How To Be A Sucessful Forex Trader Using Market Logic.

In order to be a successful Forex trader you have to keep it simple. I have many profitable strategies that i use to make money from trading, but they are all based around simple market logic.

So what is market logic?

To understand market logic you have to understand the major forces that drive the market. What makes prices move up and down?

Most traders think that buyers and sellers move the market up and down. Now although that is true its not the only factor that drives price.

Other factors that influence price.

Think about this. When you enter a trade you buy or sell the market at a specific price. Now whether that trade is successful or not, you will have to exit that trade at some point in the future.

So say you buy the market, and set a take profit and a stop loss. Now in order for you to exit that trade, whether in profit or loss, your buy order will have to sell the market at some point to close out your position. So just by closing your trade you are influencing price.

The power of the majority.

If everyone is selling the market, why would you want to buy it? If everyone is buying the market why would you want to sell it?

This is a mistake that a lot of retail traders make. They try to catch tops and bottoms. I have done this myself when i first started out. How many times have you seen prices going down, and thought its going to reverse here, this is the bottom. So you pile in, only to see it go further down, and you think why is it going down, and down and down?

Well think about it logically. You buy at what you think is the bottom, and a few 100 others do the same, because lets face it, its not only going to be you that thinks its the bottom, there will be 1000s of other retail traders that think the same thing, who will also be buying at various levels.

So if all of these retail traders are buying, why is it still going down. Because the majority are still selling, and your buy orders are adding to that selling pressure.

How can buy orders add to selling pressure?

Well think about the other factors that influence price. Buy orders are seen as positive by the majority of traders, but when you have a strong downtrend they are negative. They are fuel for the fire of the downtrend. Why? because those buy orders are closed out with sell orders.

So as uninformed retail trades are trying to catch tops and bottoms, their stop losses are adding strength to the move, as those buy orders close as sell orders. Even if some traders do manage to catch a temporary bottom, when they close the trade for a small profit, their sell orders will send prices down again.

Major reversals in the market.

So if what im saying is true, and it is, what makes the market reverse, if its not buyers? Well if its not buyers that make the market reverse, it must be sellers right? Yes, but not just sellers. There are 3 main factors that will make the market reverse from a strong downtrend, or a strong uptrend. Buyers, sellers, and profit takers.

In this case we will work with the downtrend. As we have already established by trading against the majority you will lose your money.

The picture below shows how buyers, sellers, and profit takers affect the market.

Market Logic

In order to avoid losing money in the market, you always have to be on the correct side of the move, and trade with the majority. Following the trend is not always the answer though, as you can see how the buyers and sellers in that downtrend got smoked by entering at the wrong time. You have to enter and exit the market at key reversal levels in order to be successful.

My Forex training course will show you how to enter and exit the maket safely, and how to trade alongside the professionals.

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Can Setting Stop Losses Make You A More Successful Trader?

Some traders use them, some traders don’t. I use do them, and in this article i am going to explain why setting stop losses will make you a better trader.

What are stop losses?

stop lossFor those of you that are very new to trading, stop losses are pending orders placed in the market, to close a position at a certain price point, if a trade goes against you.

Stop losses are exactly that, they stop you from being exposed to significant losses if you get it wrong.

Many traders do not fully understand when it is safe to enter a trade, so they often get into the market at the wrong time, and a stop loss is used to limit a traders losses if the trade moves too far from the entry position, to a level where the trader feels that the trade will not be a successful one.

How are stop losses used by the majority of traders?

The majority of traders to do not have a clear understanding of the market, and are therefore entering trades based on how much they are prepared to lose on a trade, rather than how much they can profit on a trade.

A professional trader will always look at a trade from a profit point initially. A professional trader will understand the market, and will see a profit target first before he sets his stop loss.

A typical retail trader will set a stop loss of anything from 10 to 30 pips from their entry point, and they will target a risk reward ratio of at least 2 to 1. So their profit target will be anything from 20 to 60 pips.

