Tag Archive for: risk of ruin

6 Trading Statistics Every Forex Trader Should Know

To make money trading forex (or any market for that matter), you’re going to need statistics to improve your trading performance. When it comes to improving your trading performance, 9x out of 10, you should be choosing data over opinions.

I’ve trained thousands of traders, and often times, the difference between winning and losing money came down to one data point or statistic, and at most 2-3.

In today’s trading article, I’m going to share with you 6 trading statistics every forex trader (and all traders) should know. Let’s jump in…

Trading Statistic #1: You Better Have This

In a highly fascinating study, FXCM did an analysis of traders who had negative risk:reward ratios vs traders who had a 1:1 risk:reward ratio or higher.

For those of you who don’t know what the risk to reward ratio means (risk:reward), it basically measures the money at risk on your trade vs your potential reward. To give a few examples:

  1. If I’m risking $1000 on my next trade, and my take profit is at $1000, then I have a risk:reward of 1:1
  2. If I’m risking $1000 on my next trade, and my take profit is <$1000, then I have a negative risk to reward ratio, meaning I’m risking more than my potential reward
  3. In contrast to that, if I’m risking $1000 and my take profit is $2000, then I have a positive risk:reward ratio of 1:2

Getting back to the FXCM study, they found that trading strategies with a negative risk:reward (i.e. <1:1) had only a 17% chance of making money trading.

Meanwhile, if a trading strategy had a 1:1 risk:reward ratio or higher, they had a 53% of making money (see image below).

risk-reward-profit-stats 2ndskiesforex

Another way to put this is: if your trading strategy has a negative risk to reward ratio, you have a 300%> chance of losing money vs a trader who is using a even or positive risk:reward ratio.

You should now be realizing two important things when it comes to setting profit targets and building a trading strategy:

#1: Make sure you minimally target a 1:1 risk:reward ratio on every trade
#2: DO NOT sacrifice your risk:reward ratio (and take it negative) just to increase your % accuracy

Trading Statistic #2: Risk of Ruin

Originally designed for casino games, the risk of ruin (RoR) is one of the most important trading statistics you need to know. To put it simply, the RoR will mathematically tell you in one statistic whether you are going to make money or blow up your account.

The risk of ruin statistic basically looks at your overall payoff ratio (or Avg.+R per trade), your % accuracy and your % risk per trade. Over a sufficient number of trades (100 or more), you can determine your risk of ruin and know – based on your current trading strategy, whether you will make money, or blow up your trading account.

Below is a table showing the risk of ruin statistics using 1% risk per trade, and measuring various payoff ratios and accuracy %’s.

risk-of-ruin-table-2ndskiesforex

If the box is red, you have a 100% of blowing up your acct. If the box is green, you’re going to make money trading. The number inside the boxes tells you the % chance you will blow up your account.

What you’re looking for in your RoR is 0, meaning you have a 0% chance of blowing up your account. Hence, if you want to make money trading, you’ll need to know your risk of ruin.

NOTE: We have a FREE risk of ruin calculator which you can use by clicking on the link

Trading Statistic #3: Trading Strategy Durability

The durability of your trading strategy is critical. This is because the markets are always in flux, which also means your accuracy %, and thus your performance will always be in flux.

Most profitable trading strategies operate within a range. So if your trading strategy is 60% accurate (on avg.), due to winning and losing streaks, you’re trading strategy is likely to fluctuate in terms of accuracy (~between 50% and 70% accurate).

Hence it’s important to have a strategy that can under-perform, yet still have enough margin of error to make money trading.

Now using the risk of ruin table from above, do you notice any patterns when it comes to profitability? When you go further to the right on the top/horizontal axis increasing your payoff ratio (or Avg.+R per trade), you’ll notice the number of ways you can blow up your account decreases, while the number of ways you can make money trading increases.

Another way of stating this is:

You have more ways to lose money at lower payoff ratios, and significantly less ways to make money trading.

The obvious correlate to this is:

The greater your payoff ratio, the more ways you can make money trading, and thus have a smaller window to lose money.

In short: try to build a trading strategy with a payoff ratio > 1:1. You’ll have a much easier time handling draw-owns and recover faster when you get back on track. And that = more durability.

Trading Statistic #4: Most Beginning Traders Are Poor Learners

Being that we have over 10,000+ students in our trading courses, we’ve been able to collect a lot of statistics on our students, particularly when it comes to trading performance, and how they train.

In deciding to conduct an internal study on how our students train and learn in our online trading courses, we found dozens of fascinating statistics. But one pattern we noticed is that most beginning traders are poor learners and have bad learning habits.

Why do I say this?

When students buy one of our online trading courses, one of the first things they receive is a welcome email. In this welcome email, we explicitly instruct them to watch the welcome video 1st because it contains key information on how the course works, what training models we find best and how to best use our trading methods.

How many students actually watch the welcome video? <20%. And how many students actually watch the lessons in order? 27%. From this, I think we can make the conclusion that most beginning/struggling traders are poor learners.

Now ask yourself this: do you normally just read books out of order in terms of chapters? Do you try to skip belts and skills when training in martial arts or learning to play an instrument? No, so why do you do this when it comes to learning how to trade?

There are many likely reasons, but the lesson should be clear: don’t sacrifice your learning process by letting your impatience win the day. Doing so decreases the chances of you making money trading.

Trading Statistic #5: Proper Risk Management

For my price action course members, they get a free skype analytics session with me whereby I analyze their trading performance over a number of trades, and help them find ways to make more money trading.

Many times, after 1-2 sessions, the student turns profitable. I recently shared an example of this on my twitter account with the student making +11% profit in 2 months.

2ndskiesforex-profitable-traders

Now out of the 1000’s of trading accounts I’ve analyzed from my students, how many of them are using consistent risk management on our first call? <30%!  What I mean by ‘consistent risk management‘ is risking the same % equity per trade.

NOTE: To learn why we recommend a fixed % risk management system, hit that link.

To put it simply: if you’re not risking the same % equity per trade, then you could be risking more on your losses (and thus losing more), while risking less on your wins (and thus winning less).

That is outright masochistic. If you want a surefire way to blow up your account, constantly change the risk % per trade and just do what you want. However, if you want to bypass this avoidable pain and suffering, make sure you have a consistent risk management system and fixed % risk per trade.

Trading Statistic #6: How to Absolutely Fail At Trading

Over the last 12 years, I’ve gotten to review thousands and thousands of my students accounts, statistics and trading performance. I’ve taught many students to make money trading and become consistently profitable traders.

How many of my students were able to make money trading without proper risk and money management? ZERO! No explanation needed.

Hence, if you absolutely want to fail at trading, then just risk what you want without any data, math or statistics to support your decision.

In Closing

If you want to make money trading, you’ll need to know your stats and understand what the data is communicating about your trading performance. There are many ways to get sufficient data and statistics about your trading performance. Two free services you can use are myfxbook and fxblue.

I’d suggest getting your account connected to one of those services and looking at your data to see where you’re at. This will help give you a partial roadmap of how to become a profitable trader.

But beyond getting the stats, most likely you’ll need an experienced trader and trading mentor to evaluate your performance, and give you quantified feedback on how to improve your trading. That + the feedback and guidance they can give you to correct your trading mistakes can often be the difference between winning money, and losing money trading.

If you’d like to get actionable guidance on how to become a better trader, click here to join my price action course, giving you access to me, the members trade setups forum, and over 60 hours of trading lessons to improve your performance.

With that being said, por favor make sure to share your feedback with a comment below.

Until then, may you find real progress in your trading performance and mindset.

Analyzing The Performance of A Profitable Trader & Why You Need A Trading Mentor

Earlier this week I had a private skype call with a profitable student of mine (we’ll call him ‘Joe‘ for the purposes of privacy & this article). One of the major benefits of becoming a member of our price action course is you get a free skype call with me whereby I analyze your trading performance across a baseline of trades, and give you direct feedback across 20+ metrics to find leaks, patterns of your behavior that are hurting/helping your performance, and how we can refine your trading plan to make more money.

I recently highlighted one profitable student (Sam) who made +11% profit over 2 months using exceptional risk management (see image below):

sam-profitable-student-2ndskiesforex

Now if you look at the performance and equity graph above, Sam was a consistently break even trader until we did our skype call analyzing his performance and giving concrete recommendations for how to improve his trading. Two months later, he had a breakout performance with his most profitable months of trading to date.

Meet Joe Black – The Profitable Trader

Joe, whom we talked about earlier, is also a profitable student of mine who had performed exceptionally well from mid-September till the end of the year, making +22% profit over 4 months, even while having a 10% draw-down!

