Tag Archive for: key levels

Don’t Trade Forex Unless You Are Doing These 4 Things

You might have had a few profitable months trading live this year, but if you are like 92.5% of all traders out there, when the clock strikes 2015, your account will be negative.

In almost all endeavors, the dividing line between success and not making it is a fine one. Likewise, such a dividing line is drawn daily by what you do, and what you do not do.

Another way of putting this would be – those who will be profitable at the end of 2014 will generally do the things consistently others will not.

The great thing is, you can be one of those in the green at the end of this year. To get there though, you’ll likely have to make a few changes to what you are doing.

Here are some simple steps you can take to put yourself in the 7.5% who will be green at the end of the year. These are the 4 things you should be doing (minimally) if you are trading forex.

1. Being Mentally Prepared

Ever go to a professional sports event 1-3 hours before the game started? Besides empty seats and reporters giving up to date info, you’ll see one constant every time. The athletes themselves are preparing.

mentally preparing for trading 2ndskiesforex
All professionals simply know you have to prepare before each game/event/match. Keep in mind, these professional athletes are already successful, yet they prepare regardless. In trading it is no different, although most of our preparation is mental.

Being mentally prepared, means knowing what you are going to do during your trading day, and how you are going to do it. It is tuning your mind to give yourself the greatest mental edge possible.

Ask yourself do you prepare mentally each day? Do you have a routine you go through before you hit the buy and sell buttons? What do you do to build a successful mindset?

Interesting Story: I had a student who started off his first month of live trading in the red. The next month, he upped his game gaining +11% for the month, mentally prepared for each day.

Ironically the following month, he stopped his mental preparation, and as suspected lost money.

After doing his private follow up session with me, we got him back on his mental preparation routine. Where is he at for the month of May? Up almost 7%.

2. Have A Trading Plan

One of the most important documents you will have as a trader will be your trading plan. This is what you will follow each day from the beginning to the end of your day. It is to guide your actions, along with helping you measure habits and patterns of behavior, to see what is working (or not).

There are generally two types of trading plans:

1) Day-to-Day Trading Plan (actions to do/follow daily)
2) Business Trading Plan

Most ‘authorities’ and ‘masters’ of price action promote only the first one, and they do so in a highly limited way.

Generally such freshman trading plans cover the typical vanilla things, such as;

1) Price Action Signals to Trade
2) What instruments you will trade
3) % Equity Risk Models
4) Stop Loss and Take Profit Rules
5) Rules for Entry & Exit

Look familiar? These plans are completely inadequate by themselves. They myopically focus only on the mechanics of an actual trade.

What about mental preparation? What about reviewing your trades? How you will treat trading as a business, and measure properly if your business trading plan isn’t working?

trading plan and planning your trades 2ndskiesforex
Just like the CEO has a business plan, or the NFL coach has a game plan, you should not be trading without a trading plan.

NOTE: For a really good article on How to Build a Proper Trading Plan, click on the link.

3. Have a Way to Measure and Review Trades

Most traders in the red come end of the year do not measure their trades. The irony is, usually a small adjustment to what you are currently doing will help you trade consistently profitable. One of the best places to find this information is in measuring and reviewing your trades.

Measuring your trades is initially done through a trading journal and performance worksheet. The former notes all the details about each trade, while the latter analyzes the performance of each pair, strategy and time frame.

Have you considered the fact you may do really well with a few pairs, yet consistently lose money with others? How would you know without measuring your trading performance?

reviewing trades 2ndskiesforex
Reviewing trades is probably one of the hidden secrets you’ve overlooked to boost your performance and skill set. Sometimes looking at charts of past winners and losers will help you spot patterns and price action context you missed before.

NOTE: For a good article on reviewing trades, visit the following link: Reviewing Trades – Two Crucial Tips

I actually have a folder full of screenshots for winning and losing trades. I also have a folder of screenshots whereby the charts show great examples of a price action pattern working out. By reviewing these charts at the end of the week, I am wiring into my brain to look for these patterns, thus being more likely to spot (& trade) them in real time.

