Forex Strategies – Page 6 – 2nd Skies Trading

Fixed % Equity vs. Fixed Dollar Amount | Which is Better?

Last year Nathan at winnerstradingedge.com wrote a brilliant piece which you can find here talking about Why Nial Fuller’s Method Doesn’t Work (referring specifically to his risk models).

In this article, he is responding to Nial’s claim that the superior forex risk management system is to risk a fixed dollar amount per trade. It should be noted Nial’s main claims were 1) a fixed dollar amount could get you out of a DD (drawdown) faster when winning, while 2) it would take longer to get out of the same DD if you used a fixed % equity model.

Nathan decides to demonstrate in two scenarios how a fixed % equity model is actually far superior. Nathan’s data shows clearly using a fixed dollar amount actually hurts you both in DDs (drawdowns) and during winning streaks.

I completely disagree with Nial Fuller and have always endorsed a fixed % equity risk model as being far superior. I will demonstrate this later with data and several scenarios. But first, onto Nathan’s results.

In this chart below, he shows two accounts each with the same starting balance of $10000. The two accounts were either using a 2% risk per trade method (representing the fixed % equity model) vs. the fixed dollar amount (risking $200 per trade each trade). Below is the graph showing the performance of the two models.

Nathan in his experience noticed how traders go on winning streaks. He thus tested two scenarios, whereby the traders go on either a 10 win-streak, or a 10-loss streak. The green line is our model (fixed equity % model). The red line is Nial’s model (the fixed dollar risk method).

During a winning streak, our fixed % equity model pulls away from Nial’s fixed dollar amount and continues to gain further as it goes on. This happens around trade 5 and continually separates further after each winning trade.

For the losing streak, our fixed % equity model again outperforms Nial’s, by losing less each trade, thus protecting your capital.

After Nathan published this data highlighting the differences, people on both sides disagreed. But nobody was providing any more data to back up either side. We at 2ndSkiesForex decided to run the numbers ourselves and further demonstrate how a fixed % equity model was far superior.

The first forex risk scenario we looked at was a 10 win trade recovery after the 10 loss series Nathan presented above. Here is how the data plays out below.

After 10 losses, Trader A goes on to win the next 10 using the fixed % model:
-As per the chart above, Trader A has a balance of $8171 at trade 10. This continues below-

$8334.42 at trade 11
$8501.10 at trade 12
$8671.12 at trade 13
$8844.54 at trade 14
$9021.43 at trade 15
$9201.85 at trade 16
$9385.88 at trade 17
$9573.99 at trade 18
$9765.06 at trade 19
$9960.36 at trade 20 for fixed 2% rule

After After 10 losses, Trader B goes on to win the next 10 using the fixed % model:
-As per the chart above, Trader B has a balance of $8000 at trade 10
-Since the math is easy, at trade 20 Trader B has a balance of $10000, for a whopping .4% difference.

Now in comparing the numbers as a whole over these last three scenarios, lets look at the following three facts:
1) During the first 10 win UD (updraw), you get +1.58% BETTER performance (more upside) using a fixed % model
2) During a 10 loss DD (drawdown), you get +1.71% BETTER performance (or lesser DD) using a fixed % model
3) During the next 10 win UD (updraw) you get -.4% LESSER performance (or lesser gains) using a fixed % model

So in two out of the three forex risk scenarios above, the fixed % equity model outperforms the fixed dollar amount. The total edge is +2.89% over the fixed dollar amount using the fixed % equity method.

But lets take this a few steps further and lay out the other 4 scenarios from here to see which performs better. They are;

Scenario 1 = 10 more straight wins from trade 20

Scenario 2 = 5 more straight wins from trade 20

Scenario 3 = 5 more straight losses from trade 20

Scenario 4 = 10 more straight losses from trade 20

Scenario #1: (10 more straight wins from Trade 20, or T20)
Trader A Balance = $9960.36
Trader B Balance = $10000

After 10 more trades (T21-T30), the fixed 2% model will have a balance of $12143 while the fixed dollar model will have a balance of $12,000. Summed up, the fixed % model has $143 MORE in profit, or a 1.2% GREATER gain. Hence the fixed % model wins this scenario.

Scenario #2 (5 more straight wins from trade 20)
Trader A Balance = $9960.36
Trader B Balance = $10000

After T25 (or 5 more straight wins), fixed 2% model has a balance of $10998.69 while the fixed dollar amount has a balance of $11,000, or a whopping $1.31 more, which is only a .01% gain over the fixed % model. Pretty weak difference. But a win nonetheless for the fixed dollar model.

Scenario#3: (5 more straight losses from trade 20)
Trader A Balance = $9960.36
Trader B Balance = $10000

By T25, the fixed % model has a balance of $9002.78, while the fixed dollar amount has a balance of $9000. Summed up, the fixed % model has $2.78 MORE in profit, or a .03% gain over the fixed dollar amount. A small difference, but nonetheless a win for the fixed % model.

Obviously from here the answer gets much uglier for the fixed dollar amount model as this progresses, but here are the numbers below.