Here is a snapshot of his equity graph during that time period.

joe-profitable-trader-2ndskiesforex-equity-graph

Now before we analyze his performance since then, I’d like to point out the stats and highlights:

Total Profit/Loss: +22.25% (shown above in equity graph)
Avg. +R Per Trade: +3.23 (image below)
Total # of Trades: 149 trades (image below)
NOTE: 149 trades over 4 mos = 37 trades per month – try getting that many trades and feedback trading pin bars and confirmation price action signals)
% Accuracy: 33.6% (image below)
Profit Factor: 1.63 (image below)

joe-profitable-trader-2ndskiesforex-avg-r-per-trade
Risk of Ruin: ZERO (image below) NOTE: If you do not understand what the risk of ruin statistic means, click here.

joe-profitable-trader-2ndskiesforex-risk-of-ruin

Instrument Performance: Total of 5 instruments that gained +2-5% profit, while only 1 instrument with a 2% dd (image below)

joe-profitable-trader-2ndskiesforex-instrument-summary

Risk Management:  .5% risk per trade (which showed excellent discipline here)
Total Return: +44R!

Summarizing Joe’s Trading Performance

When you examine the above statistics, Joe performed exceptionally well and had a fantastic quarter to end the year. In fact, his +22% gain over this time period would have beaten out most hedge funds yearly performance, so kudos to Joe.

And Then…The Drawdown

While Joe beat out most hedge funds last year, this year has started on a different note. Since Jan. 17th, he’s down about 11% (see below).

While some things in Joe’s life has changed, and had some negative effects upon his trading mindset and performance, something else seemed amiss behind the night and day change. Joe reached out to me to see if we could do another Skype session and analyze his performance, so we dug into the numbers.

Now tell me what seems out of whack below with the stats:

Total Profit/Loss: -11.45%
Accuracy: 13.9% (image below)
Avg. +R Per Trade: .99R (image below)
Profit Factor: .16

 

As you can see, all the stats are down, but which ones stand out the most? The accuracy being down isn’t helpful, but what is more damaging is his Avg. +R per trade went from +3.23 to .99! That is a drastic difference.

Regardless, accuracy is always in flux when it comes to performance. % accuracy usually operates within a range for traders. It never stays fixed from year to year. So if you’re 54% accurate in one year, the chances of you ending up 54% accurate in the next year is slim to none – don’t bet on it happening!

When I saw Joe’s Avg.+R per trade was down, I immediately started to wonder ‘why‘? If accuracy goes down (it happens) it will obviously affect your overall performance. But why would Joe’s Avg. +R per trade go down? Why would a trader be getting less per trade then their past 149 trades?

There could be many reasons ‘why‘, but to name a few:

1) you’re taking profit too early/earlier than you were before
2) you’re not feeling confident, and thus trying to close any trade for profit instead of letting it run

I could honestly list a litany of reasons, but the summary tab (which analyzes performance per instrument) was the most revealing (see below):

First off, his biggest losing instrument was the NZDCAD which accounted for 40% of his total losses! It’s important to note Joe wasn’t even trading the NZDCAD in the prior 4 months. So he was including a new trading instrument into his trading plan.

Upon further questioning, I uncovered another ‘reason‘ why his performance had slipped so much. Joe had developed a bias on the CAD as a whole. He felt the CAD was about to move into a place of strength, so was bearish on any XXX/CAD pair across the board, including the NZDCAD.

Despite losing every trade on the NZDCAD (10 total), and the price action charts continually ranging or climbing, he held onto his bias and was continually shorting. This obviously had a negative affect upon his performance (holding onto a bias, regardless of what the charts are communicating rarely ever works).

Accuracy Gaining/Declining Shouldn’t Affect +R

Accuracy going down shouldn’t translate into you to going for much smaller targets. Your overall +R per trades should remain stable regardless of you performing well or not. If you consistently go for +2R, winning and losing shouldn’t change this.

Now there were a lot of other metrics Joe and I went through on our private skype call, but two things that became evidently clear were:

1) Joe had made some major changes to how he traded, and

2) Joe needed to have that skype call with me.

This is why I cannot over-state the importance of having a trading mentor. And it’s not just about having a trading mentor, but about having one who can look at your individual performance, and help you see what you’re missing that’s causing you to not get the maximum profit out of your skills and price action trading.

This feedback model I have with my students has been a game changer. I’ve turned break even traders to become profitable traders. I’ve turned losing traders into winning traders. I’ve helped students like Joe spot major issues during a draw-down, and help them correct course. If Joe hadn’t reached out to me, he could have easily kept trading and losing more money.

trading mentors 2ndskiesforex

Hence you have to look at what is the feedback model you’re getting from your trading mentor, and how much can that change your performance. If you’re not getting any analysis and feedback from them, then your trading mentor is just an information dispenser. And without analytical feedback, how would you ever know what mistakes you’re making, and how to correct them?

Thus ask yourself – how valuable would such feedback be for your trading to have an analytical session with your trading mentor digging into your performance, and finding patterns in your trading and numbers you didn’t even know existed?

Is that worth a few hundred dollars, let alone being taught the skills and trading strategies to make money?

In Closing

With that being said, if you’d like to learn how to become a member of our price action course, where you’ll get this type of feedback, along with access to our members market commentary & trade ideas, members trade setups forum, and over 60 hours of trading videos and lessons, click here.

Please make sure to leave a comment and share this with anyone you think will benefit from this.

Until then, I hope you’re seeing real change in your trading performance and mindset.

Why You Need More Quantitative Data to Improve Your Trading Performance

What You’ll Learn In This Article:

-why most online trading courses fail to give you enough data
-how we use quantitative data to improve your trading
-where we see technology being used to give you more quantitative data for your trading

When you survey most online trading courses and mentors out there today, about 97-99% of them fail to give you an essential component for your trading success. They fail to give you quantitative data to improve your trading performance.

The majority of courses just give you ‘information‘, so they give you lessons, pdf’s, videos, etc. But almost none of them actually require you to compile and build quantitative data around your trading performance to analyze it, then give recommendations based upon statistics and proper data.

To be clear, when we say ‘quantitative data‘, we are not talking about robots, quant trading, etc. We’re talking about hard data that can be taken from your trading and trading performance, which can be analyzed and utilized to identify your weak points/strengths, then make adjustments to your trading plan based upon the data.

Why Most Online Trading Courses Fail To Give You Enough Data

In my online trading courses, such as my price action course, we offer all members a free ‘Trading Analytics‘ session whereby I analyze 20+ metrics on a students trading performance to spot leaks, weaknesses, strengths, how close they are to becoming profitable, and what changes they need to make this happen. I then do a private skype session with this student and share my findings, recommendations, and what they need to change to become a profitable trader.

However, even I myself can find weaknesses in this model. This is because trading is a skill based endeavor which requires a proper trading feedback loop.

A feedback loop is a process whereby you perform an action (trade demo/live), your actions produce results (profits/losses/accuracy/risk, etc), and those results are analyzed and turned into feedback which is given back to the student.

Professional athletes have proper feedback loops, and its one of the biggest reasons they are so successful. This is because they’re getting constant feedback backed by data on how they’re performing, and how they can improve. You can see this below from the Tom vs Time series.

Tom Brady of the New England Patriots is considered to be one of the greatest quarterbacks of all time. He’s won the most Super Bowls of any quarterback (5), and is still playing at an elite level at the age of 41.

In the 2nd episode called The Mental Game, Tom is getting feedback on his throwing arm about 2 minutes in.

Keep in mind, he has one of the most accurate arms in the game, and still throws the ball like he did 10 years ago. Yet he’s getting continual feedback on his throwing mechanics to continually improve them. This is a proper feedback model, and it’s something all professional athletes get and know they need to stay at the top of their game.

With that being said, why should trading be any different?

Now while my feedback loop through the trading analytics session, and analyzing students trades, questions, etc. is good, it needs to go to the next level.

All professional grade feedback loops have the following characteristics:

1) quantified
2) automatic
3) ongoing
4) responsive
5) continually updating

When I analyze my feedback loop and process for my members, I realize its not automatic, is quantified, is voluntary, is ongoing, and is continually updating.

So I’m missing the automatic and non-voluntary aspects to my trading course and feedback model.

Granted, I cannot force students to give me their data, hence making it tough to be non-voluntary. And I cannot (as of yet), make this process automatic. Hence, even my courses and feedback models have their limitations.

Regardless, if you want to become a peak performing trader, you’ll need the above 5 characteristics of a professional grade feedback loop.

How We Use Quantitative Data to Improve Your Trading Performance

One of the most critical aspects of our online trading courses is the Trading Analytics session I do with my students. It’s the first time I can look at their trading over a period of time, and analyze their risk mgmt, Avg. +$ per trade, % accuracy, risk of ruin (RoR), and many more metrics about their trading.

