honest, and
b) only try to inflate your ego by looking cool on this post

Remember, in a week or two from now, this post will rarely be seen, and nobody will really care how you did so skip the ego part of trying to look cool, and just be honest with what you did and how it played out.

The whole point of this forex pattern recognition quiz is to be an exercise whereby you;
a) test your pattern recognition skills
b) see how quickly you can come up with the patterns
c) see how quickly you can formulate a strategy (or strategies) based on the patterns you noticed in the price action

This is about as close to what you are doing in real trading – spotting patterns, finding opportunities, and trading the right edge of the charts as they come to you, bar by bar. You have to make decisions based on what you see and what you think will happen.

But in reality, nobody knows what will happen with the next bar – and that is the friction we all love (or dislike) in trading. Its the mystery, of what will come next, of not knowing, but seeing if we can find the answer ahead of time by being a detective and looking at all the available clues. Some of us are closer to Sherlock Holmes, and others are closer to Inspector Clouseau.
Regardless of where you are at, the mind has a neuro-plasticity to it which means you can learn to be an expert in spotting patterns and key price action clues from charts just like these. In an article I will write on this Thursday, I will discuss some key things you can do to improve your learning process, so you can enhance your pattern recognition skills, along with tailoring your educational process to help accelerate your learning curve to trade profitably and successfully.

I look forward to your responses tomorrow.

Kind Regards,
Chris Capre
Twitter; 2ndSkiesForex

If you liked this article, make sure to click the ‘Like’ button at the top of this article 🙂

And also check out my latest article called Ode to the 4hr Charts whereby I share an entire years trading report of one my students and how they made 110% in year, just from learning two of my strategies.

Ode To The 4hr Charts…

I want to share with you some results and tell me if you think these would be considered professional grade, or highly impressive to say the least;
110% gain for 2011
124 Trades, 74 winners, 50 Losses
59.67% Accuracy Rate
Largest Win: $14,360
Largest Loss: $8,180
Max Win = 43% larger than Max Loss
Max Consec. Wins: 16
Max Consec. Losses: 6
Max Consec. Win Streak 2.66x Larger Than Max. Consec. Loss Streak
Largest Trading Position: 1M
Overall, this could make the grade for a professional trader. In fact, I know many that did worse (a lot worse) then him and would be happy with his results.
The 4hr Charts
There has been a lot of talk and garbage being spoken about trading off the 4hr charts, how its trading as a hobby, how you’ll only be an amateur, how if you want to be a professional trader, you need to trade off the 1m, 5min, 15m, smaller time frames. Ridiculous, but we are going to demonstrate why.
I’ve been wanting to show people the power of trading the 4hr time frames for a while. Although I have many students doing it, nobody is solely trading off the 4hr. They usually add the daily, or 1hr and have a mix of time frames and systems. In comes Tony.
Do you remember Tony? I wrote about him in the Pyramid of Trading article whereby I talked about him back in early Oct. At that time he was up 76%, and ended the year up 110%. Meaning, he gained another 34% in the last three months – impressive to say the least.
Tony had one thing going for him which was the best edge one could have – discipline. Tony had very little experience, no business/finance degree, just a desire to learn, patience and discipline. He came to me in late 2009 wanting to take some private mentoring sessions.
I taught him less than a handful of systems which he learned well and practiced on in 2010. By the end of the year, he settled on his two favorites:
Price Action
& my Shadow System.
He learned his risk parameters, his style, how he wanted to trade, what was the best pair for him, then went for it. He settled on trading the AUDUSD only on the 4hr time frames using those two (Price Action & the Shadow System).
I am going to show you his entire trading report, which averages about 10-12 trades a month with the max being 16 and the least being about 8. You already have the stats above so lets show you the entire trade history for 2011. I have covered his personal details and acct number to protect his privacy, but all the trading is there which you can see below.
Screenshot 1

Screenshot 2

Screenshot 3

Screenshot 4

Screenshot 5

Screenshot 6

So there you have it, an entire year of trading. To recap his performance;
110% gain for 2011
124 Trades, 74 winners, 50 Losses
59.67% Accuracy Rate
Largest Win: $14,360
Largest Loss: $8,180
Max Win = 43% larger than Max Loss
Max Consec. Wins: 16
Max Consec. Losses: 6
Largest Trading Position: 1M
This should finally put to rest the ridiculous talk and idea you only have to trade one time frame or smaller time frames to be a professional or highly successful trader.
All of this is thanks to Tony for sharing his results with me. He traded only on the 4hr time frame for an entire year. A lot of his trades were done in a day, but many went a few days, with several going 4-6 days holding time. All he traded was Price Action and my Shadow System on one pair for an entire year. Disciplined, patient, and highly profitable.
How many educators show results from their students, especially of this caliber? I believe I am one of the few, and Tony will not be the last. Maybe the next person is you – hopefully it is.
To also separate myself and end the debate, at the end of this year, I’ll show you audited results from an account I opened up just to demonstrate I am not just a good teacher, but a good trader as well. I will publish the audited results from a professional accounting firm, on my site so you can all see I am the real deal.
I have no idea how i’ll end up for the year, but whatever it is, you will see it. Even though my fund has an 8+yr audited track record (which should be proof enough), this will settle it, as it will only be my trading, only me pushing buttons, not anyone from my trading team, or any account from my fund. Just my own individual account opened just for this. This should end the debate. Hopefully then I can stop answering questions about my legitimacy, focus on trading, and teaching people who are serious about learning to trade successfully.
There are 3 things I live and breathe every day and have been for over the last 10yrs;
Yoga
Meditation
Forex Trading
I make my living and have been for almost a decade from trading. I study it every day and every moment I can get a chance. The only thing that is right up there with the three things I listed above is Teaching People to Become Successful Traders. I’ve seen every kind of trader you can imagine (from time frame to profitability), and there is no one person who holds the monopoly on the truth of trading and the learning process.
And to the rest of you with open minds and a serious desire to learn, this demonstrates you can be a profitable and highly successful trader, regardless of your time frame, system or background. With the right effort, discipline, and patience, you can be a profitable and successful trader as well.
Ode to the 4hr Charts and profitable trading.
Kind Regards,
Chris Capre
2ndSkiesForex.com
Twitter; 2ndSkiesForex

Forex Strategies, Trading Mindset & Risk Management

Your Brain, Trading and Finding ‘The Zone’

What It Takes to Become A Master
Ever heard of the name Anders Ericsson? Perhaps not, but i’m guessing you heard of the name Malcolm Gladwell, author of the bestselling books Blink and Outliers. Gladwell in his last book Outliers was trying to figure out what separates highly successful people from the rest in any field. In it, he discussed the 10k hour rule, which was actually from the research of Anders Ericsson at Florida State University.
Anders conducted a critical research project whereby he found it normally takes 10,000 hours of practice at a skill to become an expert in any discipline. During this time, your central nervous system will string together new circuits and connections that eventually give you the tools and abilities to execute your skill with mastery. Ironically, he also found it was done without a conscious consideration of the action – the athlete or performer was just doing.

zen like concentration 2ndskiesforex

What he discovered in his research was a Zen-like intense concentration, whereby the experts completely focused on the activity. It was in these moments that the experts in their field were achieving peak performance by entering a state called ‘the flow‘, originally characterized by Csikszentmihalyi in the 1970’s.
10,000hrs to Become an Expert Trader?
I know, many of you are saying, ‘10,000 hours would take me years, perhaps a decade to get to that‘. In response to that, I have a few questions;
-What if you could accelerate your learning curve and learn how to enter that state before 10,000 hours?
-What if you could enter that state every day while trading?
-What do you think this would do to your trading?
-Would you put in the effort to develop this?
We are going to talk about what you can do to leap-frog the 10,000hr process in this article and take years of your learning curve.
Before we talk about what you need to do to enter the state of flow and effortless concentration, we are going to discuss the four key features that characterize the state of flow. They are;
1) An intense and focused absorption that makes you lose all sense of time
2) Autotelicity – a sense that the activity you are engaging in is rewarding for its own sake
3) The ‘Sweet Spot’ – this is where the task at hand in relationship to your skills are perfectly matched
4) Automaticity – the ability to do something automatically
Let’s get into each one and see how we can relate them to trading. Then we will talk about what you can do to shortcut this process and decrease the number of hours you need to be studying charts to become an expert in reading the charts.

