rfxsignals May 4, 2019 No Comments

6 Unknown Winning Habits of Successful Traders

It is a fact that successful traders think and act very differently from unsuccessful traders. In today’s lesson on the unknown and rarely discussed habits of successful traders, we are going to discuss some of the most important differences between winning and losing traders. We will look at how they think, how they act and what they do on a daily basis. This lesson aims to provide both beginner and advanced traders some much-needed insight into the mindset and activities of a professional trader, allowing you to start mimicking these habits and ultimately improving your trading results.

You’ve heard it before I’m sure, but I’m going to say it again because it’s so true: If you keep doing what you’ve always done you will keep getting what you’ve always got. So, the question becomes, where are you now with your trading? Are you successful, or not? If you are not happy with your trading performance, then it’s time to do something different! Hopefully, the following unknown and rarely discussed habits of successful traders will enlighten you and get you on the path to profitable trading…

We Think Like Hedge Funds, Regardless of Our Account Size

I probably trade a much larger position size than most of you reading this right now, and I am not bragging at all. I am telling you that because I have been where you are at and after being there and moving to where I am now, I can tell you that account size simply doesn’t matter for the most part. It doesn’t matter in the sense that if you can’t trade successfully on a $1,000 account you won’t trade successfully on a $10,000 or $100,000 account either. Account size means nothing if you cannot trade properly.

However, account size can indeed magnify your gains and a larger account can change your life faster than a small one because profits (or losses) are obviously greater the bigger positions you can trade. But, before you can trade a big account profitably you have to trade a small account profitably, and it really is better you start on a small account first anyways. The point is, successful traders are always thinking like a hedge fund, they are in the mindset all the time. Don’t become consumed with making money fast, instead, become consumed with trading properly and winning and you’ll make money far faster.

We Exploit Herd Behavior

The ‘herd’ is a common term used in the trading world when we refer to the masses of beginning / amateur traders who tend to lose money. The goal of any trader is to move from one of the herd to one that typically does opposite of the herd or perhaps I should say a ‘shepherd’, one who leads the herd. The main point to understand is that the herd usually end up losing money, you don’t want to be part of the them.

For this reason, I have written articles on how to be a contrarian trader, because I prefer to trade contrary to the herd in most cases. Contrarian can actually come in two forms in the market….

We are not afraid to buy new highs or sell new lows

Ironically, whilst great traders are contrarian thinkers (doing the opposite to the crowd), sometimes actually going with the herd and following huge moves in the market can be the contrarian thing to do, because everybody else is looking to bet against the move.

How often do markets trend much further than you think they will? Very often, a market will get into a strong trend and unsuccessful traders will continue to bet against that trend simply because they come up with all kinds of reasons why it ‘can’t keep going’.

“The market can stay irrational longer than you can stay solvent.” – John Maynard Keynes

Take the other side of the herd

The obvious and most common contrarian trade is to take the other side of the crowded trade (market moving into a key level), we fade that move (fade, meaning sell into strength or buy into weakness). We know that most people get the market moves wrong, so we jump on the opposite side, either blindly at a key level or with a price action signal to confirm an entry.

We Don’t day trade

Successful traders are rarely day traders. There are many reasons why I ‘hate’ day trading, but the biggest one is simply that it’s much harder to make money consistently as a day trader than it is as a swing trader or position trader.

Most successful traders are what are known as swing or position traders, which basically means we hold positions for multiple days or even weeks, riding swings in the market and trying to profit on them. This is in stark contrast to a day trader who ducks in and out of the market multiple times on a day, trying to take tiny gains from each trade.

We focus on the daily chart time frame as position traders because we know it’s the most important and lucrative time frame to trade. I personally spend most of my chart time on the daily chart, second is the weekly and third is the 4 hour, occasionally, I look at the 1 hour but never do I below that.

In the chart below, notice on the left we have a 15-minute chart vs. a daily chart on the right. This is the same market, the EURUSD. You are looking at almost 5 months of price data on the daily chart (each bar is a day) vs. the 15-minute chart which is showing you a few days. That alone should tell you which chart is more significant and powerful. If you don’t understand why, please check out this article on the power of the daily chart:

A low-frequency trading approach is what you need to adopt if you want to become a successful trader. Remember what I said in the introduction? Well, what do most traders do? They trade a lot. Most traders lose money as you know, so you want to trade less frequently if you want to be profitable. One often over-looked reason that many traders lose money due to trading a lot, is because they get eaten up by the spread. Constantly entering and exiting trades adds up to big transaction costs (called the Forex spread) and for most traders this just throws more dirt on the grave they are digging for themselves by over-trading (it’s a huge unseen trading cost over time).