Scenario #4: (10 more straight losses from trade 20)
Trader A Balance = $9960.36
Trader B Balance = $10000

By T30, the fixed % amount has a balance of $8136.84, while the fixed dollar amount has a balance of $8000. So the fixed % model has $136.84 MORE in capital, or a 1.7% gain over the fixed dollar amount.

When you tally up the 2 scenarios by Nathan, plus the 4 we just ran, the score is 5-1 with the fixed % equity model being the far superior model.

Here are the numbers and scenarios summarized below;
Scenario A (Nathan’s scenario – 10 wins from 10k) = +1.58% better performance for fixed % equity model
Scenario B (Nathan’s scenario -10 losses from 10k) = +1.71% better performance for fixed % equity model
Scenario 1 (as per my description above) = +1.2% better performance for fixed % equity model
Scenario 2 (as per my description above) = -.01% worse performance for fixed % equity model
Scenario 3 (as per my description above) = +.03% better performance for fixed % equity model
Scenario 4 (as per my description above) = +1.7% better performance for fixed % equity model

This comes out to a grand total +6.21% better performance for the fixed % equity model across 6 scenarios.

Translation

This shows a huge advantage using the fixed % equity forex risk management model which is clearly far superior to the fixed dollar amount method. This is only across 20-30 trades using any one scenario above. The more trades this gets applied to, the better the performance. Over a traders lifetime of 500, 1000, or 5000+ trades, this edge becomes exponentially superior.

Keep in mind, you cannot do any risk of ruin calculations using a fixed dollar amount, however you can using our % equity model. Anyone using Nial’s fixed dollar model is simply throwing money away over time.

This should end the debate between which forex risk management system is the better model. Clearly the fixed % equity forex risk management model wins by a Mortal Kombat Fatality.

I would like to state I am welcome to see evidence to the contrary if/when it is presented, as I am totally open to seeing it.

Make sure to share this “how much to risk per trade” article as it discusses a critical topic for your trading. But more importantly – leave a comment whether you agree or disagree, and why.

Featured Article, Forex Strategies, Trading Mindset & Risk Management

Why Do Most New Years Resolutions Fail?

By now many of you are in full swing with the new year, and at least 6 days removed from creating your new year resolutions. Below are some interesting statistics about new years resolutions, some of which I think will not shock you.

1) About 8% of people are successful in achieving their new years resolutions (not far off from trading)
2) 25% of those who make them don’t even make it past the first week
3) 34% of those resolutions are related to money
Source: Betterment.com
Do these numbers above surprise you? My guess is if I surveyed 1000 people, the majority would not be surprised.
We’ve all made resolutions and failed to keep them (including yours truly).
Have you ever asked yourself why is that? I certainly did.

Why do so many people consistently make new years resolutions, yet fail to really nail them? Made a resolution to always fill out your trading journal each day without fail, only to a few weeks/months later finding yourself not filling it out? Why?
The reason you did not fill out your journal, or consistently risk a fixed % of equity per trade, or whatever resolution you made is the same underpinning reason all resolutions fail.
In this article, I will briefly share a far better method for making consistent change, then ask the critical question as to why most fail.

2018 trader resolutions 2ndskiesforex

A Far Better Model For Consistent Change
One of my yoga students Mark Gonzales eventually went on to become a great yoga teacher himself. In 2012 he was given the Yoga Journal’s Talent Search Winner Award, and has one of the most influential power yoga channels on youtube. He still humors me in letting me know my classes were some of his hardest ever. I appreciate that sentiment as I wanted him to push his body and mind to become more than what he thought he could do.

One brilliant insight Mark recently shared captures a far better model to consistent change. Here is what he said below;
“New Years Resolutions are for those who didn’t work hard enough or look after themselves the year before. Self improvement can start now, all year round, from this moment forward.”
Indeed, for those who are constantly working on themselves all year round, there is no need for a new year resolution. It is far easier to work on yourself month-in-month-out then to rev up the change engine once a year. If you have not been working on removing your limiting beliefs throughout the year, then a new year’s resolution is most likely to fail.
It is like not running all year, then all of sudden taking yourself out for a long run when your lungs and legs are not ready for the task. You are most likely to fail, and then imprint negatively on your self-image ‘it is not like me to make the changes I need/want to‘.
This only hinders your confidence and decreases your likelihood of making lasting change in the future. Every negative imprint from failing to keep a commitment or resolution only adds on to the difficulty of changing your trading mindset in the future.
Daily affirmations by themselves will not make lasting change, especially since most are done improperly. Their is an underlying flaw in daily affirmations most fail to see. Also making those trading resolutions at the beginning of the year creates the idea you can only change once a year. This is also a fateful idea.
It is far easier to work on smaller goals throughout the year, that eventually build up your self-image and confidence to make the big changes. When you have seen yourself do the work earlier, it becomes more ‘like you‘ to do the work later. This is a far superior model for consistent improvement and hitting your target.