#1 An Intense and Focused Absorption

One would almost think this would be enough to enter that flow, but all four are required to enter this zen-like state in trading. If you train in yoga and meditation consistently day in day out, then this will come a lot more naturally because you are already practicing the craft of focus and concentration. But if you are not, many things will come into play and affect your concentration.
For example;
-Did you have an argument with your partner, spouse or child lately?
-Did you completely process everything from yesterday and are totally present with what you are doing today?
-Did you wake up and properly stimulate your central nervous system to be prepared for your trading day?
-Are you still focused on a recent loss or mistake?
-Did you drink coffee earlier that morning, or alcohol the night before?
-Are you taking phone calls or talking with others while trading?
-Are you checking email or watching TV during the trading session?
If you answered yes to any of these, it’s highly likely your mind is not 100% absorbed in the markets as they will all inhibit your ability to concentrate.
But lets say you have not had any of these come up. Do you really think you are totally focused and absorbed in concentration? If so, then take a simple test:
Sit in a chair with your spine upright, in a very relaxed and quiet room, no music or tv or anything going on, just you sitting in a chair with your eyes gently focused forward, and try to concentrate solely on your breath. Just follow the inhales and exhales completely. Try and see if you can follow 20 breaths (one inhale and exhale = one breath) without having a single thought other than your breath. Try and see if you can follow them so perfectly you are never once taken off the focus of your breath, that you are so immersed in the experience of your breath, nothing diverts your attention.
Go ahead and try and let me know how far you got (take a moment here).
Finished? How did you do?
I would be willing to bet most of you did not get past 5 breaths. Yep, 5 breaths without;
a thought about your experience
without moving to scratch an itch
or have a question about whether you are doing it right
about whether you can do it or not
without hearing that song in your head
or thinking about the one thing that person said which bothered you
or that one thing you got to do later today
or that bill you have to pay
or the money you need
or whatever…
In fact, I’d be willing to bet many of you did not even make it to 20 without losing count, let alone make it to 5 breaths, perhaps even 2 or 3.
Remember, all you were asked to do is focus on your breath (inhales and exhales) solely for 20 breaths.
Now ask yourself the following questions;
-If you cannot focus on your breath while sitting in a quiet room by yourself with no noise or stimulation going on, how can you be absorbed or concentrated on the markets?
-How could you be totally focused and not let those emotions interfere with your trading?
-If you could not stop the radio of your mind and its constant stream of thinking while sitting still trying to do one task, how could you spot the subtleties in the price action communicating to you the market is going to turn or make a big move?
Of all the 4 characteristics, the first one is the hardest. The most common misconception of the whole 10,000hr rule is not just to absorb enough information so you become a master. It’s to develop the concentration needed, along with the repetition of a task that leads to confidence and allows one to relax their mind. All of this is to develop that zen-like absorption and penetrating concentration to achieve peak performance.
But what if you practiced something which solely focused on developing that concentration? What if you practiced yoga, meditation, or any activity which developed this skill set? Wouldn’t that cut down the time you needed since your concentration and awareness would be sharper?

axe chopping wood 2ndskiesforex

Someone recently shared a great Abraham Lincoln quote where he said, ‘If I have 8hrs to chop down a tree, I’m spending 6hrs sharpening my axe‘.
If the markets are a tree, your mind is the axe, so sharpening this tool will help you reach your goal faster than anything else. In fact, awareness, focus and concentration are the three things which will accelerate any skill, task or endeavor you engage in. They will reveal information faster to you, help you take in more, focus on the key things and yield insight more naturally. To learn a few techniques which can help you with this, click on my article Building A Successful Trading Mentality.
#2 Autotelicity
This refers to doing something for its intrinsic value, and not so much for the external rewards it may provide. For example, do you play football so you can become a multi-millionaire, or do you play the game because you love it so much, you’d play it for free if you had all you needed to make a living? Simply put, if one pursues an action for intrinsic reasons, then one’s actions are intrinsically valuable because one is motivated to pursue the action as its own means to an end, or for its own enjoyment – not for what it brings.
To put this in a question – do you trade because you absolutely love it, that you really want to learn it inside and out? Or do you trade to become financially abundant and independent – who doesn’t? Therefore, the latter is an inferior motivation since it is something you’d want naturally (financial independence). Are you really wanting to be a professional trader, or are you trying to escape your financial situation and state of existence? The former is ideal, the later is less helpful, but still can be used.
Doing it for the latter reasons will translate into the experience, that when you run into obstacles or excuses why you did (or did not do something), you will accept those excuses as reality instead of doing something to change them.
It will mean your motivation for doing something is not the love of it, but hating (or disliking) something in your life you want to change, avoid or make sure doesn’t happen.
Ask yourself which of these two is why you are wanting to trade. Are you doing it because you really believe deep down inside you can do this, that you have to do this, regardless if you are successful or not? Think about which of the two you will put more focus, effort and attention to? Then ask yourself which of the two you are. Nothing will be more important than being honest with yourself here. If you find in all honesty the latter is your answer, you can still become successful, but either a) you will have to trade with that intention in your mind (via aversion to your current financial state) or b) your motivation will have to evolve into an more subtle appreciation for trading.
#3 The ‘Sweet Spot’
This comes out of the work by Csikszentmihalyi where he discovered a person was most likely to enter this state of ‘flow’ and masterful play if the task at hand was challenging enough in direct relation to their abilities. So, if the task is too hard for your current level, then it will be mentally frustrating and you will get emotional during the experience. If it is too easy, you will get bored and not stimulate your brain and potential fully.

