trading and thinking in probabilities

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Trading Strategies

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

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:

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.

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.

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 😮

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.

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.

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.

Confirmation Myth, Featured Article, Forex Strategies, Price Action Trading Videos, Trading Videos

The Price Action Confirmation Myth & the Retail Mindset

This is part 1 of a 4 part forex price action strategy series. Read the next one here: The Blind Entry (How It Will Leave You Trading Blind)

I can always tell where people are in the trading process based on how they speak about confirmation. Why is that? Watch, and find out!

Here’s the transcription for the video:

“There’s a really big misunderstanding about confirmation.

When I hear people talk about confirmation and how they talk about confirmation, I can always tell where people are in the trading process based on how they speak about confirmation. Why is that?

Because there’s been this proliferated idea in the trading education world that to trade a setup or trend or something like that you need this thing called confirmation and the confirmation comes in the form of a pin bar, an engulfing bar, an inside bar or whatever.

So that’s the general idea that’s out there when it comes to trading price action.

The thing is, is that when I hear somebody talk about price action in this way, I know exactly what level of trader they are and what level of trader they’re not, because how somebody speaks about confirmation is very indicative of where they are in their trading process.

If a trader is looking for confirmation that a trade will work and they’re doing this because they’re saying “ok, we gotta wait for a price action confirmation signal from support or resistance“.

Well, where does this idea and need for confirmation come from? It comes from a beginner’s understanding of trading.

Why is that?

Because beginning traders are looking for certainty in the market. They’re looking for solidarity, they’re looking for something really really potent that says “I need confirmation”.

The reason why they need confirmation is because they don’t trust price action, they don’t trust their skillset.

They don’t trust trading as a whole. They don’t trust trading with trends, they don’t trust reversals. They don’t trust support and resistance, they don’t trust price action as a whole.

In the beginning, traders want solidarity, they want certainty. And because of that, they’re looking for confirmation in the form of a pin bar or something like that.

The pin bar ‘confirms’ that this trend is going to continue.

The thing about it i,s is that this is something that professional traders have let go of that a long time ago. And they have to let go of it to become a professional trader.

The reason why that is, is because that idea of certainty, of confirmation and the way that a beginning trader is looking for it, that wanting things to be really certain, that A++ setup.

Where that comes from is a beginning understanding of trading.

“Professional traders don’t look for certainty, because they’ve realized it’s an illusion.”

What professional traders are looking at, which is a different perspective, is trading and thinking probability.

So if you hear somebody talking about confirmation, “we wanna trade with the downtrend and we’re gonna wait for a pullback towards resistance and a pin bar off that resistance as confirmation that the trend is still in play and we can trade it“.

How many have heard that story before?

The reason why you’ve been told that is because the people who are teaching that aren’t trading professionally.

If they were you would know this, and all professional traders would know this because professionals aren’t looking for confirmation signals via a pin bar.

So if you hear somebody talking about that, you know where they are in terms of their level of trading.

They’re still a beginning trader themselves, and if you think about it, if somebody is talking about an A++ setup or they’re saying “hey, we’re waiting for a pin bar from resistance for confirmation“, besides the fact that I would suggest running from them as far as possible, because they’re still beginning traders.

You have to ask yourself “look, if you’re only willing to wait for a pin bar or an inside bar, or a false break, if you’re only willing to wait for those signals before you enter the market, well then you really don’t trust price action, do you?”

You don’t trust trends, you don’t trust price action context, impulsive vs. corrective, volatile vs. non-volatile trends, you don’t trust support and resistance, you don’t trust your own ability to trade.

You have to wait for all these other things to be in place and then this one final supposedly magical pattern and supposedly there’s only like 3 of them, which is amazing to me that this idea is actually out there, that there’s only 3 possible ways that the market is telling you a trend’s going to continue.

I don’t know about you but that seems kind of absurd to me. It seems a little insane to think that a market that is so complex, across so many players, across trends that continue.

Confirmation via a pinbar is an illusion, it’s a beginning way to look at trading.