Why Do Most Resolutions Fail?
Understanding this one thing would help unlock many of the critical reasons why you make the same trading mistakes, why you have a streak of winners and lose them all in one trade. It is the same reason why you follow your trading plan for a few weeks/months, but then go off the reservation.

The reason why a trader fails to make consistent change and build a successful trading mindset is the same reason why most resolutions fail.
With that being said, before I share the answer – why do you think most traders make the same mistakes over and over again? Why do you think you fail to keep your risk management? Why do you think you succumb to the same emotions you know are toxic to your trading?
Many of you are smart people and can certainly figure out most of what you are doing isn’t helpful. Yet you still do it anyways. Why do you think you continue to do things which you know will only hurt your trading performance?
Please make sure to share and comment below. Your answers will be incredibly revealing as to where you are in your trading process, how much you understand about the trading mindset, and what you have to build mentally to become a successful trader.

Forex Strategies, Trading Mindset & Risk Management

5 Tips For Building A Successful Mindset

To trade profitably takes many things, all of which are borne of a successful trading mindset. You will never find a highly profitable trader without a successful mindset. You will need mental strength to complete this journey – but just like muscles, this mental strength can be built with proper training.
It is important to keep the perspective your journey and equity curve will not be a straight line. No success story was built without failures, speed bumps, or mountains to overcome. These failures and obstacles aren’t just part of every success story – they help to define them.
Here are five tips for building a successful mindset for trading and life.

#1 “I Can Do This”
A mind riddled with doubt and a lack of confidence will only make the situation more difficult. It will deplete available brain resources, and actually engage emotions which make it harder to succeed in trading.
We will all make mistakes and have losses in trading. To trade is to be married to both wins and losses. There is no way around it.
Trading is not going to kill you. Every obstacle you face in trading you can get through. You must have a mindset that ‘I Can Do This’. This will make those tougher moments becoming more workable.
A successful mindset is willing to keep trying till they get it right. Failures are not used as reasons to give up – but opportunities to grow stronger. By resolving in your mind to find a way, your intelligence, experience and resources will be directed in ways to overcome your obstacles.

#2 Persevere and Stay Committed To Your Goals
The success and change you want will not happen overnight. Thus it is critical to have a mindset that stays committed – one that perseveres. You don’t lose 50 lbs of weight overnight. You will also not become a millionaire overnight with trading, nor be consistently profitable. It takes time, hard work and a focus on the process.
Staying committed keeps your attention, focus, time and effort on things that will bring you closer towards your goals. Build an inner perseverance understanding you will face challenges, losses and mountains to climb in trading. By staying committed to your goals, you will eventually find a way to overcome those challenges.

#3 Stop Worrying About Past Losses/Mistakes
This one is tough, because we are actually wired biologically to feel pain and losses more than gains. We placed emphasis on avoiding threats than on maximizing opportunities. This was simply to survive. But your goal in becoming successful isn’t just to survive – it’s to Thrive!
People who are mentally strong do not waste much time dwelling on the past or getting back their losses. You can wish every second for the rest of your life something you did in the past was different. You could become the wealthiest person in the world, and you still would not be able to change this. Why waste your time worrying about what you lost on a mistake or bad trade?
Far better to acknowledge your mistake and learn what to do differently. This is how you protect your mental capital.

#4 Patience Is Not About Waiting
People seem to think patience is some passive thing where you wait for things to come. Patience is an active process, whereby you understand little things done well build up a big result, but do not come overnight. While one result may take a lot of little actions to get there, you are actively moving forward – working on your growth.
Being patient means working hard for what you believe in taking those small steps each day.

Many times, it will be hard to see your progress. Your equity curve will have flattened and the results you want aren’t there. But that does not mean progress isn’t happening. It is very possible you are advancing. The space shuttle actually has to build up a lot of force and propulsion before it starts to climb. Often times your trading process will be the same.
Keep your focus on the process. That is where you build the momentum. That is where the fuel & propulsion to your success lies.

#5 ‘A Smooth Sea Never Made a Skillful Sailor’
Obstacles, pain & challenges come in two types: 1) Those that hurt or stop you, and 2) those that change you (for the better). Learning from them brings change, growth and confidence. A sailor will never become highly skilled by taking on easy voyages. The best learn from the rough waters they have to traverse. This is no different from trading.

You want to be a successful trader, so accept the fact you’ll have to overcome obstacles and rough seas to get to the other shore.
Strength and confidence doesn’t come from what you can do easily. Overcoming is the currency of confidence.

Featured Article, Forex Strategies, Trading Mindset & Risk Management

9 Things Successful Traders (& People) Do

Successful traders and people often do things differently than the rest of the crowd. But what they do is not magical or something unavailable to you. A successful trader mindset is always behind these people, and this is something you can build. There is very little about trading that is easy, and often times I hear of traders applying the wrong mindset to the challenges they face. Here are 9 simple things successful traders (& people) do, which you can adopt to change your compass towards success.

1. Have a Passion For the Process

Around the age of 5, Earl Woods brought his son on to a TV show to demonstrate how good his son’s golf swing was. After the young Tiger showed a glimpse of what he was to become, his dad was asked the following question;

“How many hours do you make him practice every day?”