The majority of my students trade on platforms that connect with myfxbook, so I have them connect their accounts to myfxbook which provides me the data.

Just from looking at the data, I can see their habits, level of discipline (or lack thereof), whether they are following their trading plan, entry locations, stop loss placement, trading with trend (or counter-trend) and more.

The data alone allows me to peer into your trading performance, habits and trading mindset, all via the numbers. The great thing about it is I can tell how close someone is to breaking through and being profitable.

Hence we use quantitative data to improve your trading performance. One simple data point I often examine is their ‘summary‘ tab (image below).

summary tab myfxbook 2ndskiesforex

And below this is the student’s performance since the beginning of this year on a live account (over +10% profit).

profitable traders myfxbook 2ndskiesforex

Now, when you look at the summary tab, you’ll see this traders entire performance by instrument since the beginning of this year. If you examine it closely, you should find something really useful.

This trader and student did incredibly poorly on the GBPUSD. They made a total of 8 trades (not a huge baseline by any means), and didn’t win a single trade. On top of it, their total losses for this pair alone (-$83.12) is larger than their next biggest losing pair by almost double the amount (EURJPY -$48.33).

The thing is, if you just look at the equity curve, you’d think everything was fine and there wasn’t much to change. But analyzing the data can reveal these things.

Now considering this account started at around $3000, if they had not traded this pair at all, they would be up another +5.4%, so almost a 50% increase from their +10% performance thus far. Add in the EURJPY pair, and now we’re talking an additional +8.8% added to their bottom line. That’s a huge shift in performance (+80% better return) which can make you a lot of money over time.

Most traders don’t even know this tab exists, let alone analyze it to see if there are some real under-performing instruments affecting their account. You can also take the flip side of this and trade the pairs/instruments you are most profitable with, thus maximizing your edge.

The great thing about this is it helps me find weak points and strengths within any particular trading plan, and make adjustments accordingly.

I usually follow up with my students every 3 mos and re-analyze their myfxbook accounts so I can see how their performance is changing over time as we make new recommendations.

If your trading performance is up from my recommendations, then I know we’re on the right track and can continue refining your trading plan over time. If we take a step back, then we can analyze individual variables to see which may be causing the under-performance, and make adjustments.

This is just one of 20+ metrics I analyze on all my students so we can use quantitative data to improve your trading performance.

Now ask yourself this:

If you’ve taken multiple trading courses from various forex trading mentors, how many of them are doing this type of analysis and quantitative data to isolate areas where you’re under-performing, and help you make adjustments? My guess is your answer will be close to zero, and maybe 1-2 at best.

I feel this is just a small way we continue to separate ourselves from other trading mentors, because we use actual data to analyze your performance over time, and help you make the adjustments needed to become a profitable trader.

How Technology Can Be Used To Get You Quantitative Data For Your Trading

While I think myfxbook is a fantastic tool, it is by no means sufficient. In fact, out of all the trading technological tools out there I’ve seen, I feel they are all limited in their application and what they can tell you about your trading performance, and what you need to change to make money trading.

When I look into the next evolution of trading education and online trading courses, I feel we’re just scratching the surface of how we can use technology to improve your trading performance.

What if we were to use technology to specifically test your price action trading skills over time, and demonstrate what parts of the price action you’re analyzing correctly, and missing completely?

What if we could tell you the optimal number of instruments you can trade to become profitable, and how many is too little, or too many?

What if we could tell you how you react to the price action of different instruments, and could recommend specifically which types of instruments you are most likely to make money trading (or lose money on)?

Would those be valuable tools for you to invest in? Would that be worth spending money on? My guess is yes, and we’re just scratching the surface of what technology can do to help you become a profitable trader.

My sentiments are that the future of trading education will no longer be about pdf’s, videos, and webinars, but about how we can use technology to improve your trading performance and turn you into a profitable trader.

Now Your Turn

How much quantitative data are you analyzing about your trading performance to make adjustments? Is your trading mentor even looking at your trading statistics, and giving you specific feedback based upon actual data? What ways can you see technology improving your trading performance?

Make sure to leave a comment below because I’m always looking for new ways to help more traders become profitable.

The 5 Components You Need For Your Forex Trading Plan

What you’ll learn in this forex trade plan article:

-How do you build a successful forex trading plan?
-How do you evaluate whether your trading plan is working?
-Why you need a forex mentor to help with your trading plan

One of the more common questions I get from traders is “how can I build a successful forex trading plan?” If you’ve had this question before, or feel your trading plan is not sufficient, confusing, or not working, then pay attention because this article will answer your questions directly.

From my experience, you will need (at a minimum) these 5 major components to be in any successful forex trading plan you make. Let’s go through them.

#1 Your Why

From my experience, you need a ‘why‘ as to why you’re doing this. It should be the ‘core‘ reason and inspiration behind why you’re trying to become a successful trader.

For most traders, the why is simple:

“To build financial independence while working from home, having more time to spend with your friends, family, while determining your value and income, and having no limit to the upside you can make.”

Would this pretty much encapture the main reasons why you want to become a successful trader?

Now there is certainly a deeper discussion we can have about your ‘why‘ and what you think it will give you, but for now, my guess is almost all of you fall into the above reasons why you’re wanting to become a professional trader.

The reason why I suggest getting really clear about your why is it will remind you (no pun intended) why you are doing this, but more specifically, why you should work hard to achieve your goals. This is helpful when things are going wrong as that is when you need a boost in motivation and connection to your why.

By having a personal and emotional connection to your why, you’re more likely to stay focused and keep going when things are challenging.

#2 Daily Preparation

Ever watch a professional sports game, particularly before the game starts? What do you notice if you turn on a football game a few hours before it starts? You’ll see the same thing across pretty much every sport on the planet.

All professional athletes start hours before the actual game/contest doing one thing: Preparation!

They are preparing their body and mindset to get ready for the game ahead. Take a look at this 30 second video of Odell Beckham Jr. (American Football Player) getting ready before his game.

What do you see him doing? Rehearsing the exact same things he’ll be doing in the game (running routes, making cuts, catching passes). Keep in mind, this is after he’s done his stretching and exercise routine to get his body warmed up for this.

Now I have one simple question for you: “Do you think trading should be any different when it comes to preparation?” 

The question is mostly rhetorical, however when I quiz most struggling traders about their pre-trading routine, its usually very minimal at best.

Now I know many of you have full time jobs and lead busy lives, and perhaps only have 1-2 hours per day to trade. If that is the case, then I’d suggest spending at least 15 minutes preparing mentally for your trading day. This should be finely crafted into a very specific routine you execute day in, day out.

What should you be doing during this preparation phase of trading? At a minimum:

1) getting your mind (and ideally body) in an optimal state for trading
2) mentally rehearsing everything you need to do during your trading day
3) after you’ve done the above, then starting your pre-trade routine

The above is what I would call a ‘sufficient‘ and ‘expedient‘ way to prepare for your trading day and get you in a mindset + state to make money trading.

#3 Core Trading Mechanics

Now that you’ve 1) connected with our ‘why‘, and 2) mentally prepared for your trading day, it’s time to sit down in the chair and start trading your edge. However, you need to clearly lay out what you are trading, and how. These are your core trading mechanics and a blueprint of what you’re trading.

In this part of the forex trade plan, you need to cover the following:

1) markets/instruments you are trading (should be fixed in the beginning until you’re at least stable or consistently profitable)
2) what strategies are you trading (these should be very clear what you are trading, along with the parameters/conditions for each strategy and setup, such as entry, SL and TP conditions)
3) what time frames you are analyzing the price action context and making your trading decisions from

In the beginning, I recommend trading no more than 5-10 instruments (less is usually better in the beginning) so you can learn their price action, volatility and order flow patterns by watching the same instruments day in, day out.

Gaining familiarity will allow you to find more trading opportunities in those instruments over time, and thus profit more.

You’ll also need to know exactly what trading strategies you are using day in, day out so you’re very clear about what setups you should be focusing on, and what you should let go of.

Forex Trading Tip: Once you know what strategies you are using, make sure you have screenshots of those setups (ideally you trading them successfully live) so you can imprint these patterns and charts into your brain. This way when that same pattern in the price action shows up, your brain will (sub-consciously) tell you “Hey, that’s a good trade, you need to jump on this.“

#4 Risk Profile

This part of your trading plan is all about risk, and risk is all about the numbers (mathematics). It’s a confluence of the risk required to make a maximum amount for each trade, your risk tolerance and risk capacity.

risk profile 2ndskiesforex

There are several things which will help determine your risk profile in your trading plan, such as:

1) % risk per trade
2) max risk per day
3) max risk per month

NOTE: If you want to learn why we recommend a % risk based model, click here.