So, your job as a professional trader… you know you’ve kinda crossed the Rubicon and made a big leap in your trading when you look at trading in terms of probabilities, not confirmation in the ordinary sense.

Confirmation, the way it’s normally talked about is a very dubious notion. It’s a very slippery idea that doesn’t really exist in the way you think it does.

If you’re constantly looking for those things you’re going to miss thousands and thousands of pips in a trend that is already well-esablished.

If you’re looking for confirmation, you won’t be able to make this trade and this trade and this trade and this trade. And that’s… what is that? +240-250 pips?

In a period of, what, 3 days? On one pair? You won’t be able to do that.”

This is part 1 of a 4 part series. Read the next one here: The Blind Entry (How It Will Leave You Trading Blind)

Have you been trading price action via ‘confirmation’? If so, I want to hear from you and what you see as the difference, so please make sure to comment below.

Was this article helpful? Please make sure to like, share and tweet it below to anyone you think can benefit from this.

Forex Strategies, Price Action Trading

Avoiding Losses in Trading

I had an interesting conversation with a developing trader about avoiding losses in forex trading. After discussing the subject with them for a few mins, I realized there seems to be a great misunderstanding about trading and losses. This is not surprising as there is a lot of sophomore information out there about these A+ setups, that good setups only occur on higher time frames, that you should only take these high quality signals. But this misses an essential point of trading and something that all professional traders understand.

The A+ Setups Myth
Beginning traders try to ‘avoid losses’ by waiting for these ‘A+ setups, trading like a sniper stuff‘. This is a big reason why they fail to make money. To trade successfully, you have to trade and think in probabilities. You cannot ‘avoid’ losses in forex trading. This fear, this rationalization & desire to avoid the inevitable, actually takes you away from a system that has an edge and understanding what is a high quality signal.

A great example of this is how a beginning trader wants to ‘avoid’ a loss by waiting for some perfect setup, as if trading is a fashion contest. They fear losing and thus rationalize not trading this setup which may have a lesser probability hit rate. But here is where so many beginning traders go wrong and what you want to avoid.

Understand What An Edge Is
If a system has a 33% win rate, this may seem low, but if it always hits a 4x target, (e.g. you risk 50 pips to get 200), then this system has an ‘edge’ and makes money over time. By waiting for these ‘A+ setups‘ and trying to ‘trade like a sniper‘, you avoid the trade because it is not A+ or high probability.

What this actually does is separate you from a system that is profitable over time, that has a mathematical edge, and makes money. Yet if you ‘avoid’ this trade because you want to ‘avoid losses’, then you are passing up a profitable equity curve which could provide consistent profits over time. It is critical to understand your edge, and trade it when it presents an opportunity.

But here is another crucial point about this topic.

You cannot ‘avoid’ losses at all in trading. Losses are part of the forex trading game. They are something you will have to get comfortable with, and not identify with, or value yourself based on the latest win or loss. Trading is really about getting comfortable with yourself, and getting comfortable with losses. They are going to happen just like the sun will rise and set.

Avoid the Misconception, Not Losses
Trying to ‘avoid’ that which is unavoidable will create a limiting belief in your head that only interferes with your trading. Understand that in reality, losses get you closer to your next win as you let the edge play out.

Don’t pass up an edge/system which makes money, simply to avoid the fear and psychological discomfort of the loss (which is really up to you how you experience them). Don’t fall for this ‘A+ setup, trade like a sniper motto‘, which is really a misunderstanding of trading professionally, and a sophomore understanding of it at best. So time to start thinking about trading on a new level, and avoiding the misconceptions about trading, not the losses.

If anything, you should avoid the mistake of thinking you can avoid losses, by only waiting for these magical A+ setups.

There is really nothing to avoid in trading, which is more about getting comfortable with uncertainty, and understanding losses are part of the game. When you start to do this, you will find yourself taking trades less personally, and executing with greater discipline, lesser emotions, and a clearer perspective on the what it is to trade professionally.