flow sweet spot trading 2ndskiesforex

This is actually critical in terms of your trading. If you are an absolute beginner, I do not recommend live trading, nor trading ultra short time frames (less than 15mins). Why? Because you will need to read subtle price action clues with very little time, make decisions really fast, have precision in your execution, while having little or no room for error. Sound like something a beginner should start with in any field or craft? I didn’t think so. Do you start learning how to be a professional archer by shooting at 18meters, 70meters, or 3? With that being said, I recommend starting at the 1hr, 4hr and daily time frames to hone your skill-set.
First things first – build your skillset, learn how to read price action, get hundreds of trades under your belt, then decide what type of trading you want to do. If you challenge yourself too hard in the beginning beyond your abilities, you will likely incur some big losses, or many in a row, then get frustrated, and be unable to enter any ‘sweet spot’. You want to be able to stretch yourself, but only in a controlled growth fashion. This will allow you to enter that flow as your concentration will be challenged, yet you will have the ability to do the task successfully.
#4 Automaticity
This is the ability to do something automatically, to the point where it requires none of your mental resources (or so little) that you can use the rest of your mind for finding the best trading opportunities. Your brain is like a computer processor, and if you are using resources for one or two other tasks, then you will have less processing speed for the task at hand. That is why multi-tasking is the worst thing you can do when trading as it actually reduces your overall IQ.
So shut off the email, turn off the cell-phone, unplug the landline, close your email program, and just focus on the markets when trading. Give all your energy and focus to that so you can have your full natural intelligence dedicated to trading. This will help you spot the best trading opportunities and make the best trading decisions.
What Else Can I Do?
If you have all four of these characteristics present, then you can more naturally enter the ‘zone’ or zen-like concentration. But there are some additional things which will help you get there.
While studying experts, Csikszentmihalyi found something unique in their brain activity. First, he noticed less activity in their pre-frontal cortex. This is the part of the brain typically associated with higher cognitive processes such as working memory and verbalization.
Although that may seem like something you want highly active, what it really pointed out was during their states of zen-like concentration, the experts across all fields were able to silence their self-critical thoughts which allowed automaticity to take hold and thus have more resources dedicated to their craft.
As traders, we have actually had this direct experience. Ever had the experience of ‘analysis paralysis‘? This is your pre-frontal cortex working overtime – criticizing every idea and thought to the point it paralyzes you. Ever had a perfect trade come up, but your mind came up with all kinds of ‘reasons‘ and ‘excuses‘ or ‘ideas from other experts‘ about how the market was going the other way? This is exactly that kind of pre-frontal activity which actually inhibits your trading.
brain waves 2ndskiesforex
Complimentary to this, Chris Berka looked at the brain-waves of olympic archers and professional golfers. What they noticed was a few seconds before the archer released the arrow, or the golfer hit the ball, they observed a small spike in the ‘Alpha Band‘ = 8-12hz frequencies, and ‘Theta Band‘ = 3-7hz frequencies.
Alpha band frequencies are linked to a lower heart rate and a greater sense of calmness and relaxation, while Theta band frequencies are associated with deeper levels of concentration, meditative absorption, a heightened awareness of the sensory field, and a shift in the relationship to thoughts, feelings and the experience of self.
As Berka noticed in her studies, the spike in the alpha waves represented more focused attention on the activity, while other sensory inputs are suppressed, accompanied by a slower breathing and lower pulse rate, all leading to greater concentration.
To compliment this, Gabriele Wulf (a kinesiologist at UNLV) examined the way athletes move. She noticed that if swimmers focused on an external stimuli, like how the water moves around them, instead of how their limbs are moving, their performance, speed and technique increased because the conscious thought of the pre-frontal cortex was turned down or off, and thus didn’t interfere with the process.
It allowed the automaticity to take over what it could so one could have more resources to doing the task with grace, effortlessness and creativity. It should be noted, that it takes time to produce consistent alpha waves in the brain. How much time? A lot less than the 10,000hours needed to achieve a sense of mastery and flow of your craft.
In fact, if you can learn how to develop consistently stable alpha waves, you simply short-circuit the need to have 10,000hrs of chart time. This is because your focus, concentration and awareness will all be sharper than usual. You will spot more details in the price action, find better opportunities out there, and be less inhibited by emotions and critical thoughts.
In other words, you are removing all the obstacles for having the same mindset as an expert in any field does, thus shortening your learning curve to successful, effortless and masterful trading. It is spending the first 6hrs sharpening your axe to chop down the tree in two hours, instead of hacking away at the tree for all eight. Which path do you think requires more effort? Which path helps you cut down the obstacles to your success faster and will lead to more successful trading?
I look forward to hearing your comments and reflections on this.
Kind Regards,
Chris Capre
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Building a Successful Trading Mentality
Awareness, Negative Habits and Concentration
Poker, Concentration and Trading

Forex Strategies, Price Action Trading

Intraday Price Action Trading – Reading Forex Price Action

Today had produced some interesting price action plays, so I wanted to share with you two trades that I took today. I am going to break down exactly what I was reading from a forex price action perspective, what my analysis was, how I took each trade, including the entries, stops and limits, and why I chose them based on what I was seeing in the price action.

While the NZDUSD has been stuck in a range for the last two days, I have been playing the consolidation range which has held up nicely. Being that the Kiwi tends to be a little slow at times moving at a tortuga pace, I noticed a few price action setups in Silver (XAGUSD) and took a couple of intraday plays. It is these two intraday trades I am going to be dissecting for you from a forex price action perspective. I am also going to be sharing how I used quantitative price action data on the intraday volatility for Silver to aid my trades.

Taking a look at the chart below (3min on silver), following the grey vertical line which represents the London open, we can see price starts out a little choppy. For the first hour, price action stays within a $.20 range which is actually less than the normal volatility for this pair of $.30 for the first hour of the London session. This communicates to me there is actually very little directional dominance being a 33% lower range of volatility. If this continues, then I will look for a reversion to the mean play.

Why? Since no one dominant player is directing the market, there is still a tug of war going on with both sides being relatively equal. This means price will continue to revert back to the mean until someone takes control. Thus, I will look for reversal plays. As you can see by the price action, the small swing down was about the same strength as the small swing up.

At about the 2.30 mark (2.3hrs into London session), I got a pinbar formation. This is a reversal signal and definitely leaves me the chance to make my reversal play. However, I hold on the trade for two reasons;
1) If I took the trade on the open of the next candle, my stop would have needed to be about $.10 and my target to the last swing high would have only been about $.15 for a 1.5:1 Reward to Risk ratio.

2) The market structure has not given me a HL (higher low) which would have confirmed to me the market structure was changing and that I had a reversal buy in play.

These two things combined told me to put the trade on hold so I passed. Look at the chart below to see the resulting price action.

Initially, when the price action hit the prior SH (swing high), it sold off at a steady pace. But noticed how it picked up with a very large red bar toward the end, making a quick rejection low. This increase in the size of the bar communicated stronger selling participation. But it also had a small rejection to the downside followed by a gentle pullback (perhaps exhaustion). This was a small clue there might be orders close to the lows of the prior pinbar, so I watched for the price action to give me a lower low.

As you can see at the very end of the chart, it did, forming a double-pinbar. This double-pinbar formation communicated to me from a price action perspective two things;
1) not only was the first pinbar rejection a likely higher low offering me a good R:R play, but…

2) the second rejection was telling me after price made the first pinbar rejection, the market tried a second attempt to make a new low and failed. It failed at exactly the same price yet this time closed up on the bar.

Combine this with the fact price was still staying below its normal intraday volatility levels, and I had all the ingredients for a nice reversal play. All these together suggested a high-probability buy on the open of the next candle with a tight stop of less than $.10 while targeting the major swing high for the day at $33.85 (over $.33 away for a +3:1 Reward to Risk ratio).

Below is how the trade played out. It broke the prior swing highs, made a HL (higher low) and then shortly after went on to its target at $33.85. Keep in mind my entry was $33.51 with a target of $33.85 ($.34) and a stop of less than $.10 so over 3.4:1 R:R ratio.

After hitting the first play on silver, it started to go on a run as it broke the SH (swing high). After breaking the $33.85 swing high, the market climbed over $.50 in less than an hour. Using my quantitative data on intraday volatility, this was approximately 20+% higher than the normal volatility ranges for this hour of trading. I’ll confess, I did not catch this upmove, but looking at it, I had two choices:

1) look for a market structure change to reverse the pair short as it may revert to the mean after the larger than normal surge in volatility, or…

2) look for a pullback to a prior value/support area and look for an entry to get back long.

I honestly didn’t know which of the two was a better play, so I watched the price action for clues. I want you to take a look at the next chart which shows the rise and fall of the shiny metal and take a look at the key difference between the two moves. See if you can spot the two subtle clues which communicated to me what I wanted to play.

First, notice how the angle of the two moves and the subtle difference. The buy up was a pretty sharp angle, while the sell-off, although impulsive in nature, had a flatter angle. This flatter angle communicated to me there was less strength in the selling then there was in the buying.

Secondly, look at the nature of the buying and selling. The buying was almost straight up with very small pullbacks telling me the buyers were quite dominant. While in the pullback, there was a see-saw type action, telling me the sellers were a) less dominant, and b) there was a fight going on between the buyers and the sellers unlike in the upmove. This all communicated to me via price action the market was likely going to reverse back up so I should look for a long after seeing a market structure change.