Now if you are reading this and thinking yes that’s me. That’s what i do, but i always seem to get stopped out. Whether i set a 10 pip stop or a 30 pip stop i always seem to get stopped out, it just takes a bit longer if i use a 30 pip stop.

Why the majority of traders are getting stopped out.

The simple answer is they are entering the market at the wrong time. Think about this statement.

The market does not care where you enter, and it does not care where your take profit is. The market will do its thing and you will either get stopped out, or price will hit your take profit.

Traders that are getting stopped out more often, tend to use bigger stop losses to avoid the stop out. But if you increase the size of your stop loss, you also have to increase your take profit target. So if you are using a 2 to 1 RR, a bigger stop loss will mean a bigger take profit, and if you are targeting a bigger take profit, the sentiment of the market has more time to change before your TP is hit, and your trade has less chance of working out.

So how can you avoid being stopped out before your take profit is hit?

The answer for the majority of traders is to trade without stop losses. I have been trading professionally for quite a few years now and i have seen many changes in the market, but one of the most significant changes that i have seen, is how many retail traders are now trading without stop losses.

If you want to see your money go down the toilet, trade without a stop loss.

Stop LossesWhy are retail traders trading without stop losses?

The main reason is because they do not want to lose their money, but another more interesting reason is they think that if they put a stop loss in the market that is visible to their broker, then it will be easier for the broker to stop them out if they know where their stop is.

Many retail traders talk about stop hunting, and say that if your stop is visible to your broker he will hunt you down and stop you out. This is complete rubbish. No broker is going to move the market to get your 100 bucks. Do you know how much money is costs to move the market 1 pip? Why would a broker spend millions for dollars trying to move the market to get your 100 bucks?

Trading without a stop loss is not the way to be successful in the Forex business. Trading success is about entering the market at the correct time. If you do this then the chance of you getting stopped out is greatly reduced, and your trade is more likely to hit your take profit.

Why i prefer to use stop losses.

To benefit from the use of stop losses you first have to learn how to trade, so you are entering the market at the correct time. When you know how to trade, a stop loss is very important because it takes the emotion out of trading.

When you enter a trade with a stop loss, you are limiting your risk, so if you are comfortable with your risk, and your potential reward, then you are trading based on a calculated trading decision, and not on an emotional hunch.

Traders that trade without stop losses are emotional wrecks, as they do not know their potential loss in advance, so they are glued to the chart, hoping and praying that the trade works out before they lose their shirt.

This is not how professional traders trade. Professional traders take calculated risks based on high probability trade set ups. They set a stop loss, and a take profit that they are comfortable with, based on a clear understanding of the market and its participants. When the stop loss and take profit is set, they move on to another trading opportunity.

Set and forget.

Although i am not a great fan of set and forget it does take a lot of the emotion out of trading. I tend to use a set and monitor strategy rather than a set and forget. The market is constantly changing and i believe that you have to monitor your trades as the market changes. You may need to tweak your stop a little, or your take profit, to maximize your potential reward, and limit your potential risk.

Setting stop losses will help you to become a more successful trader.

Setting stop losses takes the emotion out or trading.
Setting stop losses enables you to set and forget. Or as i prefer set and monitor.
Setting stop losses helps you to protect your capital.
Setting stop losses means you can move onto new trading opportunities, and not sit glued to the chart all day.
Setting stop losses gives you your life back. If you want to go for a walk, or go and grab some lunch you can do, because you have the protection of a stop loss, and you are comfortable with your risk.

The most important thing to take from this article is stop losses will only work if you are entering and exiting the market at the correct time, and that is the holy grail of trading in my opinion.

Make over 100 pips profit with this strategy for trading the news.

Trading the news can be very profitable if you can predict which way price is going to move. Entering a trade just before a news release can net you 30 or 40 pips very quickly if you get the direction right. But predicting which way price is going to move is very much a gamble, so most traders do not trade the news, as its just too risky, and you often get stopped out, as price quickly moves one way, and then the other. This type of move is known as a whipsaw. Most traders have experienced this whipsaw effect, when price goes up then down very quickly, and it seems no matter which way you trade, you always seem to get stopped out.