Earl quickly responded, “Make him…I cannot get him to stop.”

You have to have a passion for trading and the process. Your passion cannot be ‘outcome dependent‘, meaning if you make x dollars in y months, then I’ll remain motivated to do the work. You must be willing to do the work, particularly in the moments when things are not working your way. It is easy to do the work when all is going well.

2. You Must Accept a Tedium of Work in Your Learning Process

There will be moments in your learning process which will seem boring, tedious, and difficult. You will often have to work on things you like the least – perhaps money management, filling out your trading journal or reviewing your trades. It is unlikely you will enjoy everything you do equally. In all great things built, there was always a tedium of work in the process – the moments where you sweat, tire and become exhausted. You must accept this tedium of work, and understand those little things build up skills and wire your brain to trade successfully.

3. Frustration Often Times is a Sign of Progress

When the brain gets to something it doesn’t understand, it often gets frustrated not having the answer. Being frustrated by something in your trading process is a communique you are dealing with things more complex than you understand, or can do efficiently now. This is a good thing. It means you are now heading into territory you are not skilled in, but need to be to become a successful trader. Be grateful those things are being pointed out – for when you work on them, growth happens.

4. You and Your Environment Imprint Upon You

The things you say to yourself before, during and after each trade have an impact. They imprint upon you, particularly the emotional quality of them. The same goes for your environment (parents, friends, co-workers). Make sure what is imprinted upon you is positive and directs you towards being successful. Learn to protect your mental capital.

5. Do Not Expect Immediate Results

Nobody who is a successful trader (or successful at anything) got there in a matter of months and expected immediate results. In a great commercial ‘Maybe It’s My Fault‘, amongst saying many brilliant things, Michael Jordan shares the following;

“Maybe I led you to believe that basketball was a god given gift, and not something I worked for – every single day of my life.“

It’s easy for us to see the success of such people. But we often fail to see all the hard work behind it. Michael had to work at his game for years, often filled with failures before he started to notice results. Real change in your trading does not come easily or quickly.

6. Do Not Look For an Easy Way Out

I have never met a successful trader or person who looked for the easy way out. You can pirate all the systems you want, but you will not have the mindset of abundance to be successful. You can try all the robots out there – none will become the ATM machine you think they will.

Do you really think Tom Brady or Peyton Manning got to being elite quarterbacks by not doing the work? Do you really think they skipped steps?

Remember, 84% of all people who win the lottery are broke inside three years. Now ask yourself who you’d rather be;

Person A – who makes $1 million in a lottery

Person B – who built up a business over three years and made $1 million?

Who will be able to repeat that success, use their skills, experience, and be most likely to do it again? Obviously Person B, while Person A by contrast has no skills, information or experience working for them. Food 4 thought, but do not look for an easy way out. There is none.

7. In The Future, I will…

I cannot tell you how many students tell me, or my partner Aruna who does the ERT training program, that they will feel confident, relaxed, or happy when they become a successful trader. Why put your happiness on hold? Why make your mindset held captive to some unknown future? Why not feel confident, relaxed and happy now?

A good friend of mine recently shared this great quote and post which said the following;

Ego says “Once everything falls into place, I will find peace.” Spirit says, “Find Peace and everything will fall into place.”

8. Take Responsibility for Your Behavior

Would you expect to be capable of finishing a marathon without running, stretching, training, proper hydration and diet? Would you expect to build strength and muscles sitting in a chair all day? Of course not. What makes you think trading is different?

Don’t fill out your journal, evaluate your trades, train properly, build your trading skill set, or a successful trading mindset – then do not expect to become a successful trader. Be honest with yourself and take responsibility for your behavior.

9. Failure is a Part of All Successful Ventures

Failure is a part of the process – an element you have to befriend. If you make it mean something about you, then it will consume you and create negative trading habits. However if you learn from failures, you will grow from them. You have overcome challenges like this in the past. When those challenges were happening, at one point you didn’t think you could get around them. This situation is no different.

Remind yourself of the challenges you have overcome to get here, and what strengths you have. They will aid you in difficult times. Peter Vesterbacka – the creator of Angry Birds, had produced 51 games prior to creating Angry Birds, and virtually ended up in bankruptcy. It has done over $6B in sales over the last few years. Failure is a part of all successful ventures. Real confidence comes in overcoming obstacles, failures and challenges.

Forex Strategies, Price Action Trading

Intra-Day Charts & The Myth of ‘Noise’

One of the greatest ‘myths‘ out there (or mis-information) is price action on the lower time frames (below 1hr charts) is just ‘noise‘. This is a highly confused notion of price action trading and nothing could be further from the truth.
Prop traders are often trading below the 1hr time frames every day, oftentimes on the 1m, 3m or 5m charts. Bank traders will often be highly active, also trading on the lower TFs. They do this while also building up large swing positions they hold for weeks, perhaps months to trade with the trend. Same goes for desk traders and institutional ones alike.