For more information on end of the trading week review, click on the link here.

4. Continual Training

Most developing traders seem to think that once they are profitable, the training ends. Does a concert pianist ever stop training? Do high level martial artists ever stop training? Do Buddhist monks ever stop training?

No. So why would you think that training ends at some point?

Do you have two hours set aside to trade each day, but no trades available with your set and forget strategies? Don’t walk away and be a lazy trader – study, practice, or best of all – do live simulation trading.

Is it a holiday and the markets are closed? The answer is the same.

Anytime I am not trading for the day (for whatever reason), I Use Forex Tester 2 to Accelerate My Learning Curve. FT2 allows you to do live forward simulation trading on any pair or time frame, with at several years of data available.

Need help with your pin bar trading? Use forex tester 2.  Having trouble trading support and resistance key levels? Jump on forex tester 2.

It’s like the golfer going to the driving range – but for trading.
continual training 2ndskiesforex
This is a great way to build your skill set and get real practice time executing trades in with live forward simulation. You could literally do 50-100 trades in one hour with forex tester 2, which may take you an entire year to do on your own.

I could spend a day talking about the benefits of this as the list is long, but for those trading daily and 4hr price action strategies, you’ll need to increase your trade/rep count to build a sufficient skill set. FT2 is the best way to do this.

You Will Need This Though…
One might think that having a strategy with an edge is one thing you shouldn’t bother trading without.

I agree, but I think this should be a part of your trading plan. If it’s not, then your trading plan is incomplete.

In Summary
All high level professionals do a minimal amount to perform well in their chose field, and that minimum amount they do is often more than those who are not successful. Trading is no different.

If you decide to trade anyways without doing these 4 things above, expect sub-par performance. More importantly, don’t expect the best out of yourself.

With that being said, what things would you add to this list?

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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.lower time frame noise myth busted chris capre 2ndskiesforex
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.
cryptography training intra-day time frames 2ndskiesforex
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.

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Trading Support and Resistance Key Levels

Today’s article will focus on forex trading support and resistance key levels as this seems to challenge many developing traders. Learning how to trade support and resistance key levels is critical, because in essence, this is where;

a) you will be placing your stops and targets, and

b) this is where the institutional traders are getting in

In reality, forex support and resistance trading levels are like ‘doors’ or ‘walls’, either they will be open or closed – either they will break or they will hold shut. Your success in support and resistance trading will be in determining when they will hold, and when they will break.

trading support and resistance key levels breaking through resistance 2ndskiestrading.com

Thus, it becomes essential to learn how to read key levels so you can have a well defended stop, a highly efficient entry, and also have proper timing.  In this resistance and support trading strategy article, I will cover two powerful tips for finding these key support and resistance levels.

#1: Minimum of Two Touches
Before you can consider a level to be used as support or resistance, you will want a minimum of two touches.

Why?

Imagine you are in a strong downtrend, and the pair rejects off a particular price heavily – perhaps via a long tailed pin bar.  You have to consider, with trend traders are just going to see this as a test. The bears know there are buyers off the price where the bottom of the pin bar formed, but they are not going to give up control of the trend just from a simple pin bar.

They are going to retest this level to see if the buyers there are strong enough.  If they break it, then the trend and profits will continue.  If not, then they will take profit, but it’s unlikely a reversal will start immediately.  A good example of this is in the chart below.

GBPUSD Daily Chart
pin bars support and resistance key levels price action 2ndskiestrading.com

Looking at the chart above, we can see the pair is in a strong downtrend.  In the middle of the chart at A, it forms a counter-trend pin bar. Now although the pin bar body is at the prior support area, the tail is way below, and its the bottom of the tail where the buyers entered in, not at the support area.

Thus, the bulls at the support area were likely stopped out when price dipped 100 pips below, & the rejection from the pin bar occurred at a place with no two touches. So this would not be a pin bar to buy as you can see failed whether or not you used a 50% retrace entry (which can be quite inefficient).

You will also see the same later on with the pin bar at B, which also had a low at no known support area or formed a second touch.  This also would have been a loser.