Regardless, you’ll need to know exactly what you’re risking per trade and it should be consistent. This is because you could be varying your position size, but if you increase size on your losing trades, and decrease size on your winning trades, you’re leaking your edge (losing money where you shouldn’t be).

Since you don’t know whether your next trade will be a win or a loss, you need to be risking a fixed % per trade.

I also recommend having a max risk per day so you can shut things down if you’re off for that day. This will minimize your downside when not on your game.

In terms of your max risk per month, this is the same concept as above.

Trading Tip: If you want to avoid having major draw-downs you’re unlikely to recover from, we recommend having a max risk per month <10%. For every month you have a 10%+ drawdown, you decrease your chances exponentially you won’t recover your losses by year end.

Also in your risk profile, you should be aware of your risk of ruin, which tells you mathematically a) whether your account will blow up, or b) whether you’ll mathematically make money. So critical you understand your risk of ruin.

risk of ruin table 2ndskiesforex

If you want to learn more about the risk of ruin for trading, click here.

#5 Analytics & Review

Every successful trader reviews their trading for the day. Just like an athlete reviews film from their past games to see what they could improve upon, you have to have a process for reviewing your trades each day/week/month.

A simple way to relate to this is:

“You cannot change what you cannot measure.”

(Pro football players reviewing film below)

If you don’t measure and review your trading performance in detail, you’ll continue making the same mistakes over and over again. Have you had this experience? If so, most likely you’re not reviewing and analyzing your trades and trading performance properly.

I recommend the following:

1) spend at least 15mins each day reviewing your trades for the day
2) spend at least 1hr per week reviewing your performance and execution for the week
3) spend at least 1hr per month reviewing your overall stats

What should you be reviewing?

1) charts for each and every trade, showing the price action context before the trade, along with your trades entry, SL, TP, & the result
2) how well did you execute your trading plan (were you over-trading?)
3) what was your performance (stats) for the month and how does that compare to your baseline?

By having a time to analyze and review your performance, you’re teaching your brain to spot the habits and actions which led to making successful trades, which further reinforces good trading habits.

In Closing

These are the 5 major components you’ll need for any trading plan you create. There is a lot more that could be said on the subject, but this should give you a solid framework to build your own trading plan.

In the beginning, you’ll need to do some experimenting to tease out what feels more natural for you. I recommend doing this in 3 month chunks so you don’t change your plan too often, and give it enough time to play out.

Eventually, you’ll likely need some feedback on fine tuning your forex trading business plan. This is where a forex mentor really helps, because they can see things you’ll likely be missing, and can give you actionable insights on  how to increase your profits, accuracy and performance.

Below is one of my students first quarter performance for this year whom I’m constantly helping with their trading plan.

trading analytics 2ndskiesforex profitable traders

If you’d like to learn more about our Trading Masterclass course and how we can help you build a successful trading plan, click here.

Now Your Turn

Did you learn something from this trading plan article? Notice anything lacking in your current forex trading business plan? Feel like you have a more clear idea how to build a successful forex trading plan?

Make sure to leave a comment below, and share this article on social media.

Until then, I’ll look forward to hearing from you.

Additional Resources: What if your trading plan is costing you money?

Success Stories From Our Traders at 2ndSkiesForex

successful traders 2ndskiesforex

Without a doubt, this was a successful year at 2ndSkiesForex. As a team – our staff grew, we got smarter and accomplished many goals.

While this type of success is ‘satiating’, what really floated my boat was the students and traders. Many this year after hard work and lots of practice + training broke through.

One student got funded $100,000. Another finally broke through to profitability after blowing up several accounts. And one student did +25% over a 6 month period.

There are many more successful trader stories like this at 2ndSkiesForex. While I’d like to share all our forex success stories, we’ll share a few to start the year on a good note and hopefully inspire you.

Getting Funded $100K after 8 Months

Harkanwalpreet Singh joined 2ndskiesforex in December 2014. You can see his payment receipt + account with us below.

harkanwalpreet singh orders price action course 2ndskiesforex

He is a member of our Price Action Course & in February joined our Advanced Traders Mindset Course.

After 2 months of training diligently, he funded an account for $10K with the AxiTrader Select program.

5 months later he got funded $100K by the AxiTrader program. You can read the article about him getting funded here.

Note how they state he ‘performed consistently during volatile markets and complex trading environments‘

Below is his email to me about getting funded (click image to enlarge).

harkanwalpreet singh getting funded 100k 2ndskiesforex

Mr. Singh is not a common forex trading success story by getting funded within 8 months. Normally it takes 1-2 years of hard work before you see this kind of result.

Instead of just learning price action strategies and trading techniques, he worked on his trading mindset.

Many struggling traders fall into the trap of just working on one skill – learning price action and making trades.

He realized how important a successful mindset is and did our core mindset techniques for months.

The result is consistent performance, handling volatility, and getting funded $100K.

What I think is unique about Harkanwalpreet is his maturity. Not long after getting funded, some personal family issues came up. He decided to suspend trading till the situation would pass realizing how is mindset was affected.

Instead of just hammering on, he knew when to take a break and not trade. This shows awareness, discipline and maturity.

If he asks, I’ll be there at every step of the way, and may even fund him myself if he continues to perform.

To me his forex story is a great marker of success and I’ll look forward to watching him grow.

Gaining +25% in 6 Months

Nazar Bent is from Canada and joined 2ndSkiesForex back in the summer of 2014. You can see his receipt of our price action course from June that year below.

nazar bent price action course 2ndskiesforex

As a student unhappy with his college studies, Nazar knew from the moment he started trading this is what he wanted to do full time.

Below is his myfxbook account since he started with us.

nazar bent myfxbook acct full 2ndskiesforex

To summarize:

1) in the beginning, he struggled like most traders (red box), but he kept working at it

2) after finding a groove, he started to stabilize (blue box)

3) since February 2015, he’s gained +25% over 6 months (green box)

Below is a zoomed in screenshot from his Feb. trading on.

nazar bent consistent profitable trading 2ndskiesforex

Notice the red box in the middle? This is what happened when trying a new strategy. After giving that up, his gains returned and trading stabilized.

What should be noted is his accuracy + risk to reward numbers. He’s only averaging about 23% for his accuracy, yet is still making money.

Why? Because he’s crushing his +R per trade with his avg. win 184 pips and avg. loss 36.9 pips. This goes to show you don’t need large stops when trading price action.

And his average trade length is < 1 day also demonstrating you don’t need to hold trades for weeks to make good money.

I’ll talk more about accuracy later, but below is his review of us on forexpeacearmy (click image to enlarge).

nazar bent 2ndskiesforex review forexpeacearmy

Notice how he mentions his trading changed when joining us. Also key is how he zero’s in on building a proper mindset and trading psychology.

I feel this is something we excel in with our heavy focus on building a successful mindset and unique approach.

Nazar is one of most dedicated students to becoming a professional trader.  I’ve told him if he keeps it up, I’ll fund him personally.

What is interesting to note is his performance when he opened up a new account for me to monitor. His trading has been mostly flat (see below).

nazar bent 2nd account 2ndskiesforex

He’s openly admitted the psychological pressure of trading for me has affected him. This shows honesty and self-awareness which I appreciate in his candor.

My guess is he’ll break through come 2016 and get back to his typical winning ways.

From Blowing Up Several Accounts to +23% in 4 Months

Shahab might just be the most interesting student & character I have. Before coming to trading, he sold expensive cars to high profile clients around the world.

We’re talking Ferrari’s, Lambo’s, you name it. He’s used to dealing with decent sized numbers of $250K+.

He’s also a risk taker, meaning he’s completely comfortable taking massive risks. This definitely translated into his trading as his swings were massive when he first came to me.

He wasn’t taking trading or training seriously and within 1.5 years blew up several accounts. Trust me – he deserved every dollar he lost during this time and he knows it.

Then he contacted me about really digging in. So in the summer of 2015, we started doing 1-1 mentoring (which is not cheap at $10K per month).

He also lives in Canada and we often go out for tea or lunch, talking trading, mindset and success.

Shortly after, he found a groove trading some of our advanced price action models + his own system.