The bottom line is, professional traders are trading off all time frames. There is no ‘holy grail’ of time frames. There is no bastion of good signals that only exist on the higher TFs (daily and 4hr charts) while anything below the 1hr chart is just ‘noise’ or garbage. High quality signals exist on all time frames, and traders are making money on virtually every time frame you can imagine. The ‘noise’ idea you’ve been told is a myth.
Sorry to kill the sacred cow – but those espousing the freshman idea only good signals exist on the daily/4hr charts clearly do not understand price action.

The idea of noise existing on a particular time frame comes down to the lack of one thing – training. I will use an analogy to demonstrate this point.
Foreign Tongues & Cryptography
If I am walking down a street in my home country, I will understand what people are saying. Why? Because I speak the language. I have been trained to.
Now put me on a busy street in Finland or Mongolia, and I will have no idea what they are saying. Their conversations will sound like noise to me. In fact almost any language that is unrecognizable to me will sound like ‘noise’.
Why? Training.
But give me six months to a year learning that language, and what before sounded like ‘noise’, will now sound like a conversation. It will have information, meaning and a familiarity to it. I will be able to understand and recognize what they are saying. The only difference between the two scenarios, is training.
Same goes for cryptographers (those who translate coded communications). What may sound like noise to me and you, is actually a hidden message or code for them. Again – the only difference between us and them is training.

It Comes Down To This
If you have been only trading the higher TFs, then for a little bit, the lower TFs will look like ‘noise’ to you. You will not understand the differences, the rhythms, and how the information is expressed a little differently. But through training, practice and experience, you will start to understand the code.
What you will find are great intra-day signals, key levels, and how the intra-day price action flows. You will spot opportunities and see patterns. With a little effort, practice and training, the ‘noise’ of those time frames will start to become clear and trades will start to pop out to you. With proper training comes an improved trading mindset.
That is not to say you should or have to. I always recommend finding what is most natural to you, your availability, and inclinations. That could be only on lower TFs, higher ones, or a mix of both. Everyone will have a sweet-spot. It is up to you to find that.
To be clear, I am not saying this comes easily, but nothing in trading ever does. It takes patience, work, practice and training, but it certainly can be done.
Hence do not believe the confused freshman ideas there are boogeymen down there. I have many students trading the intra-day charts successfully several times a day while maintaining accuracy and profitability. There is no reason why you cannot do the same.

Forex Strategies, Trading Mindset & Risk Management

Protecting Your Mental Capital

In 99% of the cases, when hearing about ‘protecting your capital’, what’s being discussed is your financial capital, or money in the account. But when do you hear about protecting your mental capital?
Unfortunately there is very little discussion about protecting your mental capital. And yet, it can often be more important than protecting your actual capital (i.e. money).

What is Mental Capital?
Your mental capital is very much like an account balance reflecting the strength (or weakness) in your self-image and trading mindset. A good example is confidence, or lack thereof. Some other ingredients which affect/are part of your mental capital are;
Doubts
Fears
Beliefs (positive, limiting or negative)
Impatience
Self-esteem
Laziness
Discipline
Focus
Awareness (both self, and in the moment)
Beating oneself up
Negative or Positive Language
Mental Toughness
Your mental capital is something (just like your risk capital) that has to be protected and built up brick by brick. However, there are no mathematical formulas to help you with this. The two things that affect your mental capital the most are 1) You and 2) Your environment.

Ways to Protect Your Mental Capital
There are many ways to protect your mental capital, of which, I’ll share a few simple techniques here;
1) When in a trading slump, go for smaller, more achievable goals
We’ve all gone through losing periods, but the longer they go, the more potential they have to affect our mindset. Sometimes you just need to get a few winners to build your confidence back. If getting 2R on a trade just seems out of reach, try going for 1.5R, or 1R. Just nailing a few wins can do magic for your confidence and beliefs. Its an external confirmation to your mindset you can make good trades. When this belief comes back, you start to find yourself making better trades.
2) Avoid beating yourself up
This takes awareness in the moment, so anytime you catch yourself doing this, you have to stop the negative self-talk. Instead, think about things you do really well. Think about something which you’ve overcome in your life. By recognizing your strengths, you start to engage them more, while replacing the negative self-talk. It’s a more constructive thought process to engage in and helps to strengthen your trading mindset.
3) Take on less
Maybe you are trading 3-4 systems across several time frames and instruments. If you cannot perform consistently at this level, reduce what you take on. Trade less systems, instruments and time frames. Try doing a few things, or even just one system really well. When you start to perform well with that one system, winning more trades and making money, you start to create a positive belief you can do this. This leads to a confidence which you can then use taking on just a bit more, very much like lifting weights.

In Conclusion
These are just three simple ways to protect your mental capital, and there are many more developed methods, techniques and ways to do this. One example is ERT training, which helps to re-wire your brain and remove those limiting beliefs.