On the next chart below, shortly after the bottom, I got my market structure change. After bouncing off the low, the price actually bounced back into the prior range of the last pullback suggesting the buyers were starting to wrestle control from the sellers. Looking at the major swing low at $33.94 in the downtrend, if you look at the last two bars in the chart, you can see there was a rejection to the downside, followed by buying on the open of the next candle which went up to this key $33.94 level.

This rejection + the buying from the open was communicating to me the buyers were likely making their move. When I see that, I am going to buy that. I took a buy 1pip above this swing point at $33.95 with my stop below the low of the rejection candle prior, while targeting the SH for the day. This gave me a $.35 target and a $.15 stop for 2.33:1 R:R which was fine with me.

The market then climbed for the next 5 out of 6 candles suggesting the buyers had come in just before my move and I was riding the momentum of their buying. After a small rejection, the market went sideways, so since the bulls were still in control and had not conceded it, I stayed in.

Shortly, after a little further buying and small pullback, the target was achieved taking out the Swing High for the day as you can see in the chart below.

This is exactly how I took each trade, found my entry, stop, and limits – all using pure price action analysis, combined with favorable R:R ratios. This should give you an insight of how you can trade price action. By learning to read the market structure, looking for changes and subtle clues, then taking the most favorable plays that present themselves.

I would like to add that even though I am trading on a smaller time frame, I am not necessarily looking to be significantly more active. I am exploiting the same price action setups I see on the 1hr, 4hr and daily time frames. In fact, my methodology is really the same – wherein I am looking for a couple really high quality setups with very favorable R:R’s. These can be found every day, whether you are trading the 3min time frame, or the 1hr, 4hr and dailies. Your ability to read price action and all the clues will help you to spot the best opportunities, where the big players are driving the market, and how to find high quality setups.

For those of you looking to trade price action, visit our Advanced Price Action Course where we teach rule-based systems for trading Price Action.

If you appreciate our price action commentary and insights, please make sure to click the ‘Like’ button at the top of the page.

Forex Strategies, Trading Mindset & Risk Management

Building A Successful Trading Mentality While Removing Limiting Beliefs

This is the second part to our last article on Awareness, Negative Habits and Concentration in Trading. It is designed to help you remove any limiting/negative beliefs which may be holding you back, while building a successful trading mentality.

Remembering Back

In the beginning of our trading ventures, we become aware of the new possibilities that await us:

Working for ourselves
Working from home
Not having to go to a Job
Not dressing the way someone else tells us
Not getting paid what someone else thinks we should or when they want to
Working when we want to
and of course the big one that gets almost everyone – being financially abundant

These are all real possibilities that become available to us through the market. This new found awareness of other possibilities for our life and starting fresh energizes us. Our enthusiasm is strong, determination high and focus is penetrating. We feel a sense of purpose in an activity which is both engaging, challenging and rewarding.

But, something happens. Either we hit a losing streak, a big loss, an obstacle, or an inability to read the market. Something happens, and if we lose concentration while engaging emotional reactions, or stories to what is happening, our awareness begins to weaken. This causes concentration to dim, enthusiasm lessens, and we tend to lose energy by becoming involved in emotional or negative mental patterns.

This reduces our ability to trade successfully and will directly interfere with our desire and goals to trade successfully. It is this moment where we begin to hand over the keys, allowing our mind to manipulate us from being successful and getting past our hurdles.

This may manifest into the following scenarios:
-Trying to ‘get’ our wins back
-Over-leveraging beyond our normal limits
-Not following our trading plan and taking trades we normally wouldn’t
-Doubting our ability to make a good trade
-Hesitating to pull the trigger when our system gives us an entry
-Becoming unsure we can become a successful trader
-Unwilling to fill out our trade journal or review our trade performance
-Gotten impatient with the market or irritated by how it is playing
-Had fear about taking a trade
-Blamed your broker, or the market or the ‘gameplay’ going on
-Made excuses for why we lost on a trade or didn’t do things correctly

Has any of these things happened to you? Have you ever slipped into these mental stories or negative beliefs?

If so, it is likely you have developed a negative habit or limiting belief around trading. Nothing could be more dis-empowering to your trading to have these beliefs. It is possible these beliefs already existed in your sub or unconscious mind and are just playing themselves out through your trading experience.

Whether you know it or not, the markets are like a mirror that reflects your mind. It does this without bias or care of who you are. It reflects back to you beliefs about yourself, about being successful, about having lots of money or none at all, about being confident or having a lack thereof. Like a mirror, it has no attachment to what it reflects, it just does it automatically.

When you engage these limiting beliefs, perhaps such as (i’m not good enough, smart enough, don’t have a degree in finance, don’t have enough money, am not mathematically inclined, am not good with numbers, i’ll never be rich or successful, or whatever…) you are letting the mind deceive you into forgetting your natural state.

This is to be clear, vibrant, energetic and healthy. Engaging these energies will lead you to trading successfully. But accepting any limiting beliefs robs you of your natural intelligence and separates you from your inner strengths. They are not the path to successful trading, or being successful at anything. It is in the vice grip of these mental patterns we take away the chance to be a successful trader.

Regardless of this reflection the markets offer us, it is highly likely you came to the world of trading with some of these limiting beliefs. If so, they will be there, like a bugaboo hiding in the forest of your mind. Only until you recognize and transform them will they go away. This is when your trading take flight.

In fact, those obstacles which may be confronting you now will become mechanisms for your growth and success in trading. Ironically, that which inhibits you now will become your fuel for growth. It is our past mistakes and missed opportunities that become an invitation to a new way to trade.

What Breaks Through These Limiting Beliefs?

Awareness and recognition. By taking moments to build our awareness, then applying it to our trading experience, we can see how these limiting beliefs have played out in our trading. It is this recognition which will point us to how unhelpful they have been, and how we need to turn our compass in another direction.

Trading is like riding a horse – it can be bumpy and we may feel like we are riding a powerful beast (the markets). If you learn to stay in the saddle and apply your knowledge, then the markets become a riding ground for your own enjoyment and success.

It is through awareness and concentration we can learn from our trading experiences. These two together applied to our daily trading routine build up an inner strength as we witness our progress. This leads to an increase in our trading skills, whether in reading price action, having less hesitation to take a trade, finding good opportunities or challenging ourselves by being really disciplined.

Methods for Eliminating Negative Habits and Building a Successful Trading Mentality

These are methods I do every day and have been for over a decade which can help raise your clarity, energy and awareness, which ultimately, enhance your trading experience.

1) Posture Check

First thing before trading, along with several points throughout the trading day, take a moment to check your physical posture. Are you sitting upright with a straight spine, or are you slouching with your neck bent forward (or backward)? Your posture affects not only your breathing, but your thinking as well. A straight spine allows the energy to move freely up and down from head to heart and keeps your thinking more clear. Also a neck bent forward (or backward) cuts off the free flow of energy down your spine while trapping it in your head. This can literally keep you ‘stuck in your head‘ so make sure to keep your posture and neck upright.

2) Increasing Focus

For the next few weeks, try and be more focused while trading. Perhaps meditating before you start your day, turn off the TV, close your internet browser, turn off your cell phone and stop checking email. Just focus on the markets and what you are wanting to trade for that day. After you have tried this out for a few days, check to see how much more focus you had and if this changed your trading experience.

3) Energy Check

Along those lines, ask yourself before you sit down for trading, or at several points in the day, what is your overall energy level? I am constantly feeling this to see if its strong and vibrant or sluggish and weak. I try to rate it on a scale between 1 and 10 with 10 being optimal, and 1 being, well…dead.

If your energy is weak, the cause could be physical or mental, so I quickly shift my posture and feel into my body to see if anything is going on. If it’s mental, then I apply awareness to see if I am engaging in any negative patterns of thought. If so, I take a moment to clear my head via a short meditation technique, then get back to trading.