Here is his myfxbook account below.

shahab503 myfxbook acct 2ndskiesforex

‘Shahab503‘ is the name of his myfxbook profile. It’s also the name of his account with us below:

shahab account 2ndskiesforex

Now, there are several things that should stand out here from his myfxbook account above:

  1. he’s day trading (done thousands of trades) & continues to have massive swings
  2. he still shows the tendency to go over risk parameters and isn’t as conservative as I’d like him to be. This is an improvement in the right direction from where he was though!
  3. he’s got a lot of open risk (yellow line) which is way outside my normal risk parameters. Again, the key issue of risk and money management keep coming up so this is something he needs to work on
  4. his risk of ruin is just below 1% meaning there is a small chance he can blow up his account at this rate
  5. accuracy is still under 45%, but his avg win vs. loss is balanced enough at +1.3 and he has a positive profit factor over +1

Hence I consider Shahab to be a work in progress. Considering he was blowing up accounts faster than you could drink a pint of cold beer, I’d consider his progression a success.

Do I think he’s in the clear? No, absolutely not as he still has unhealthy habits around risk. But what I’m focused on is his progression instead of just a static number.

He’s not just where he is now, but what he’s becoming. His trajectory is in the right direction and his trend is upward.

How he performs from here is up to him and how much he wants to engage his level of discomfort and discipline. But from where he was, I’m proud of his progress and have positive hopes for him.

A Common Thread

If you noticed, there are several common thread across these success stories. They are;

  1. They all had rough beginnings and losses (like most of you)
  2. They stuck through the hard times and showed mental toughness in trading. This eventually led to a change & breakout in their performance
  3. Accuracy – they all had accuracy levels below 50%.

This last point I want to touch on briefly as it’s a heavily misunderstood subject.

Beginning traders think you need a highly accurate system to make money, but this simply isn’t the truth. There are a million ways to make money with varying levels of accuracy.

Generally the lower the accuracy, the higher the durability of a system as it doesn’t need to consistently win to make money. And let’s be clear, you are going to have losing periods (perhaps months) where you aren’t making any money.

If you system is dependent upon high accuracy, during this losing period you’ll likely experience a massive drawdown. These large drawdowns are psychologically harder to overcome.

Most professionals are between 35-50% accurate throughout all their trades over a year.

My accuracy for 2015 was about 46% but my +R per trade was above 2, so this shows a positive expectancy with proper control of risk.

What Level of Accuracy Should You Expect As A Beginner?

As a beginning trader, you should expect your accuracy to be between 30-50% while learning the ropes (perhaps lower). This is because you are still building your skill set and not trading sub-consciously, so performance will be affected.

Think of it like learning how to shoot a bow and how seldom you’ll hit the center. Yet with practice + training, you can start to get 9 and 10 points more often.

archery hitting target 2ndskiesforex

Hence do not be discouraged if your accuracy is low. Accuracy is not static and fluctuates on a weekly, monthly and yearly basis.

There are days when I’m highly active intra-day and can lose my first 5-7+ trades before hitting my first winner.

Akin to trading, professional poker players can play 40,000 hands before making new equity highs.

What this tells you is drawdowns, losing periods and corrections are natural. The difference is most people do not endure these times and give up or change their strategy.

What they miss is the breakout which comes through training, experience and diligence. Hence try not to look at your current state as your overall numbers. Success is a moving target just like your accuracy.

Be more concerned with progression, trajectory and process.

In Closing

I hope you found these forex trading success stories above inspiring and what is possible. To be clear, these stories are not written in stone. They could go backwards and not make it to the next level.

But they show you what’s possible, why psychological endurance is needed, and how important proper price action training + a successful mindset are to making money trading.

With that being said, will you become the next successful trader story?

Will you get funded $100K this year and start making consistent profits?

If you are looking to be the next forex success story, then check out my price action course where we change the way you think, trade and perform.

Make sure to leave your comments below as I look forward to hearing your thoughts.

Until then, may this be a year filled with good health, abundance and success.

Confirmation Around A Key Support And Resistance Level: What To Know

key support and resistance levels chris capre 2ndskiesforex

Today I got a question from a student who’s only made a few posts in the course, so just getting started.

They asked a question which points to a critical aspect of trading.

Here is what they asked below:

questions about trading support and resistance

 

I think this is a fantastic question many developing traders struggle with.

How do you ‘know’ if the key level you’ve chosen is the right one?

What happens when the level you chose just got sliced through like Swiss cheese?

And do I look for ‘confirmation’ whether this key level will hold or not?

I’ll address these questions in this article to clarify your understanding of trading with support and resistance levels.

Isn’t Finding Key Support & Resistance Levels Subjective?

I think many beginning traders struggle with the more ‘discretionary’ elements of trading.

It’s easy to want things to be fixed, to be purely scientific or mathematical. That is nice because it means for every situation x comes up, you should do y.

Lamentably, trading isn’t that simple, especially when trading price action. Risk management would be one of those components of trading which is purely scientific. It all boils down to math and the risk of ruin.

risk-of-ruin-formula 2ndskiesforex

However, trading key support and resistance levels is part scientific and part artistic. This means there are rules to trading them, but part of working with them will entail a ‘discretionary’ call.

Hence the answer is yes, there will be a part of your trading with key levels that will be subjective which you cannot avoid.

It should be noted I do not look at support and resistance levels as pure lines in the sand. I look at them as zones of order flow.

Why do I say this?

Because when you look at the order flow and liquidity around key levels, you’ll notice a pattern. That orders and liquidity vary at several prices above & below the key level.

order flow liquidity price action 2ndskiesforex

This is because there are varying institutional players out there who will place their orders at varying prices above or below any key level.

A great example of this is when we consider time horizons for trading. If someone is trading intra-day, then they will likely have a smaller stop.

This will require them to have greater precision in terms of their entry price and trade location. Thus they will be as close to the level as possible.

However someone who is swing or trading long term will not be so concerned with this as a few pips difference on a +500 pip profit target and 150 pip stop loss.

Keep in mind, this is just ONE factor regarding how orders are placed around key levels (as there are many).

But when we look at the order flow around key support and resistance levels, we can see there are going to be orders at many prices above and below a key level.

This is part of the reason why I consider trading key levels to be more like zones of order flow. There are other reasons which I explain further in my price action course.

How Do I Know The Levels I Selected Are Key Levels?

This is another critical question that I often see amongst developing traders. The reason why I say ‘developing‘ traders is because this type of question & wording gives a unique insight into a traders mindset.

They make it seem  like placing a trade around a key level is like jumping off a cliff that is only 15 feet above water 😮

jumping into water

As a general rule, you will never ‘know‘ anything about trading, let alone price action. This isn’t like poker where you have a fixed number of cards in the deck and can ‘know’ the probability of a hand or card being hit.

There are an infinite amount of possibilities -1 that can happen in the charts. You will never ‘know‘ with 100% certainty and you cannot avoid this.

The desire and want to ‘know‘ comes from a beginning traders mindset…of wanting pure objectivity in trading.

“Beginning traders want certainty because they are uncertain of their abilities and skills.”

The want for certainty is an attempt to compensate for their lack of skills and confidence. The problem is, certainty is an illusion in trading, so you are wanting something that does not exist.

I do not ‘know‘ a key level I’ve chosen will work or not. I’m just going on probabilities & my read of the price action context.

I’m guessing an olympic biathlon shooter doesn’t ‘know’ when the wind will blow. But they can take measurements, read the wind speed and direction (constantly in flux), then make the best shot they can.

biathlon shooter 2ndskiesforex

Trading is very similar.

And professional traders will never ask this question about ‘knowing‘. Why?

Because professional traders trade and think in probabilities. They know that certainty is an illusion. They know what you are really working with is ‘probability‘.

Hence the best you can do is align the probabilities in your favor as much as possible.

Are There Ways to Improve Your Ability To Read Key Levels?

Yes, I have an entire lesson dedicated to this in my price action course. We cover how to work with key levels across multiple time frames and context.

Do I Look for Confirmation Whether The Key Level Will Hold?

I’ve talked about this how hedge funds do not trade confirmation price action signals. They give you a worse entry and actually lower your overall profitability and accuracy.

Hence I do not look for confirmation signals at key levels. You can read more about why I don’t trade confirmation signals at key levels here.

In Conclusion

Until the Hal 9000 is available for trading, I’m not sure we will have an ‘objective’ way to trade key support and resistance levels.

hal 9000

It’s important to understand where this mindset comes from and why you should trade and think in probabilities.

It also helps to think of support and resistance as a zone of order flow, not pure lines in the sand.

Most often, traders who struggle with the probabilistic nature of trading are wanting certainty. But this is an illusion in trading. We have to get comfortable with certain parts of trading that will simply be ‘unknown‘.

Your ability to read key levels will improve over time, and there are many things you can do to improve your ability in this. We teach these methods in my advanced price action course and how to increase your skills trading key support and resistance levels.

Eventually you’ll develop the confidence to trade them without confirmation. And when you do, you’ll see your profits, accuracy and profitability increase tremendously.