Not protecting your mental capital will only lead to negative emotions, beliefs and habits. But protecting your mental capital will help you build constructive and positive trading habits that ultimately lead to better trades. There is nothing more powerful than someone who believes in themselves. All great performers have this. Your goal should be to become that person.

Forex Strategies, Trading Mindset & Risk Management

9 Questions For Traders

About a week ago, I took a training (not related to trading) which was a tremendous learning experience. It was a deliberately small group of highly successful people so we could get more personalized training.

In the group were the following professionals;

1) Aerospace Engineer for Test Pilots/Mission Control (ya know ‘Houston, we have a problem‘…he is a part of that team)

2) High Profile Trial Lawyer – Billion dollar cases vs. multi-national corporations, music artists, murderers, you know…the easy stuff

3) Three gun national champion (pistol, shotgun and rifle) – working towards a world championship.

4) And me – y’all know my story.

All of us were there for one reason; to either go from good to great, or great to dominant. Ironically, we all had the same Achilles heel. Keep in mind we all came from different backgrounds, fields, training, etc. Yet, we all were standing in front of the same mountain.

This training sparked all kinds of things in me about trading, my students, and how to increase both trading performance and one’s learning curve.

I’m already building this material for students, but wanted to ask a series of questions which I think would be highly revealing as to where you are in your trading process, and how you could increase your learning curve in trading.

Here are the trading mindset questions below. Read them all, think about the answer, and then share your answers in a format of 1: answer, 2: answer, 3: answer…

You get zero benefit for not participating, yet there is only upside for answering these trading mindset questions, so the best R:R trade you can embark upon.

Question #1: For each trade, I either win or ______________________?

Question #2: I control _________ % of what I think about during each trade?

Question #3: I have a daily, weekly or monthly goal in terms of how much profit I make (yes/no)? Which one?

Question #4: I train to _____________________?

Question #5: How much of the time am I thinking about the outcome (profit/result – win/loss) of my trades in % terms?

Question #6: How do I label each trade, such as a win, loss and break-even trade? Use the same language that pops in your mind when experiencing a win, a loss, and a break-even trade.

Question #7: For every 10 trades I take, how many do I go back and forth on my decision?

Question #8: I have a goal in trading which is related to making x% or x$ in profit (yes/no)?

Questions #9: The most harmful thing for my trading is _____________________?

If these 9 questions for traders have provoked something on the inside, how you look at yourself and trading, then that is a really good thing. If it provoked no reaction in you at all, then either a) you’ve mastered trading, b) you have to develop your level of self-reflective awareness, or c) you are not engaging the markets enough.

But I look forward to seeing your answers as they will reveal a ton of information about your trading mindset, your psychology of money, and how you relate to your learning process in trading.

Looking forward to your responses.

Forex Strategies, Trading Mindset & Risk Management

Trading Like A Sniper – What It Really Means

About three days ago, I was given an interesting question by a student. They asked the following;

“Out of curiosity, how many trades do you take in a month? Is it like sniper trades, as in one trade a week or so?”

After reading the question, I realized they had a confused assumption about what it actually means to trade like a sniper. There have been all kinds of forex trading frequency articles written around this vein, such as trade like a sniper, not a machine gunner. It should be known that if there are machine gunner traders out there, they are HFT’s. And FYI – the top HFT firms are making millions, but I digress.

The Confusion
There seems to be this confusion trading like a sniper means you only trade a few times a week, perhaps even a handful a month. This is furthered by the idea of only trading on higher time frames, such as the daily and 4hr charts. But this is highly inaccurate of what it means to trade like a sniper.
Now, before we get into the subject of foreign exchange trading frequency and how it has nothing to do with time frames, I’d like to share a few interesting facts about snipers.

Fact #1:
Most snipers going through training will fire 1000’s of rounds. This is referred to as their ‘rounds down range‘ training. General estimates are about 1800-2000 rounds over a 35 day period. If you do the math, that’s about 50+ shots per day every day for 35 days straight.

Now try and bridge the gap for the daily chart trader that only does 2-3 trades per week, maybe 5-6 per month. At that pace, a daily chart trader doing 10 trades per month on average would have to trade for +180 months (or 15 years) before they accumulate the same amount of basic training a typical sniper does in 35 days.
There is a reason in sniper training you do so many shots in a day. Because shooting only 2-3 per week doesn’t build your skill set. In fact, for 99.99% of all skill based endeavors, executing something only 2-3x per week will not build your skill set. Trading is no exception.
You cannot fire three shots in a week and expect to be proficient. You cannot do three free throws and expect to be a good free throw shooter. Why would you ever expect this to be the same for trading? However, doing something over and over again dozens of times a day does build your skill set.

Keep in mind, a sniper doesn’t just do their 2000 rounds and stop shooting from there. They continually train day in-day out to sharpen their skill, shooting dozens of times per day. Thus, before a sniper will ever be given that chance to make a single shot in a real world situation, they will have taken thousands of shots prior. Food for thought.