This can be done not only at several key moments throughout your trading day, but also be a constant monitor. Ever notice your energy drops when eating? It’s likely you ate too much, or something that does not agree with you. That drop in energy is your body telling you it’s needing to use other resources just to digest your food or compensate for how it’s not feeding you properly.

As a general rule I use, anything below an 8 or 8.5 and I do not trade. Why trade when I have a lesser edge or ability to make good decisions? Why would I want to trade on any other state then feeling energetic, clear and sharp? Give yourself every advantage you can when trading.

4) Choosing Positive Thoughts

The moment we see how we’ve been interfering with our success, it is time to apply the remedy. Choosing positive actions will inspire you and build confidence in your experience. This will make your vision more panoramic, create stability in your trading experience, enhance your determination, and deepen your understanding of the markets. This positive energy will build from a puddle into a reservoir which will manifest in an increased confidence to trade successfully day in day out, month in month out. You will refuse to engage in excuses, emotions, or procrastinate doing what you need to. You will plug all the leaks and settle into the saddle.

Trading and the markets are the proving ground for our actions and our positive attitudes. So to build these, pick a time each day, ideally before you start trading. Tell yourself mentally, ‘I will not submit to laziness, hesitation, emotionality’ and will turn towards the positive. Begin saying mentally to yourself, ‘I can trade successfully, I can be financially wealthy, I can make great trading decisions every day’. Do this for the next two weeks and see how your focus and concentration changes.

5) The 5% Rule

For the next day, or week, resolve to give just 5% more energy to your trading. Ask yourself what areas you need to develop in most, and dedicate an extra 5% to strengthening that. As you do this for several days or a couple of weeks, see if you notice any difference in your trading, mindset or results. As soon as you feel stable in this new effort, bring it up a notch and add another 5%.

Evaluation and Closing Thoughts

By evaluating the results of these new habits above you have applied, notice what you have done differently, what you have achieved, how your trading experience felt different. Take notice of what you have accomplished and then use that experience as motivation to continue developing your skill set and forex trader mindset. This will become a self-reinforcing process which allows you to become your own teacher. It is that moment you will have turned the trend sharply upwards in terms of your trading growth.

I want to end by providing a list of different patterns of thinking which can either inhibit or help your trading. Take a look at the list below and see which you engage in. I will list them side by side so you can see the unhealthy and healthy side of such mental experiences.

The Unhealthy Players:	Constructive Ways of Thinking:
Complaining about the markets	Acceptance of what is happening
Making excuses why you didn’t do something	Taking responsibility for your trading decisions
Having fantasies of driving a ferrari in a year	Being present taking things step by step
Hesitating making a trade	Acting on your system
Doubt about your abilities	Being open-minded nothing is fixed about your trading
Being harsh or critical to yourself	Being humble about your developmental process
Uninspired to develop your trading skillset	Being creative and motivated to take things to the next level
Stuck thinking about past losses	Recognizing past does not equal your future
Stuck thinking about what just happened	Understanding how to do things differently the next time
Caught up in your emotions	Being clear-headed and not identifying with your emotions

Look at this, study it well, and see which of these you engage in. Then apply the 5 methods I have listed above and see how you transform these experiences and how your trading changes.

I look forward to hearing your comments and reflections on this.

If you enjoyed this forex successful trader mindset article or what we do, please make sure to click the ‘Like‘ button for 2ndSkiesForex at the top of this article.

Feel free to check out the companion article to this on Awareness, Negative Habits and Concentration in Trading.

Forex Strategies, Price Action Trading

Reading Price Action – Key Price Action Elements to Breakouts Part 1

One of the questions I get most often about reading price action has to do with breakouts.
How to spot them?
How to know when it is a false breakout?
How to get in after it’s already broken out?
Ok, i’m in one now, how do I know it’s for real?
It is the last question we are going to focus on – how to determine if the breakout you are in is for real.
Over a series of three articles, we are going to cover 3 key elements to a breakout, dissecting the anatomy of a breakout such as;
what they should look like
what you will want to see
and what are the key characteristics of them.
By learning to read these price action patterns or elements inside a breakout, you will get a more unique grasp of how to understand breakouts. This can be done on any time frame as the price action pattern is the same.
From an Order Flow Perspective
Before we get into what a breakout bar should look like, let’s explain what is happening from an order flow perspective in a breakout.
Using an upside breakout as an example, a resistance level has been established, with a minimum of one rejection, perhaps 2 and possibly more. This rejection in price denotes sellers over-powered the buyers and wrestled control of the market. The rejection could be slow, or it could be violent, but nevertheless, the bulls were in control, failed to break above a level, and the market pulled back.

Since they were successful in doing it before, there is a good chance previous or new sellers will be parked at the same rejection level to short the market again. Naturally, their stops will be placed just above the key rejection level. This is critical to know, because it is these stops when they get tripped which can help accelerate a breakout.
Why?
If there are players short at a key level, to exit they must buy back the pair which in turn, helps the bullish breakout get more steam. Keep this in mind for later while we start to discuss the first key element of a breakout.
Key Element #1 – The Breakout Bar
When witnessing a breakout, the first bar (or breakout bar) should be given the most scrutiny. This bar should be anything but timid in nature. Keep in mind, when a breakout is forming, there is a fight between the bulls and the bears which creates a tension. Sellers have placed a lot of money believing the market will reverse, while the bulls believe it will clear the key resistance above.
Thus, when the bulls are trying to break a key level, if the price action and bar approaching the key level is timid in nature, say with a small body, perhaps a wick on both sides, this will only give the sellers confidence they (the bulls) do not have enough dollars, buyers, or both, to break the key level. The sellers will sense this weakness and push back with a vigor if they really want to defend that level.
So the breakout bar should be strong in nature, signifying;
a) the buyers are putting a lot of force (either dollars, number of buyers, or both) into the breakout
and
b) they were able to clear out the sellers by tripping their stops
What does a strong breakout bar look like?
It should minimally be large in nature, meaning it has a large body (larger than usual). This large body demonstrates strong buying power and participation from the bulls. The stronger the force in a breakout, the more momentum it will likely have as it tries to make new ground. A large body shows commitment and force on the buyers part.
Another important element of a good breakout bar is it has little or no wick to the downside.
Why?
A bar that opens and has few or no pips to the downside, communicates to us the buyers were present and strong in the market from the open of the candle. They wasted no time buying from the open giving the sellers no time to enter. Their strong buying from the open suggests commitment to drive prices up and establish control from the beginning. Thus, look for little or no wick to the downside on the breakout bar such as in the example below.

Thirdly (and consequently), the breakout bar ideally has little or no wick to the upside as well. The presence of a little wick suggests the buyers maintained control going into the close, thus not taking profits, and likely communicating they think there is more upside to be had, thus staying in the market. This will also deter sellers from entering as they are reading the strong close from the bulls, thus, they will be hesitant and likely wait for a better price action trigger. Take a look at the example below.

Lastly, a good breakout bar will have clearing distance. This is the distance the bulls have cleared from the previous resistance level which was containing the upside. If they only clear the resistance level by a small amount, its possible they did not trip any stops, thus failing to add steam to their breakout play. This could also suggest to the sellers the bulls do not have a strong punch, so the bears may see a weakness, and thus enter the market.
However, if the breakout clears the resistance level by a good distance, then stops were almost certainly tripped, thus adding to the upside break. This will also communicate to the bulls they have taken out all the barriers and thus can push for higher ground with less orders from the bear side.
To be specific, the clearing distance is the distance in pips from the high of the resistance level broken (or low in a downward break), to the close of the breakout bar. The high of the breakout bar is useful as it tells us how far the bulls were able to push (and clear) from the resistance level in the breakout bar. However, if it pushes really high, but gets rejected strongly and barely closes above the lows, this would communicate to us sellers did not accept the value of the pair that high above, and rejected it strongly, taking control from the bulls (who were in control during the breakout). So the key is how far does it close above the high of the previous resistance level. This is known as the clearing distance and is demonstrated in the chart below.