Forex Strategies, Trading Mindset & Risk Management

The Beggar and The Trader

There is a story about a beggar several hundred years ago from a small village. He was orphaned at a young age, and with no education and family, he had to fend for himself. He was reasonably intelligent and able, despite his challenging start. Living in a small village his whole life, since the village was abundant, he was able to beg for food and receive what he needed to survive.

He tried several times to find menial work to give him some basic subsistence, but was unable to find any.

Difficult Times
Later, some hard times fell upon the village, and many people were struggling. The beggar went around the village asking for food, but many were unable to offer him any. He went without food for some time, barely maintaining his energy living off what little he could find.
Eventually, after struggling for many months, unable to find any work, he decided to leave the village and go to another looking for food. Working his way up the mountain, unfortunately he was unable to find any food or work in the nearby villages after his repeated efforts.
Now days later, it was getting dark, he started to lose hope and realized the end may be near. He eventually found a cave which was empty to rest in, and spend his last moments. He was sad because he really felt he could do something in this world, but was unable to make things work.
Dark and barely able to see, he started to lie down on this rock, and noticed it was really warm. He thought to himself, ‘Oh wow, this rock is really warm. I am glad I was able to at least feel warmth while I rest here‘.
Shortly after closing his eyes and falling asleep – he died…
In the Very Same Cave
The next day, a group of explorers were looking for something on the mountain, and passed by the very same cave as the beggar just passed away in. As they entered the cave, they noticed a motionless person lying on a rock, and realized he had passed.
Out of respect, they decided to bury him, but when they moved his body, they noticed something that sparkled really bright. Under the man’s head where he was resting when he passed, was gold.

Akin to Beginning Traders
This story is very similar to many beginning traders who come to trade the forex market. They see the potential of what forex trading can offer, but stability, consistency and success seem just out of reach.
They often try a system for a short period of time, but then abandon it if it doesn’t make them a million dollars after a few months, let alone with the first few trades.
What many fail to realize, is that the actual gold they were looking for (a consistently profitable system), was right underneath them the entire time. They likely have been resting on something highly valuable, but because of doubt, limiting beliefs, and unrealistic expectations, are unable to see what is in front of them. When encountering obstacles, instead of working through them, they abandon their system, and look for the next best thing.
The Main Difference
I think the main difference between profitable and unsuccessful traders, is in how they approach the market. Consistently profitable traders do not analyze or value their abilities based on their last win or loss. They are trading and thinking in probabilities.
What the consistently profitable traders are willing to do, was to work through their obstacles and challenges. They understood what they have available to them, and work at it until they are successful. They realize the pot of gold has been right underneath them the entire time, and all they had to do was dig – long, hard, and with the unfailing belief they will get to the gold underneath them.

I know of no profession, sport or skill based endeavor you can enter, that within a few months, you are operating at a professional level. Yet many beginning traders quickly abandon something if it doesn’t create a 45+ degree equity curve and hit over 80% accuracy in the first month or two.
What has fascinated me, is how I could teach traders the exact same price action or ichimoku systems, yet get wildly different results, with some being highly profitable and consistent – while others not. Usually those who stick with it regardless of the results eventually find their ground, and start to trade consistently and successfully.
Imagine a World…
I cannot imagine a world where Benjamin Franklin gave up after his first few rejections and failures, or Einstein not pursuing science after failing to get accepted at the Swiss Polytechnic school, or Michael Jordan never playing basketball after failing to make the Varsity team in High School.

The good thing is, whatever is separating you from being consistently profitable at this moment, is completely learnable. The mind has neuroplasticity to it, & without a doubt you can learn to trade successfully.
So keep digging for your pot of gold. Work with a trading mentor, continue to improve your systems edge, money management, and building your successful traders mindset. You might just be surprised what you’ll find if you keep digging.

Forex Strategies, Trading Mindset & Risk Management

You Will Have To Do This Trading

The Rosy Picture
I know the idea of being a professional trader will seem like a rosy picture, but the fact of the matter is you are going to face some tough times as a trader. You will have to do many things to be a successful and professional trader (or successful/professional anything for that matter), but the most crucial things you do will be the little things in the big moments of time.