Your Turn

Have you been wondering how you will ‘know’ if a key level will hold? Do you find yourself constantly looking for ‘certainty’ and ‘confirmation’ around a key level?

Make sure to comment below and share your thoughts.

Trading Psychology: Are You Over-trading & How Do We Define It?

trading psychology 2ndskiesforex

I got a forex trader psychology question from a new student of mine who’s been struggling for years. He’s experienced a common problem you yourself have likely faced.

Here is what he emailed me below:

“I know this varies greatly based on internal and external factors, but about how many trades do you take on a daily basis on average?”

The real question he was asking is under the surface. But it’s a common issue many traders face, which we’ll get into shortly.

Before I do, here is their response below to my follow up prodding and questions:

“One of my weaknesses that I battle with (although getting better) is over-trading and feeling the need to be in the market.

To combat it, I stick to the H4 and Daily time frames. But again I get impatient sometimes…“

Over-trading

This is something many traders struggle with. The reason why you over-trade has two major underlying reasons.

Befor we dive into those, I’d like to point out some key things they said.

They are:

1) “Feeling the need to be in the market”

2) “I get impatient sometimes”

Note those two statements down for now as they are critical for this article.

But before we get into the reasons why you over-trade, we need a working definition of ‘over-trading’.

My definition of over-trading is as follows.

Assuming you are working with a trading plan, ‘over-trading’ is either:

 

a) taking any trade/s outside of your trading plan, or

b) taking any trades which cause you to exceed your maximum risk limits

 

If you hit any of the two qualifications above, you are (in my book) over-trading.

Notice I mentioned nothing about a) the number of trades and b) the time frames. This last variable is highly relevant.

As I mentioned in my last article, there is a common trading psychology narrative around price action. This is because the majority of those ‘gurus’ teaching price action all copied what they learned.

They are derivatives themselves, or derivatives of derivatives.

One key piece of mis-information from this entire camp is ‘higher time frames are better than lower time frames’. They also state ‘lower time frames are just noise and higher time frames give better signals’.

Despite the fact professional bank traders trade intra-day, they still proselytize this meme.

smb-training
(does he look like he’s being impatient and over-trading? source: smb-training)

GUESS WHAT? You can over-trade on any time frame. The time frame is not the root cause of over-trading. A lack of discipline is.

If you have not wired your brain to mentally execute your trading plan, the time frame will make no difference.

Just like if you have the habit of over-eating, you will do so whether you are at a restaurant or your own kitchen. The habit is within you and doesn’t just disappear when you change environments.

Neural networks are clusters of neurons in your brain. They take time to change. If you are dominantly wired right now to eat too much, you will regardless of where you are. The same goes for over-trading.

neural networks trading 2ndskiesforex

Notice what my new student mentioned earlier, “I stick to H4 and Daily time frames. But again I get impatient sometimes.“

For him, the time frames are completely irrelevant. His impatience takes over regardless.

I do not find it ironic that all those who copied their ideas about price action, also repeat the same notions about over-trading.

If there is no real engagement with their minds and the markets, one will never come to the idea that over-trading is not time frame dependent. That is why this meme is repeated.

If you want to dissolve the underlying root of over-trading (discipline & mental execution), you have to re-wire your brain.

Before we get into how you can do that, I’d like to address a few points about my definition of over-trading.

Having A Daily Risk Limit

For my members, I recommend having three to four risk thresholds as part of their trading plan. They are:

1) A max risk per trade
2) A max risk per day
3) A max risk per week
4) A max risk per month

A max risk per trade should be based upon your risk of ruin.

risk of ruin formula 2ndskiesforex

NOTE: You cannot calculate your risk of ruin if you are risking a fixed dollar amount per trade.

I’ve written extensively why risking a fixed percent per trade is far superior to a fixed dollar amount.

If you have a risk of ruin that is zero, mathematically you a) cannot blow up your account, and b) will make money.

A max risk per day should be a daily risk limit to avoid losing too much on any given day. The max risk per week and month are also based upon the same concepts.

If any one of the above is ‘optional‘ in my book, it is the max risk per week. Keep in mind, none of the above defines how many trades you should (or should not) take in a day to avoid over-trading.

If a basketball player is on a hot streak, you keep feeding him the ball as those streaks are critical to winning. Professional poker players know this as well – when hot, keep putting your chips down.

poker play hot streak 2ndskiesforex

The same goes for trading. Not pulling the trigger when you have a setup (with all conditions in place) simply limits your upside.

Why would you ever do that? If the price action context is prime for you to make a ton of money that day, you should be attacking the markets.

On the other side of the coin, I’ve had days where I started out with 6, 7, maybe even 9 losses in a row. But I’m not phased by this.

As long as I haven’t hit my risk limit per day, I’ll keep attacking the markets, sometimes buying and selling in the same day.

Ironically, on many of those days, one or two big winners either brought me back to break even, or helped me end up in profit for the day.

Had I succumbed to some notion about ‘over-trading = x trades‘, every one of those days would have ended in a loss. On top of that, each one would have ended with a much greater negative impression in my mind.

Yet how much confidence do you think I get from losing 9+ trades in a row, and still making money to end the day?

Just like a quarterback doesn’t stop throwing the ball because he’s had a couple interceptions and bad passes, the same goes for trading.

Your goal should be to win each and every day while maintaining your trading plan, risk limits and mental execution.

With all the above said, two things have to be addressed regarding over-trading.

Discipline & Wiring Your Brain

discipline in trading 2ndskiesforex

IMO, you should not be trading the markets without a trading plan.

Make sure to read my article ‘what if your trading plan is costing you money?‘ Inside this plan should be specified the 4 risk limits from above. On top of this, so should your strategies and instruments you trade.

“Your trading plan needs to define your actions & mental execution every time you sit down to trade.”

However, these plans are meaningless if you haven’t built the discipline to execute them.

In some sense, I get the reason why some ‘gurus’ say ‘avoid the lower time frames as you will over-trade there‘.

Part of the proselytizing here is because it fits their story about higher time frames. Saying lower time frames are the boogeyman for your trading is a way to continually market & perpetuate their narrative.

But in reality, telling you to avoid the lower time frames is based upon fear.

That you will be powerless if you enter the seductive Scarlett Johannson-like bedroom of the lower time frames.

That you will become a helpless meth-like trading junkie should you go there.

One of them even uses this image to portray what happens when trading the lower time frames (see below).

over trading myth

FYI, I trade the 5 min charts (sometimes the 1 min charts) when trading price action intraday, and I’ve never looked like that. My mind is as calm as a hindu cow whether I’m trading the 5m or daily charts.

The time frame is irrelevant because I’ve wired discipline into my brain. Many of my students also trade the intra-day time frames, and none of them look like this (SHOCKING!).

I met a prop-firm day trader at the Singapore Trading Seminar I did this July. Guess what?

He didn’t look like that at all! He was one of the nicest, most relaxed and intelligent guys I’ve met.

It is true, day trading does increase CL (cognitive load), but it doesn’t turn you into a crazy person.

Photos from the Singapore Trading Seminar
singapore trading seminar 2ndskiesforex

Me showing a live trade and explaining the price action behind it
chris capre singapore trading seminar

I’m guessing the proof is in the pudding. Many of you are already trading the higher time frames, and still have issues with over-trading. The underlying root cause is discipline in trading, and that comes down to how your brain is currently wired.

If you haven’t wired it into your brain yet, you won’t be able to execute discipline while trading. It’s as simple as that, regardless of the time frame.

If you fear something will happen, you create psychological tension around this fear. This only INCREASES your negativity bias, which further perpetuates this behavior.

In Conclusion

We have to adopt a different working definition of ‘over-trading’. We have to get beyond the time frames cause over-trading notion.

I define over-trading as a) taking any one trade outside your trading plan and b) taking any trade which causes you to go over your risk limits.

When we look at over-trading in this context, the time frame you trade, nor number of trades matter.

Your goal should be to execute your trading plan as is (and nothing more). And that needs to include your risk limits while pulling the trigger when you need to.

Do you want to increase your price action skills to trade on any time frame? Check out my Trading Masterclass Course which teaches you the same trading psychology strategies I use every day, regardless of the instrument or time frame.

Need to become disciplined in trading? Visit my Advanced Traders Mindset Course to learn specific forex trader psychology techniques on building discipline.

Now Your Turn

Have you noticed you over-trade even on the higher time frames?

Does this new definition of over-trading help change your perspective?

Make sure to share your thoughts on signs of overtrading below.

Until then – may good trading and a successful mindset be with you.

,

Set and Forget Trading – When To Use It and When Not To

Set and Forget Forex Trading with 2ndSkiesForex

A while back I heard a professional trader who ran a trading desk sum up ‘set and forget forex trading‘ strategies in one sentence:

“That is like getting in a car, putting your foot on the gas, and expecting to get from point A to point B without crashing – complete stupidity.”