Now notice the pin bar at C which is with trend. You will notice the pin bar formed a second touch off the level two candles back.  This would have been a good price action setup to get in because the second rejection would have confirmed the level.  And you will notice, it turned out to be a winner.

So the main takeaway from here is look for the two touches, because with a one touch, the with trend traders will re-attack that level. And it should be noted there is a far more efficient entry than the 50% retrace entry which I will discuss in next week’s article, but keep in mind, after long tailed pin bars, you don’t have to worry about missing the entry.

Why?

Because if it is going to reverse, the greater probability is that a re-balancing, or ‘re-distribution‘ of the order flow will begin.  This mostly likely will creating a range, or a corrective pullback.  This is also why when you have an impulsive price action move, followed by a corrective price action move, it is more often followed by another impulsive price action move.

This is also the reason why an impulsive price action move is rarely followed by a counter-trend impulsive price action move. From an order flow perspective, this is because if the sellers are heavily in control, the buyers will have to overwhelm the sellers, and this requires a lot more money and orders then the current bears in control.  This is the reason why V-bottoms are more rare than common.

#2: Trading With Trend Increases the Probabilities
You might have noticed with the chart above, that trading with trend was more powerful than trading counter-trend. As a whole, counter-trend trades are a lesser probability trade, so they take more skill, experience, and precision. This is simply because you are trading against the majority of the order flow, so the odds are already stacked against you.  For those still having trouble getting consistency, I’d recommend trading with trend as much as possible.

Now if you are in a range, then there is no dominant trend, so trading reversal type plays are suggested, particularly at the tops and bottoms of the range. But when a strong trend is in play like the one above, you will find greater profit potential and accuracy trading with trend instead of counter trend.

This also holds true for trading support and resistance levels.

Why?

In a strong trend, the larger players are just looking for key levels as areas they can get in with trend.  This is traditionally known as a breakout pullback setup, and generally does not need two touches off the level to confirm its effectiveness.

Why?

Because likely, in a trend, there will be a support or resistance level that is already being challenged, which would confirm there are buyers or sellers at the level trying to defend it, while the other side is attacking it. Once it breaks, the with trend traders often look for a pullback towards this level to get back in with trend. A great example of this is in the chart below.

AUDJPY With Trend Setups 4hr Chart
breakout pullback setup trading with trend price action chris capre 2ndskiestrading.com

Using the chart above, starting with the bottom left, price climbs consistently, gapping up, but then forming a resistance area at A. After a brief pullback, we can see price breaks through forming a new SH (swing high).  The market then pulls back to the level at A, and at A’, forms an aggressive engulfing bar which starts the next up leg for over 400+ pips before forming a pullback.

The pullback at B which forms the next resistance high, dips just below the 20ema and forms a with trend pin bar. This marks the new impulsive leg up towards 95.00. Then price pulls back towards the level at B, and at B’, double bottoms (two touches) and starts another leg up and a nice with trend entry.

After a marginal break higher, price pulls back and forms another with trend pin bar below the 20ema, which starts another up leg towards a resistance at C. Sellers enter at C, and after a short pullback, break above it, with a brief consolidation at C’, offering a great breakout pullback setup to get in with trend.

Keep in mind, in all of these with trend pullbacks, the market pulled back towards the levle that it hat the strongest rejection from at A, B and C. The strong rejections at those levels are counter-trend players, trying to stop the trend. But when the bears tried to get past the last major resistance, now turned support (forming a role reversal level), the bulls used this as an opportunity to get long.

Yet in almost every case where the market formed a resistance, when the market attacked that level again, the sellers failed to hold the level. This is because they were going against the major order flow, which highlights how much easier it is to find key support and resistance levels that work when you are trading with trend, and not counter trend. So hopefully this highlights the difference.

In Summary
Finding key levels, and major support and resistance trading levels is not some Da Vinci code type endeavor. Two key things which really help this are using the two touch rule, along with trading more with trend than counter trend. Of course, there are other key clues to understanding support and resistance, but if you can employ these two techniques, they will greatly enhance your ability to find key levels, and make highly effective trades around them.