Bottom line is – you will have to deal with making mistakes that cost you money, and a lot of it. You will have to deal with some really tough losses, whether they be 4, 5 or 6 figures. Yes, you can make 5, 6 or 7 figures, but that will be totally dependent upon you remaining completely focused, confident and disciplined while you are going through the good times, as well as the really tough ones.

In Trading…
You will have flat periods, draw-downs, losses (perhaps several in a row), but regardless of what you face mentally, emotionally, or physically, you will have to keep proper money management.
You will likely have to take a trade shortly after getting hit by the market only minutes before. You will have to deal with getting stopped out by a pip or two, only to see the market move 100+ pips towards your target. You will have to be patient and sit on your ass, even though you want to get in.
And you will have to do all of this while the market is moving in real time, while there are large profits to be made, while your emotions are working completely against you, while you are experiencing fear, or worry, or impatience, or frustration, or absolute un-clarity.

You will have to make tough decisions in real time that may not be so evident as they unfold before you in a live trading environment. It is very easy and completely common to miss the best setups happening in real time, that follow your rules, or your price action system, because in real time all of the toughest things about trading are present.
The Mountain
I know it may seem like you are pushing up against something larger than yourself, like you are moving a large boulder up a mountain, but you are actually pushing up against yourself – not the market. There is a powerful, self-reflective & insightful quote from Sir Edmund Hillary (1st to ever reach the summit of Mt. Everest) which goes;

“It is not the mountain that we are conquering, but ourselves”

This is exactly what trading is, as you are not conquering the market – but yourself.

Safe Distance & The Monday Morning Quarterback
Hindsight is a free zone, a safe distance to evaluate things as there is no emotion involved, with no live triggers to activate your unconscious or limiting beliefs. When you look at a trade after the fact, there is always clarity, and it looks like the setup was literally put on a golf tee just waiting for you tee off.

However, the reality in trading is, the clarity so available in hindsight is often barely present when trading in real time.
You wouldn’t believe how many ‘authorities‘ or ‘masters of all things price action‘ (ironic considering no peer calls them that), talk about all these great setups after the fact.
They boast how it was ‘widely discussed in their members forum’ only to find out it never was & they never traded it themselves. This is despite the fact it was an ‘obvious’ pin bar setup, or engulfing bar setup, or some other ‘obvious‘ thing they didn’t trade, but lauded after the fact.
Anyone can be a Monday morning quarterback, but can they be a trader in real time is the question. This is why lately I have been almost weekly posting my actual setups here, here, here, here, here, and here of how I traded them in real time.
This is with all the success and mistakes made while managing that live trade, with my actual entry and exit from the brokers chart, based on all the thoughts, emotions and decisions that are involved in them.
Actual Trades
If they’ve only shown you one trade in the last year, or a few in the last few months, without actually even showing you the entry and exit from their broker chart – then run away as they are hiding from the fact they do not trade. They should also be showing you successful trades from their students which you can find here, here, here, here, and a ton more here.

But make no mistake, there are many things you will have to do while trading, particularly managing, and managing two things which require practice and precision to do well. They are;
1) Managing Risk
2) Managing Your Emotions
Hopefully you already have a set of rule based systems that you follow to get in and out of a trade, so there is little management in that part. It is the two listed above that require most of your mental/emotional/psychological management and capital.
In Summary
To repeat, you will have to endure tough times as a trader, with some tough losses, flat periods, draw-downs, making expensive mistakes. And you will have to do this while not investing all of yourself and success / failure in the last trade. You always have to be trading and thinking in probabilities.
Losses are inevitable, but how you deal with them is not. If you can learn to remain focused, confident and disciplined – regardless of what just happened in the last few minutes, hours or days, then you can find yourself back towards a winning trade. But more importantly, you can experience first hand a valuable lesson, which can pick you up after you fall, carry you towards winning trades, and feed your trading career for a lifetime.