Now i look at the charts in a very different way to 95% of traders out there, and i can always see an opportunity in whatever the market throws at me. When you understand why the market moves as it does, you can profit from almost any trading scenario, and trading the news can also be a great opportunity to profit from the market.

A strategy for trading the news is probably one of the hardest things to develop, but if you understand what is happening to price then its a lot easier. Now i am not going to go into the ins and outs of price action, and how i use it, but i would like to give you a simple but effective strategy for trading the news. This strategy can give you over 100 pips profit on a major news release if used on multiple pairs.

Now the big problem with developing a strategy for trading the news is stop losses. When most traders enter trades they set a stop loss. That stop loss could be anything from 10 pips to 30 pips, or more if you are trading higher time frames. Now if you are trading the news on the 15 min time frame, and you set a stop loss how big should it be? 10 pips, 20 pips, 30 pips, more? It is very difficult to set a stop loss for a news announcement, as you don’t know how big the move is going to be? So if you don’t know how big the move is going to be, how can you set a stop loss? You can set a stop loss above a recent high, or below a recent low, but a big whipsaw like the one in the screenshot below will still wipe you out. So what do you do? How do you profit from a move like that? Well the trading strategy below will describe what you need to do to make money from a news based whipsaw move.

strategy for trading the newsIf you think about what happens in a whipsaw, price goes up, stops out short traders, price goes down, stops out long traders. Now you know price is going up, to stop out shorts, and you know its going down to stop out longs, so this is what you do. You enter two trades, one long, one short, as close as you can to the the mid price of the move that leads up to the whipsaw. If you look a the screenshot above, this would be the middle black line. You set a take profit on both trades of 15 to 20 pips. You can go for more pips if the news is big, and you are going to get a bigger whipsaw, an interest rate decision for example, but 15 to 20 pips is a safe amount to go for.

Now the important part of this strategy is NOT to set a stop loss. Your take profit becomes the stop loss. Most traders will be trading this with a 20 to 30 pip stop loss, you trade it with a take profit instead of a stop loss. Price goes up, hits your take profit, price goes down hits your take profit. As price is hitting other traders stop losses, its hitting your take profit. But because you are trading without a stop loss, it does not matter which way price goes first, you are not going to get stopped out, you are only going to get your take profit hit. Does that make sense? Read it again if you are unsure.

Now there are a couple of important things you need to be aware of before you use this type of strategy for trading the news. The news release must be a high impact release, ( you can check which news releases are high impact on the calendar on the homepage ) NFP, interest rate decision, FOMC etc. A high impact news release is much more likely to produce a whipsaw move. The market also has to be moving in a tight range before the news is released. Check the screenshot above for an example of what you are looking for. This is VERY important. When the market has been moving in a tight range before the news traders stop losses are in easy reach of the whipsaw. If price has been going up, or going down before the release, then the whipsaw is less likely to happen. If you have the tight range that you need, you must enter as close to mid price as you can, so you are not exposed at the end of the range. If you are, your 15 or 20 pip take profit may not get hit in both directions.

Something else you can do to maximize your profit, is to trade this strategy on more than one pair. If the news is euro related, trade all euro pairs, if its dollar related, trade all dollar pairs, if its Yen related, you get the idea. As long as you have the tight range you are looking for before the news release you can trade any relevant pair. Trading more than one pair will also spread your risk, just in case you do not get the whipsaw on all the pairs. As long as you get it on the majority of pairs you will still make plenty of pips, and your take profit will get hit one way or another.

Please note: I am not a news trader. The strategies i employ for trading are low risk high probability trading strategies. A lot of my trading is based on chart logic, and this strategy is a logical way to trade the whipsaw on this type of news release. If you are a news trader then this strategy will hopefully help you understand the whipsaw, and how to profit from it. If you decide to use this strategy or not, i hope its been enjoyable reading, and made you think about the market a little differently. Making money from trading is all about understanding what is happening on the chart, and thinking outside of the box. 🙂

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