By and large, I have to agree with him. There is a lot of confusion around set and forget trading, and it’s likely costing you money.

In today’s article, I’ll begin by sharing the fallacy in this way of thinking and how our brains are wired in relation to trading. Then I’ll cover the ONLY TWO SCENARIOS you should use a forex set and forget trading strategy.

From here, I’ll talk about evolving markets and how this relates to set and forget forex trading. After this, I’ll end with talking about how you limit your profits and how to avoid capping your growth as a trader.

The Irony & Fallacy of Set and Forget Forex Trading

The irony (and fallacy) hiding behind this one size fits all approach is it assumes you are responsible enough to make a good trade entry, stop loss and take profit, BUT you are clearly not mature, intelligent or responsible enough to manage a trade. How ridiculous.

To be fair, our brains are not wired for all the mechanics of trading, and our natural bias is negative towards most things, especially threats.

The translation of how this bias affects us is: we are more likely to close a trade when it goes against us (threat) vs. working for us (beneficial). And I’m sure you have experienced this yourself.

The Scenario
You are in a trade, everything is going for you, the price action is impulsive in your favor, you are in profit…and then…the first major candle goes against you. Immediately you think the move is over and you close the trade to lock in profit.

Has this happened to you? If so, its your brain and reptilian brain working against you.

(NOTE: For a great trading article on the negative bias in trading, read Why We Close Winning Trades Early)

neocortex reptilian brain 2ndskiesforex

Change & Growth Come Through Re-Wiring Your Brain

To be successful in trading (and anything), you have to re-wire your brain and change your habits. This is best done through repetition, focused awareness and skill based training.

We can either walk on eggshells around our negative biases (no growth), or we can learn to get past them (growth). Simply turning to a one size fits all approach for taking profit (or managing the trade) isn’t the answer. It leaves you crippled in terms of growth and assumes you’ll never get over it.

That is like saying you should never drink a beer (or glass of wine) because you’ll never be able to control yourself. Or you should never get a drivers license because you’ll never be responsible enough to drive on public roads. Ridiculous.

In reality, set and forget forex trading is simply ONE method for managing the trade. And it should (in reality) ONLY be used under two circumstances:

#1: You only have one, maybe two hours per day, and have no real way to manage your trades. Perhaps you work full time, have kids, and are just really really busy with a super tight schedule.

In this case, you are probably best employing a forex set and forget strategy as a profit taking method using daily and 4hr price action strategies, but there is a big assumption in this.

The Assumption
The scenario above assumes you are a) not trained in reading price action context, or b) your trade will likely hit its stop loss or take profit after you enter, but while you are busy.

Hence, unless you are not trained to read the price action context in real time, or the trade will close while you are at work, then you are a decent candidate for a set and forget forex trading strategy.

If your trade will take a few days, then this may not be the best method, because as it progresses, it may show signs it could go for a big runner. These are trades you have to take advantage of when they come, just like a really good poker player loads up on a strong hand.

pocket aces strong poker hand 2ndskiesforex trading
Once you get good at reading the price action context in real time, you can also trail your stop and reduce your risk as the trade progresses. Almost every professional trader will reduce risk as their trades advance.

Very few will look at it as a hell or high-water scenario, which is what you are saying when you use a set and forget trading strategy as your method.

The other scenario is below.

#2: If after exhausting all other methods of managing your trades (taking profits and adjusting your stop), and the ONLY baseline method which showed profitability, then you’d be a decent candidate for the set and forget method.

This one is pretty straight forward, and the risk of ruin needs to support your decision. Without it, you could have the numbers working entirely against you without even knowing it.

Thus, if you are that trader who falls outside of the two above reasons, you should explore other options, and develop an accurate baseline for gauging which method you use.

Markets Evolve Over Time

The bottom line is the market evolves as it progresses over time. This can happen intra-day, daily, or over days and weeks. Those that train and learn to adapt with such changes in real time will have their finger on the pulse and maximize opportunities.

finger on the pulse institutional trading 2ndskiesforex

This is what institutional traders do. They adjust and evolve their positions as the market does, just like a poker player will become more aggressive (or conservative), based on the players around him, and the size of his chips.

Just realize if you don’t explore other options for managing your trades, and train to get beyond your weaknesses, your growth will be limited, and your profits will reflect this.

Having A Curfew on Profits

But perhaps that doesn’t sway you. No problem, just imagine the following scenario:

It is the first week in May, 2013. You have just entered short on the AUDUSD on a break below the key support level around 1.0225. Your stop loss is just above the daily 20 EMA, so -100 pips, and your ‘set and forget‘ target is +200 pips, or +2R.

About a day later, it comes out on the news that George Soros has sold over $1 billion of the AUD. Considering Soros’s history, and that he doesn’t just get in and out in a day (along with the glaring fact other professional traders will likely pile on this trade), chances are this trade is going to run.

Yet…here you are, just a couple days later, saying ‘nope, I only set and forget because I ignore everything and cannot manage my trades responsibly, so I have this curfew on profits‘.

About a day later, you hit your +2R profit, thinking you are a darn good trader. This is your chart below.

set and forget trading 2ndskiesforex audusd chart 1

Looks great eh?

And then you see this…
set and forget trading 2ndskiesforex audusd chart 2

Keep in mind, this situation above happens on a micro-scale almost every day, sometimes many times per week.

So when you consider employing a forex set and forget trading strategy, realize there are other options, and this should only be used in very specific circumstances.

Also understand, if you choose to use this method while you have other options, you are a) putting a cap on your upside profits, and more importantly b) putting a limit on your growth and development as a trader.

There are many other methods for managing your trades regardless of what time frame you trade. For those wanting to learn more about these methods and how to leverage them in your trading, learn about my Trading Masterclass Course where you get access to our daily trade setups commentary, trader quizzes, private member webinars, live trade setups forum, and more.

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Working With Failed Trades & Your Trading Mindset

the trading mindset and failed trades 2ndskiesforex
There is a statement non-profitable traders often use regarding some of their losses. Perhaps you have heard this before, or said this yourself (myself included years ago).

It is the commonly used term ‘Failed Trades‘, which is something of a misnomer. In reality, there are no ‘Failed Trades‘. In fact, there are only three types of outcomes from any single trade, and they are not the win/break-even/loss you are thinking of.
These three types of outcomes from any single trade are; winning, learning, and failing to learn from. The idea of a ‘failed trade‘ is the latter – that being one you failed to learn from.

However the very mention of the term ‘failed trades‘ brings up something crucial about our trading mindset. That is – we cannot define ourselves by our last few trades, whether they made money or not. Think about it like this;

What if you are 50% accurate, and generally scoop up 1.25R per winner? According to the risk of ruin, that level of accuracy, risking 1% per trade (and R won per trade) will mathematically make you money.
Another perspective around this would be to examine coin flips. How so?
random distribution of trading 2ndskiesforex
You can flip a coin 10,000x and end up with 50% heads and tails. Yet…inside that 10,000 rounds of flipping, you may have 7 heads in a row. Now what if during those 7 heads you were betting tails each time? Would you call that a failure to bet wrong 7x? Probably not, yet its perfectly natural to have moments of random distribution like that, even in a coin flip.

Translation: you will have losing streaks which will be part of trading. You will also have ‘hot streaks‘ which are part of the same process. These winning and losing streaks come via any natural distribution curve. Individually, they’ll look like streaks, but in reality, this is an illusion, because they are statistically going to happen. Which is why we have to focus on something else.

A Students Trading Process: From 8%-38%
I recently had a student (we’ll call him Michael) who wanted to trade an anti-podean currency (Kiwi vs. the USD) as it worked for his availability. When he first started training with the pair on Forex Tester 2, doing live forward simulation training, his accuracy was a whopping 8%. Yep, you read that right, he was only accurate 8 out of 100 trades.

A month later, Michael was now 28% accurate. I just received an email from him showing me his myfxbook stats. Where is Michael at now? Currently clocking in at 38% percent. Maybe I should call him the crazy eights trader!

(NOTE: To get a $50 discount on Forex Tester 2, click here)
Now when you look at his trading over time, what you can see is the evolution of his trading via focusing on the process (not results). He is evolving over time and continually getting better. If you define yourself by your last two to three trades, you are focusing on a see-saw, which, technically could oscillate with a loss following every win forever!
By focusing on process, and your trend in terms of your overall trading process, you get a better handle on what you actually are – which is on a sliding scale. In other words – a moving target!