In Closing
We have just covered 4 critical characteristics to what a strong breakout bar would look like. They are;
1) Large Body
2) Small Wick to Downside (for upside breakout, while a small wick to upside for downside breakout)
3) Strong Close
4) Clearing Distance
These four things communicate to us from an order flow and price action perspective why they will likely lead to a strong breakout.
This is part one of a three-part series on reading price action and how to identify key elements to a breakout. Stay tuned as next week we will cover the second aspect of a strong breakout and how this communicates the breakout will likely continue.
Please remember to leave your comments below and to ‘Like’ and ‘Tweet’ to share the article.
Also make sure to check out our most recent article on Awareness, Negative Habits, and Concentration in Trading.

Forex Strategies, Trading Mindset & Risk Management

Awareness, Negative Habits and Concentration in Trading

The markets are our testing ground, and trading is the vehicle through which can clearly see the results of our work, our discipline (or lack thereof) and our concentration. It is through these two (the markets and trading) we have the live opportunity to see habitual patterns that either help us move forward, or hold us back from achieving our goals and trading profitably day in day out.
Because this process is so informative, the fertile experience is rich with information about whether our compass is on the right course, or pointing south when we want to go north. Whether we avail ourselves of this information and mine it like a precious resource is up to nobody but you. As traders, we have to constantly be on the prowl, and asking questions at key moments, such as;
-How did we react mentally or emotionally when we experienced a series of losses?
-The same has to be asked when we have a long run of winners or bump into our Equity Threshold?
-What happens after we’ve been unprofitable for so long, that after trying a new system, we start to make some solid gains?
-How do we react when being told or asked to fill in the trading journal?
-Do we use proper money-management, or do we step outside the mathematics and do what we ‘feel’ like?
-What happens when we encounter a ‘big’ loss?
-What do we do to prepare for the trading day?
-How do we train and learn from our experiences?
All of these questions and experiences are beacons in the fog of confusion as to where we are in our process. They are part of a feedback loop we are either aware of or not.

One of the most common responses to;
a) why we do not prepare for our trading day
b) why we did not take the trade that met all our rules
c) why we took a big loss
d) why we do not fill out our trading journal
or
e) why we did not use proper money-management comes in the form of excuses.
It does not matter if you are strongly motivated to become a profitable trader. To want to be successful as a trader, to make loads of money, to work from home is not enough. That is just desire and you following a puppet master.
What happens during the small moments where you make excuses (perhaps for the situations mentioned above) is what will define your path and trading experience. This is why it is critical to be aware of the moments when you do make excuses, so you can change course immediately.
Excuses are essentially negative habits that start off as an undertow, and eventually become the current if left unchecked or not dealt with. They start off as whispers, but without applying awareness and action to them, eventually become equal to your driving thoughts in critical moments of your trading.
Perhaps you have said the following to yourself in certain moments of your trading day;
“I don’t want to fill out my trading journal right now, i’m busy trading”
“I’ll use proper money-management later, this is a cherry of a trade here”
“This trade meets all my rules, but i’m not certain about it so i’ll wait for the next one”
“I don’t need to prepare mentally and physically for trading, a cup of coffee will get me going”
“I don’t have to review my trading performance, my balance will tell me if I am trading well or improperly”
Convincing yourself to put things off is to lose the opportunity to move forward by falling victim to excuses. It will seduce you into an un-empowered trading experience.
Perhaps you think of ‘discipline‘ as something negative, like being disciplined by some 5th grade teacher you hated. Having negative views to being disciplined in your life merely bonds your ideas and energy around discipline to this negative view. It saps you of your ability to break through the obstacles to your trading growth and success while climbing the Pyramid of Trading. It hides your best qualities and that which would take your trading to the next level.
These negative views and excuses will lead to weaving a tapestry of explanations and justifications for why you are not making money trading. It will be the same reasons why you did not fill out your journal, or hesitate on that trade which would have made you money, or prepare yourself for the day, or use proper money-management. If acted upon enough, this becomes a pattern of thinking for you. When it does, it manifests as a wall or obstacle to you trading successfully and begins to imprison you.

Ask yourself if you feel like time is being wasted, or trading opportunities (ones that your system generated) are passing you by? I’m not talking about things outside of your trading plan and rule-based systems, but one’s that you had in your crosshairs and let go by.
If you feel like this, and have witnessed many times how you should have been in a trade, but were paralyzed by your thoughts/emotions, then you need to make changes now. If you feel sub-consciously you ‘should’ be reviewing your trade performance, or filling out your trade journal, or using proper money-management, but are not – then it is critical you take action now. The longer you wait, the more corrosive these excuses to inaction become. They eat at and diminish your initial commitment, excitement and enthusiasm to become a successful trader which reduces inspiration and drive when you need it
Remember the clock is marching on whether you want it to or not, and there is no extra time to be bought by excuses. Your time spent postponing things is the noose which separates you from trading success or failure. Postponing things and excuses become the barriers which imprison us. They slowly close the doors to inspiration and our natural intelligence.
Yet we all subconsciously feel how we can be more empowered by doing all the things we need to trade successfully. Only until we make a commitment to moving forward in our trading, followed up by action, will we cease to cover up our natural strengths and intelligence. Time to stop sacrificing your vision, goals and inspiration on the altar of excuses.
If you find yourself hesitating when your system gives you a trade setup, or using improper money-management, or making excuses for filling out your trade journal, or over-reacting to a large loss (or a series of wins), the remedy out of this is a simple two-fold process of;
1) applying awareness, and
2) taking action
Both of which I am going to give some steps to help you with during trading.
Applying Awareness
As many of you who have read my bio know, I have been practicing yoga/meditation now for over 11 years. I have been long wanting to share the practices which I use everyday to build focus, concentration and awareness for my day (especially trading). They are tools, like the stone which sharpens the blade to cut with greater and greater precision, and they have been invaluable for my trading.

I am going to give one simple technique all of you can apply either before your trading day begins (ideal) or when you are in the more challenging moments during trading where your mind seems to fail you.
Oftentimes, energy can become constricted in your dome (head) if we focus our energy too tightly. Perhaps you have felt it, but when it occurs, it is like having blinders on. In these moments our awareness is dull and often foggy at best. Even sounds become less vivid as we listen too much on the ‘sounds in our head’. We are cut off from our natural intelligence in these moments so it is important to apply a remedy.
The Technique
Either before your trading day (not too long before the start, but after you have showered and perhaps eaten), or in the middle of your trading day, relax your eyes and focus them on the space in front of you. NOT the objects in front of you, but the space in front of you (different quality). Breath through your nose only and begin to slow your breath. While keeping your head stationary, slowly, gently and with little effort, move your eyes slowly up and down, and side to side. Relax your effort to focus the eyes allowing the movement to be slow and gentle. Do this for about 30 seconds to a minute without any thoughts about what its doing or whether you are doing it right.
Then, begin to bring a gentle awareness to your throat to where the awareness of your throat and breath begin to merge. It will almost seem like you are breathing directly into your throat. As you do, feel a sense of light building there. Do this for a few minutes till you feel the area relax a bit. As this builds, visualize it expanding down into your heart and upward into your brain. You will likely feel this relaxing both areas as you do this, keeping your breath calm and steady. Lastly, as these areas begin to relax, let the awareness in your heart settle down into your belly, while the awareness in your head/brain move towards the space between your eyes. Be gentle with your awareness and breath as you do this, again, not worrying if you are doing it correctly. You can do this for about 5-10 minutes each day, either before you start trading or when your mind feels constricted.
What Does This Do For You?
More than anything trading is done mostly with our mind/brain and it is very easy during all the analysis and thinking we do, for the energy to become constricted. By doing this exercise, relaxing your breath helps to calm your mind and actually shift your brainwaves to a more relaxed state. This opens the doors for awareness to come into our thinking. It is where we begin to notice the emotions, thoughts and excuses which cause us to hesitate, to not fill out our journal, or do the things we know will help us move forward.
We then shift the awareness to our throats, because it is the gateway between our heart and mind. This helps us balance the energy between the two, which in turn allows our goals, intention and vision to manifest in our actions. It connects our intelligence with our intention, and short-circuits any excuses or hesitation from coming into play.
By expanding this to our gut, this allows us to connect with our intuition (ever heard the phrase, ‘I felt it in my gut’?). This helps us spot opportunities we may normally miss while strengthening all the patterns and time we have spent studying the charts.
And lastly, by extending this to the spot between our eyes, we sharpen our concentration and bring a more lively awareness to our trading. It gives us a more refined sense of what is happening in the charts as we are reading the price action. It allows us to see not just a pattern, but what is behind that which is creating the pattern. It allows us to reflect the price action in market naturally without any bias or thought of profit, thus seeing it clearly, allowing us to spot the opportunities and making good trades.
This is part one of a series on awareness, breaking through negative habits and developing concentration in your trading.
I thank you for reading this article and welcome your comments and feedback.
Kind Regards,
Chris Capre
2ndSkiesForex.com
Twitter; 2ndSkiesForex