Fact #2:
Sometimes you will have to pull the trigger quite often as a sniper. Some examples of famous snipers in history;
1) Simo Hayha – had 505 confirmed sniper kills in the Winter War, which lasted only 100 days. Do the math: 505 kills over 100 days = 5.5 kills per day. Obviously quite active on a daily basis.
2) Vasily Zaytsev – over 225 kills over a 5 week period during the Battle of Stalingrad: 225 kills / 35 days = 6.42 kills per day. Again, quite active on a daily basis.
3) Clive Hulme – Fought in the Battle of Crete (11 days), and is credited with 33 confirmed kills (of German Snipers!): 33 /11 days = 3 per day.
What does all this mean? When engaged in an active environment, they can and will pull the trigger many times.

Translating This to Trading
Anyone who is properly trained will find several high quality signals a day. Only someone who is improperly trained will be unable to trade below the 4hr or 1hr charts.
This idea of only trading on the higher time frames to be a sniper trader is a confused logic. If you have setups according to your system, you pull the trigger – period. If that happens 1x / day, or 10x / day, its irrelevant. And do you really think bank traders are being paid to sit on their hands all day to only trade 2-3x per week? Do you think prop-traders are only pulling the trigger a few times throughout the week? In what fantasy-land does that world exist?

I consider myself a ‘sniper’ in terms of trading. I observe, I stalk, I study my targets, and when the opportunity arises, I pull the trigger. On average, this happens to me 3-5x per day, sometimes over 10 trades in a really active day.
If you are actively engaging multiple markets, there is no reason why you shouldn’t be finding several high probability setups every day. Even if you just focused on forex, across the most liquid pairs daily, you could easily trade several times per day.

The ‘Noise’ Argument
One thing commonly heard from the trade like a sniper camp is anything below the 1hr chart is just ‘noise‘. I have one thing to say to this;
Put me in some strange country on a busy street where everyone is speaking a foreign language. Most of what I will hear will be ‘noise’. Now give me 6 months to learn that language, and it will no longer be ‘noise’, but a conversation full of information.
What is the difference between the noise I heard earlier, and the conversations I clearly hear later? Training. What seemed like ‘noise’ on that 30m or 5m chart will start to sound like a conversation – one you can translate.

In Closing
You will not become a ‘sniper’ if you are only pulling the trigger 2-3x per week. To become one (or a highly trained individual at anything), it takes thousands of reps. And it should be known snipers become less accurate the longer the distance.

The ‘sniper’ difference comes down to training. If you do trade on the daily/4hr TF’s only, there are ways to accelerate your learning curve. So consider alternative forex trading frequencies and methods to building your skill set.

Forex Strategies, Trading Mindset & Risk Management

Reactions to Stress in Trading

Tell me if this trading situation below has happened to you before.

You’ve just had your largest loss ever (or big one), and you are feeling incredibly risk averse, almost to the point where nothing looks good to trade. With each new setup that comes, you find yourself still recalling that big loss and hesitate, or fail to pull the trigger.

This common experience amongst traders has a biological root, and most often creates a negative psychological effect on you. These biological and psychological causes can have a tremendous impact on your trading mindset, perhaps writing the future history for your trading career. The good thing is, your brain and trading future can be changed.

Biological Reactions to Stress in Trading
Losses no doubt can have an effect on your trader psychology, but also your biology and brain. Cumulative losses can create a huge increase in cortisol in your system. Too much cortisol over a long enough period can cause neurons to fire, where you can no longer concentrate effectively to make a good trading decision.

But take a huge loss, and now your brain is likely re-wired for more losses – minimally in a poor state for trading.

What Happens When You Take A Huge Loss?
There are two regions of the brain that work together in remembering stressful events. They are the ‘hippocampus‘ and ‘amygdala‘. We’ve actually talked about the amygdala and how it impacts your trading which you can read about here.

To clarify between the two, the hippocampus will record the factual details of the big trading loss, while the amygdala will encode the emotional significance of it. Both of these are affected by stress, which releases stress hormones that can heavily affect brain performance.

Now as stress and cortisol levels rise, with continued exposure, our tendency to recall any trading events stored during this neurological state increases.

For a really good graph about performance and a stress curve, see the graph below.

Getting back to the big loss, the experience becomes quite intense emotionally, almost as if it was burned into your brain. This is because of the intensity of those hormones present during this loss. This imprinting in your mind becomes corrosive to your trading, particularly your mindset.

You start to remember negative experiences, that may or may not have anything to do with trading. Just recalling these memories will affect your performance, but there are additional consequences.

Anytime you are analyzing the price action in real time and a new setup forms, you will with greater intensity, draw upon those negative feelings and memories, one of them being the big loss itself. This only makes you increasingly risk averse and afraid to lose, almost to an irrational level. This could happen despite a high-quality signal being right in front of you. In essence, you become paralyzed by this risk aversion, unable to pull the trigger.

Another scenario could be that you are ‘shell-shocked‘ from the trading loss, yet still are able to make a trade. Unfortunately, your trading decisions are totally off kilt. You think you see setups, and start making trades, only later to realize there was no price action setup at all. While reviewing your trades, you actually see now there was no pattern at all.