Michael kept his eye on the ball, and because of that, his process and performance is getting better. He’s constantly improving his execution, timing, and his read on the price action context. By getting better at reading the price action in real time, he’s noticing a steady uptick in his accuracy. His last two trades will never represent all the effort he’s gone through thus far, and more importantly – where he is going.

successful forex trading 2ndskiesforex

But He’s Losing Money…
Now you may think, ‘big deal, he’s still only 38% accurate, which is losing money.‘ Call it a guess, but I’m willing to bet at least 60+% of you thought 38% accuracy is poor in terms of trading, and that Michael was losing money. That would be true if his average R was +1 per trade. But he is generating over +2.5R per trade, which means Michael is making money consistently.

And now that he’s making money, is he just sitting there content with what he’s got? No – like a track runner constantly working to reduce his time, he is constantly refining his edge wherever he can find it. He is using the Aggregation of Marginal Gains, where every 1% edge adds up to a large result.

In Closing
We can now see there are no failed trades – there are only trades we fail to learn from. By focusing on process, and not the see-saw of the last 2 or 3 trade outcomes, we keep our eye on the target
We can now understand how hot and cold streaks are a common part of our trade distributions, so getting bent out of shape by a few losing trades means nothing. What is more important is having a successful trading mindset, which is focused on constantly improving and building our skill set.
When we do this, we will find ourselves making better decisions, worrying less about the outcome of each trade, and making more profitable trading decisions.

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The Aggregation of Marginal Gains in Forex Trading

The World Cup ended a few days ago with Germany hoisting the trophy. Some are speculating this Germany may be the best national team ever.
aggregation of marginal gains german wins world cup 2ndskiesforex
Such a statement will be argued across bar tables and countries for years to come. Regardless, below are a few amazing facts about Die Mannschaft winning the World Cup;
1) No European team in 6 prior attempts had won the WC in Latin America
2) Their goal differential (difference between goals scored vs. goals allowed) was tied for the best ever at +14, scoring 18 goals, allowing only 4 in 7 games.
3) They finished the WC with the highest ELO rating for a WC champion ever (source: Nate Silver)
There is more, but they won without having any major superstars like Messi, Ronaldo, or Neymar.
How did they do it?
The answer is a method known as The Aggregation of Marginal Gains. This is a strategy for improving performance in any sport, skill or performance based endeavor (i.e. trading). This method is the offspring of Dave Brailsford, the General Manager for Team Sky (Great Britain’s professional cycling team), who has helped British cycling become dominant since 2010.
The idea is simple – find and improve as many areas of your discipline as possible by 1%. If you add up those small gains, it will lead to a dramatic improvement in performance.
How did the Germans utilize this method to win the 2014 World Cup? They employed 40 sports scientists to look at every aspect of the game. Their mission was clear – find the smallest advantages wherever they existed. Putting this into context, while they had 40 sport scientists, Brasil had 2. Below are just some of the 1% marginal gains they produced.
1) Climate Trends – they analyzed various tropical climate trends in relationship to player performance and reduce the risk of injuries.
2) Alpine Training – before the WC, they had a 10 day preparation camp in an isolated village in the Italian Alps, 1,000 meters above sea level. Training at this altitude helps to increase the production of oxygen-carrying red blood cells – thus increasing stamina.
3) Base in Porto Seguro – 1 year before the WC started, they build a 60 room base helping them adjust to the tropical conditions more easily. The German climate is far from anything resembling ‘tropical’. Most teams booked hotels in the south of Brasil where it was much cooler, thus making it harder to adapt.
There is more, but you get the key point – they prepared in every way possible giving them the edge available.
If I’m correct, many teams and nations will be studying their methods to improve their respective programs.
An Edge in Trading
In trading, most tend to think of their ‘edge‘ housed only in their strategy. That would be a rookie mistake.
Your trading mindset is an edge, your risk management is an edge, your trade management is an edge, your training method is an edge, your preparation is an edge, your trading plan is an edge, your spreads are an edge, etc. There are certainly more, but create a 1% increase in any or all of these, and the aggregation adds up to a huge shift in performance. That difference could be the gap or cleft between you losing money like you are now, and making money consistently.
The Slightest of Edges
In trading, the difference between losing and being flat is often marginal. Sometimes just a few small shifts in your trading can bridge the gap. The same goes for moving from break-even to profitability. Just increasing your accuracy alone by a few % can mean the difference between having no edge, and making money consistently.
Just even using the fixed % model vs. the fixed dollar amount will improve performance as we’ve demonstrated before. Below is a great chart just showing one of the ways the fixed % model is superior in performance.
fixed-percent-equity-risk-model-superior-than-fixed-dollar-amount-graph-1-2ndskiesforex
Another great example is housed in your risk management. Using the risk of ruin formula, imagine you are a trader who can consistently get a 1:1 reward to risk ratio with your price action strategy. If you are 50% accurate with this R:R ratio, you are losing money. Increase your accuracy to 55%, and now your system makes money (assuming you have a manageable spread).
NOTE: I have a FREE Risk of Ruin Calculator which you can use by clicking on the link.
Edge In the Spread
Coming back to the spread, if your current markup on the GBPUSD pair is 1.5 pips, and you can reduce that to just 1.4 pips, a .1 pip decrease in your spread may not look like much, but take a long view and see what happens.
I have been trading for 14+ years now. Let’s use a low number assuming I make 20 trades per month trading 11 months per year.
14 years x 11 months = 154 months of trading 
At 20 trades per month, I would have executed 3080 trades
A .1 pip increase = a +308 pip gain 
At 10 standard lots per trade, we are talking $100 per pip 
At $100 per pip, we are talking a difference of $30,800 profit, all from a .1 pip improvement in my spread!
Can you see the power of how one small gain leads to a big increase in performance?
Now imagine making 5, 10 or 100 of such gains. By using the aggregation of marginal gains method, you can create small gains which lead to huge improvements in performance. Such gains can be the difference from losing money, to breaking even. or breaking even to making money month after month.
Below is a fantastic graphic how a 1% increase in performance over time will affect your outcome (source: Jeff Olsen).
aggregation of marginal gains in forex trading chris capre 2ndskiesforex
 
Edges To Be Found in Trading
In trading, every edge counts, which is why you have to take time to really dig into your trading system and method. Such analysis can turn a barely profitable trader into a highly successful one. My top students have all dug deep into every aspect of their trading, and this is why many of them would outperform 95% of all traders on the planet.
Below is a list of some possible edges you can find in your trading:
1) Improving your entries – Are you using optimal entries, or sub-optimal?
2) Decreasing Stop Size – Take a trade setup with an 80 pip stop & 120 pip target (1.5 R:R). Now reduce the stop by 10 pips. Your R:R increases from +1.5R to +1.85R (23% increase), all from tightening your stop by 10 pips.
3) Trade Management – is a trailing stop kicking your out too early, or helping you lock in the maximum amount of gains?
4) Time Stops – are you holding your trade for days, maybe weeks on end for a simple 1R gain? Or could your capital, time and mind be used for trades with higher R and a quicker return?
5) The instrument you are trading – Perhaps you can make a little money with one pair, but testing the system on another pair shows a big increase in performance.
6) Reducing your spread – perhaps you can get equal performance in terms of accuracy and R:R ratios in a lower spread instrument.
7) Time of Day – Are you trading intra-day? Perhaps trading during more ideal times for your system could increase profitability.
8) Risk of Ruin – do you even know your risk of ruin, or the mathematical probability you will make (or lose) money? Knowing your RoR can mean the difference between losing and making money every month.
9) Your Trading Mindset – maybe your strategy makes money consistently, but you use it improperly, or don’t pull the trigger when you get a prime setup. Your trading mindset could either keep you focused on process, or constantly worrying about that big loss you just took. Ask yourself what edge do you have in your mindset, and how do you work to improve this.
10) Trading Strategy – does your trading strategy have an edge? Below is a strategy from our Price Action Course on just one pair and one time frame, including the performance data gaining +108% over 97 trades risking only 2% per trade.
total-performance-profitable-strategy-2ndskiesforex-price-action
In Closing
The aggregation of marginal gains is a powerful method that can be applied to trading, sport or any skill based endeavor. The training in the alps did not win Germany the World Cup. Nor did the base they built in Porto Seguro. Nor did the analysis on climate trends and player performance. But adding them all together, alongside with their futbol system, training, teamwork, and a focus on the details, it all added up to a winning advantage, setting records and making history.
Now that you’ve seen the power of making small gains in your trading and how it can affect performance, ask yourself what can you look at to give yourself a better edge? Where can you make small gains, and what details are you missing?
Along those lines, what other edges do you think could be useful to improve trader performance?
Please make sure to share your ideas, comments and suggestions, and what you have used to increase your performance.