Forex Strategies, Price Action Trading

The Risk of Ruin Tables You Should Know

Many people will talk about their forex Risk-Reward ratios such as it’s important to have 2:1, 3:1, or whatever to one ratio, but this is just the tip of the iceberg of risk-management and leaves you uninformed and un-empowered. You can actually have a 3:1 Reward-Risk ratio and lose all the money in your account. You can also have a 1:1 Reward-Risk ratio and make money day in day out.

How can you understand the difference between the two? Through the Risk-of-Ruin formula.

We did a 1hr webinar on Risk Management, the Risk of Ruin formulas and how critical they are, whether you are trading Price Action Strategies, Ichimoku Kinko Hyo, or any other system.

I got many requests for the information contained in the Risk of Ruin formulas so I am posting all the tables here so you can see the mathematics of your trading and whether you have the numbers in your favor. Here they are below:

Risk of Ruin Formula using 10% Risk / Trade

ROR% with 10 capital at risk
Win Ratio %	Payoff Ratio 1:1	PR 2:1	PR 3:1	PR 4:1	PR 5:1
Win Ratio 10%	100	100	100	100	100
Win Ratio 15%	100	100	100	100	100
Win Ratio 20%	100	100	100	100	46.6
Win Ratio 25%	100	100	100	30.5	16.3
Win Ratio 30%	100	100	27.7	10.2	6.1
Win Ratio 35%	100	60.9	8.2	3.53	2.33
Win Ratio 40%	100	14.2	2.5	1.24	0.888
Win Ratio 45%	100	3.41	0.761	0.426	0.329
Win Ratio 50%	100	0.813	0.226	0.141	0.116
Win Ratio 55%	13.4	0.187	0.0635	0.0438	0
Win Ratio 60%	1.73	0.0401	0	0	0
Win Ratio 65%	0.205	0	0	0	0
Win Ratio 70%	0	0	0	0	0
Win Ratio 75%	0	0	0	0	0
Win Ratio 80%	0	0	0	0	0
Win Ratio 85%	0	0	0	0	0
Win Ratio 90%	0	0	0	0	0

Risk of Ruin Formula using 5% Risk / Trade

ROR% with 5 capital at risk
Win Ratio %	Payoff Ratio 1:1	PR 2:1	PR 3:1	PR 4:1	PR 5:1
Win Ratio 10%	100	100	100	100	100
Win Ratio 15%	100	100	100	100	100
Win Ratio 20%	100	100	100	100	21.7
Win Ratio 25%	100	100	100	9.33	2.67
Win Ratio 30%	100	100	7.67	1.03	0.372
Win Ratio 35%	100	37.1	0.672	0.124	0.0544
Win Ratio 40%	100	2.03	0.0623	0	0
Win Ratio 45%	100	0.116	0	0	0
Win Ratio 50%	100	0	0	0	0
Win Ratio 55%	1.81	0	0	0	0
Win Ratio 60%	0	0	0	0	0
Win Ratio 65%	0	0	0	0	0
Win Ratio 70%	0	0	0	0	0
Win Ratio 75%	0	0	0	0	0
Win Ratio 80%	0	0	0	0	0
Win Ratio 85%	0	0	0	0	0
Win Ratio 90%	0	0	0	0	0

Risk of Ruin Formula using 2% Risk / Trade

ROR% with 2 capital at risk
Win Ratio %	Payoff Ratio 1:1	PR 2:1	PR 3:1	PR 4:1	PR 5:1
Win Ratio 10%	100	100	100	100	100
Win Ratio 15%	100	100	100	100	100
Win Ratio 20%	100	100	100	100	2.2
Win Ratio 25%	100	100	100	0.266	0
Win Ratio 30%	100	100	0.163	0	0
Win Ratio 35%	100	8.37	0	0	0
Win Ratio 40%	100	0	0	0	0
Win Ratio 45%	100	0	0	0	0
Win Ratio 50%	100	0	0	0	0
Win Ratio 55%	0	0	0	0	0
Win Ratio 60%	0	0	0	0	0
Win Ratio 65%	0	0	0	0	0
Win Ratio 70%	0	0	0	0	0
Win Ratio 75%	0	0	0	0	0
Win Ratio 80%	0	0	0	0	0
Win Ratio 85%	0	0	0	0	0
Win Ratio 90%	0	0	0	0	0

Risk of Ruin Formula using 1% Risk / Trade

ROR% with 1 capital at risk
Win Ratio %	Payoff Ratio 1:1	PR 2:1	PR 3:1	PR 4:1	PR 5:1
Win Ratio 10%	100	100	100	100	100
Win Ratio 15%	100	100	100	100	100
Win Ratio 20%	100	100	100	100	0.0485
Win Ratio 25%	100	100	100	0	0
Win Ratio 30%	100	100	0	0	0
Win Ratio 35%	100	0.701	0	0	0
Win Ratio 40%	100	0	0	0	0
Win Ratio 45%	100	0	0	0	0
Win Ratio 50%	100	0	0	0	0
Win Ratio 55%	0	0	0	0	0
Win Ratio 60%	0	0	0	0	0
Win Ratio 65%	0	0	0	0	0
Win Ratio 70%	0	0	0	0	0
Win Ratio 75%	0	0	0	0	0
Win Ratio 80%	0	0	0	0	0
Win Ratio 85%	0	0	0	0	0
Win Ratio 90%	0	0	0	0	0

Hopefully after viewing the Risk of Ruin tables and underlying forex trading risk mathematics, you will begin to look at your trading differently, analyze whether you have the mathematics in your favor to make money day in day out, or are setup to lose money. Understanding the mathematics of risk can make all the difference in the world so make sure you study these numbers in relation to trading your rule-based system.

We have a Risk of Ruin Calculator available here, for your convenience.

Remember to leave us your comments which are always appreciated, and also to click the ‘Like’ and ‘Tweet’ buttons below to share it.

Forex Strategies, Trading Mindset & Risk Management

What Do You Need to Trade Successfully Pt. 2

Now that we have discussed the Two Necessities To Trade Successfully of what you need to trade successfully in part 1 of this series, it is time to get into part 2 of the series which is Developing the Two Traits. These are traits which you may not have at the moment, but you can totally develop with relative ease, a passion to be a successful trader, and with a little work.

A Question and Common Characteristic

Before I describe what the two traits are, why you need them and how having them will help your trading, I am going to ask a critical question:

Do you really think you can become a successful trader without developing certain skills which you may not be good at already? Do you really think all successful traders were just good at everything needed to be a highly profitable trader? Do you really think you can just learn a system and become a professional trader without having to work at something challenging?