This is from a biological reaction to the stress you experienced. In some traders, without the proper tools, it becomes so damaging, that it affects them for weeks, months, perhaps even years. Some traders may never even recover from this. Even though that huge loss was ions ago, you still remember it vividly and often recall it when trading. Has this ever happened to you before?

If so, do not worry, as most have had this experience.

Can You Change This?
The good thing is you can re-wire your brain, almost like re-writing your hard drive on a computer. Neural connections can be rebuilt and tuned for success. You can also build new connections which overpower this experience, to regain your confidence and make great trades.

One Way to Change Your Brain for Success
One of the best ways to re-wire your brain for success, and erase these negative trading experiences is to enter a ‘Whole-Brain State‘. This is where your brain operates in an integrated balance. Your left and right hemispheres are working well together. You are not pumping unnecessary stress hormones into your system. You avoid entering a ‘fight or flight‘ response, or being overly emotional, or too intellectual.

In essence, your brain operates in a balance which the Whole Brain State induces. When you think about it, which state would you want to be in for trading? A fight or flight state? Being too intellectual or emotional? Having massive amounts of stress hormones pumping through your brain? Or be in a balanced whole brain state?

Yoga and meditation are notorious for helping to put you into a whole brain state, while tuning your central nervous system.

Another powerful method is ERT Training, which we’ve specifically built for traders. If you’ve had similar experiences to the ones I listed above, and still keep recalling negative trading experiences even today, then you’re likely not in a whole brain state. But if you want to learn how to be in a whole brain state while trading, then you definitely have a tool to build a successful trading mindset.

Forex Strategies, Trading Mindset & Risk Management

Sports, Forex Trading & Mentorship

Those familiar with my blog will know I’m a big sports fan (you can read a recent post on sports and trading here). Now I cannot say I’m a hard core fan of one sports team, as I have a few and enjoy some. But more importantly, I’m a fan of sports, particularly professionals. These are the top in their profession, and every time I see them, I learn something.
They have trained for thousands of hours. They work on every aspect of their game. The best work tirelessly to take things to the next level, and yet consistently practice the basics.

I appreciate the wisdom they show to us, their athleticism, and their mindset of success.
Now along those lines, what do Tiger Woods, Peyton Manning, and Georges St. Pierre have in common besides what I listed above?
They all work with coaches and mentors. Tiger has one coach he works with, Peyton has several, and Georges can have up to 20! Yep, the best in their field who are paid millions yearly to do what they do, work with coaches.
No champion or elite athlete reaches their top performance levels without coaching and mentoring.
NOTE: For a couple of good books on elite performers, training and mentorship, check out these books by Coyle and Colvin.
Now the next natural question to be asked is, ‘why do you think trading is any different?‘
It’s not, and there is a reason for this. Woods has spent his entire life perfecting his golf skills, yet works with a coach daily. Peyton is setting records this year at age 37, yet trains with several coaches. Georges is a record setting UFC champion with 4 different black belts. He too has coaches.

Hopefully this is clarifying why you should be working with a mentor as well.
I recently heard the most ridiculous argument that everything you need to learn about forex trading you could on the net. How ridiculous! If that were the case, why would banks spend hundreds of thousands each year training their traders? Why would Top hedge fund traders working with $250m (million) books+ have coaches and mentors they work with? It should be painfully obvious why.
I myself work with several people. There are two I work with specifically on my trading mindset and am about to add a third. I have a programmer with a graduate degree in financial modeling I consult with for risk models and money management strategies. I pay these people a lot of money, but there is a specific reason I work with them. Simply put – they enhance my performance, help me see things I am missing, and provide support along the way.
How to Find A Trading Mentor
If I had to break it down simply how to find a trading mentor, I would suggest looking at a few things;
1) Does their teaching style make sense to you and what they are saying clarify things?
2) Can they simplify things without making them to basic or freshman?
3) Do they respond quickly to all your questions and seem supportive?
4) Do they offer insights beyond trade setups, such as building a successful mindset, and obtaining the proper skill set?
If they offer the four above, and you have a good feeling about them, then that is someone to work with. Now whether you choose me or not, is less important to me personally. What is more important is finding the right person for you.
Regardless of who that inidividual is, find someone to coach, mentor and train you as it will definitely accelerate your learning curve, and increase your chance for success. There is a difference between being interested and being passionate about trading. Look behind all elite performers across all fields, and you will almost always find a mentor.
One more thing I’d like to mention before going that Tiger, Peyton and Georges all have in common. They all train incessantly and are constantly working on their game.

Fixed % Equity vs. Fixed Dollar Amount | Which is Better?

Why Do Most New Years Resolutions Fail?

5 Tips For Building A Successful Mindset

9 Things Successful Traders (& People) Do

Intra-Day Charts & The Myth of ‘Noise’

Protecting Your Mental Capital

9 Questions For Traders

Trading Like A Sniper – What It Really Means

Reactions to Stress in Trading

Sports, Forex Trading & Mentorship

Stock Trading

Options Trading

Trading Courses

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