All professional traders had to go through training, break through various obstacles, and jump over whatever hurdles they had to become a successful trader. The same goes for you.

One thing you will find as a common characteristic of successful people (in all fields, especially in trading), is when they are faced with something they are not good at, they become good at it. They do not stop and say, ‘oh, I don’t have that so i’m just not going to do that,‘ or ‘oh, i’m not good at that and will never be so I cannot be good at trading, or martial arts, or business,‘ or whatever field they are working to become skillful at.

When faced with something they are challenged with, they start the learning process to become good with that skill set.

Michael Jordan, considered to be one of the best basketball players of all time, was not great (not even good at defense) when he entered the NBA. In fact, he was below average. When his coaches told him this, what did he do? He trained for years to become a better defensive player.

What happened?

-He became the 1988 Defensive Player of the Year, 4 years after turning pro (meaning he already was considered a professional in his field while still below average in a key skill set)
-He was elected to the All-Defensive Team 9x
-Awarded the ‘Steals Champion’ 3x (player with most steals in the entire league)

So even Michael Jordan had to work at things, well after becoming a pro. And what made him great was not just his ability to score and to win, but to become good (if not great) at things he was once weak in. That is the mark of a professional.

My guess is you do not enjoy the areas you are most weak in when it comes to trading for two reasons;

1) they are a reflection upon where you are at (thus exposing you to self-judgment and criticism)

2) you simply are not good at them…yet.

Think about the first time you played pool/billiards or some other sport. Then think about how much more fun it was when you got good at it. Remember, you had to go through training to get good at something, and the same goes for trading, especially your weak aspects so keep this in mind. Perhaps your weak aspects are not memory or pattern recognition, but at being disciplined in trading. Or perhaps you are disciplined, but are bumping up against your Equity Threshold. Whatever it is, develop it so it becomes your strength. Remember, the height of your trading success is determined by your weakest skill set, so think about this deeply.

Another important thing is to ask yourself if you are critical towards yourself and your weaknesses. Do you really think you’ll develop those skills if you are constantly being highly critical of them? Being self-critical and judgmental might inspire you to become better, but if used improperly, will be a hindrance to your growth as a trader.

It will likely manifest in you beating yourself up for mistakes you’ve made over and over again, instead of taking real concrete steps to develop those skills. It will manifest in you being less open to your ability to change and grow, instead of being humble about the process. Food for thought when thinking about what we will discuss next.

What Are the Two Traits?

All highly successful and profitable traders who make their living from trading have these two traits. They are;

1) Great Pattern Recognition

2) Developed Memory

Pattern Recognition
Think about this – what are all trading systems built of? Patterns. All profitable systems are based on patterns that people have noticed in the market. They can be;

–Price Action Patterns
–Ichimoku Kinko Hyo Patterns
-Patterns of volatility
–Understanding Price Action
or anything regarding the market.

But one thing is for sure, they are the result of some pattern which became the basis for a rule-based system to trade the forex market. Whether it is a discretionary or algorithmic system, it is based on a pattern. Thus, your ability to discover and discern patterns is a critical trait you need to develop.

Developed Memory

Another trait of successful and profitable traders is a developed memory, meaning they remember what they see in the markets, they remember the price action, what the market looked like when it reversed, what characteristics were present and were not when it did, when it trended. They remembered these key things which either;

a) helped them build a system around it
or
b) helped them to identify key opportunities

Not all trading opportunities will be purely from your system, and some will be something you spot, or have an intuition about, and are sub-consciously picking up on it.

Ask yourself, have you ever seen something in the market, something that was not a signal from your trading system, but something peculiar you recognized, and either got out of a trade which saved you a lot of money, or got in the market which did what you thought it was going to do?

That is from something you remembered but could not fully intellectualize, yet had enough awareness to make your move. It was something you picked out in your memory which you had seen before, and alerted you to the opportunity. This is why it is critical to develop your memory so you can;

a) build your own trading systems (or improve on what you are already trading)
or
b) find the best trading opportunities in the market

There was a video on FXStreet where Chris Capre predicted where EURUSD will end the year. This was during an ad hoc interview with FXStreet. Keep in mind, this was October that year, and I had not only called the top within 70pips, but also called a 900+pip drop while predicting the small range it would end the year at. How did I do this? Through pattern recognition of the price action and a developed memory to spot the pattern.

The Good Thing

Now many of you might be saying, ‘well, I have a bad memory, or I’m not that good at recognizing patterns‘. And guess what? That’s ok, you don’t have to have them now to be great at trading. The good thing is you can develop them with relative ease and a little training.

Remember, the brain has a neuro-plasticity to it, meaning it is elastic in what you can learn, develop and become good at, especially memory and pattern recognition. So with the right training, you can improve these in no time while also increasing your IQ (useful for trading and life).

Lumosity

When you need to become a fast runner, you go to the track and start training. When you need to lift heavy objects, you go to the gym and train the right muscles. And when you need to improve your memory and pattern recognition skills, you go to a brain gym.

What is a brain gym? It is a program (could be in a school, class or on the internet), whereby you do various activities and exercises to improve key aspects and regions within your brain. Some of the areas are;

-Speed of Processing
-Problem Solving
-Attention
-Flexibility of Thinking
-Pattern Recognition
-Memory

What we have learned about human learning and the central nervous system, is to develop something like memory, it is far less effective to just do memory exercises. Why? Because the brain is so interconnected, that having weak connections in many areas, but having just a strong memory, decreases the overall brains performance. But by developing many key areas, all the increased connections help influence all the other areas and increase their performance. So to develop your memory and pattern recognition skills, you have to stimulate all the areas in the brain. How can you do this?

Lumosity (http://www.lumosity.com). They have on their site activities you can do each day (few mins per day) to strengthen and develop all these areas, especially memory and pattern recognition. They have won numerous awards, are being used in test schools, along with hospitals to work with the brain in improving performance.

They track your performance so you can see the development over time, while keeping the activities and games fun and challenging appropriate to your skill level. By doing these simple but fun exercises everyday through the internet, you can not only increase your IQ, but develop your memory and pattern recognition skills to improve your trading.

In Closing

We can now see how critical it is to have the Two Traits (pattern recognition and a developed memory). The good thing is if you are not strong in these areas, you can easily develop them with little effort through the brain gym I suggested (and am a member of).

Developing these two skill sets not only empowers your trading, but also helps you to build your own price action systems, ichimoku trading models, or spot the best opportunities out there.

It could lead you to improve your current system, or build a completely new one. It could mean shorting when your system is already long, or help you to protect your profits. It could also lead to you finding one of your weak points in trading by remembering/noticing the pattern, and then taking key steps to correct it. When you become your own teacher in trading, there is nothing limiting you to becoming a highly successful and profitable trader, but it all starts with developing the Two Traits.

For those of you who did not read What Do You Need to Trade Successfully, visit the link to download the article.

Meanwhile stay tuned as part three in this series is coming in the next few days where we talk about Building the Three Habits.

Forex Strategies, Trading Mindset & Risk Management

What Do You Need To Trade Successfully Pt. 1

We just wrote part 1 of ‘What Do You Need to Trade Successfully‘. If you are a developing trader, or still struggling to trade consistently profitably, then you will want to read this article which goes into the two necessities of trading.

Kind Regards

Chris Capre
2ndSkiesForex

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Building A Successful Trading Mentality While Removing Limiting Beliefs

Reading Price Action – Key Price Action Elements to Breakouts Part 1

Awareness, Negative Habits and Concentration in Trading

The Risk of Ruin Tables You Should Know

What Do You Need to Trade Successfully Pt. 2

What Do You Need To Trade Successfully Pt. 1

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