All the above points on why professional traders don’t day trade lead me to my next sub-point: clutter vs. clarity. You see, having a cluttered trading approach where you are trading all the time and using many different methods (especially trading with indicators) results in mental clutter. Chart clutter and trading method clutter result in mental clutter which leads to confusion and second-guessing, this all leads to losing trades and losing money. Successful traders stick with the strategy they have used and have confidence in, they typically only have a handful of ‘tools’ they use in their toolbox. I always suggest traders master one trade setup at a time so that they learn which ones they like best and then stick with those.

After all, you don’t want to end up like this guy, right? 🙂

We Hardly Trade at All

One thing that separates successful traders from losing traders, is that successful traders do not trade a lot, in fact, we hardly trade at all. The ‘big boys’ trade like snipers, not machine gunners because we know that is how you preserve trading capital long enough to take advantage of big market moves.

Beginning traders often do not understand the fact that being flat (not in) the market is a position. Remember; no position is often the best position. You need to have discipline and patience to excel at trading and this is built through waiting and only taking high-quality setups and learning to ENJOY passing on low-quality trades or when there is no trading edge present.

The great Warren Buffet teaches this exact same approach. If you’ve never heard of his “Punch-card” concept, here is what he says about it:

“”I could improve your ultimate financial welfare by giving you a ticket with only twenty slots in it so that you had twenty punches – representing all the investments that you got to make in a lifetime. And once you’d punched through the card, you couldn’t make any more investments at all. Under those rules, you’d really think carefully about what you did, and you’d be forced to load up on what you’d really thought about. So, you’d do so much better.” – Warren Buffet

Notice that he says, “you’d be forced to load up on what you’d really thought about”. This is a very important part of my personal approach. I don’t take many trades at all, but when I do, I believe in them because they meet me pre-defined criteria or I’ve researched them and I’m confident in them, so I ‘load up’ and I go in big. Keep in mind, you cannot trade this way if you’re trading very often, but you also do not need to trade a lot; one big winner a month or every three months even, can make you enough profit if you know what you’re doing.

We Use Wider Stops

Since I trade the daily charts most of the time, I run my stops according to daily chart price action setups and to the dynamics of the daily chart price action. The daily chart has wider daily ranges of price action (naturally) so we need to have wider stop losses than we would on an intraday chart so that we leave room for the market to move and not stop us out prematurely.

As we can see below, traders can use the average true range (atr) as well as nearby levels to help place their stop losses at safe levels on the charts (wider than what you’re probably used to) so they don’t get stopped out prematurely. Successful traders use wide stops because they know the natural daily price fluctuations can stop them out before their positions get a chance to take off in their favor.

In the chart below, notice that price moved slightly beyond the low of the pin bar signal in the chart, before rocketing up in favor of the trade. A professional trader knows that price will sometimes just violate the low or high of a signal before moving in their favor, this is one reason they choose to use wider stops than an amateur who would likely put the stop exactly at the pin bar low (which would have resulted in a loss). Wider is better in regards to stops!

We know what we are trading ahead of time

The best traders anticipate the market, they do not just react to it. I wrote about this extensively in a recent article on how to build a trading plan around anticipation, but I will discuss it briefly again here…

Successful traders trade like a predator, sitting on the sidelines and waiting to pounce on their prey like a tiger. Our trading plan pre-defines the conditions we are looking for, and as we map out the market in advance we see if it meets those conditions or not. This gives us something to stay accountable to so that we are not just trading on a whim everyday we open our charts. All we need to do is wait for the market to ‘walk into our trap’, so to speak.

We measure ourselves on R not % Returns

Successful traders focus on trading, not on the money. By doing this, we essentially make trading into a game or competition, and it’s us against the world. You have to play it right to win, and if you make a mistake, the consequences are very real. Thus, we measure ourselves based on R, not on pips or percentages. By R, I am talking about risk / reward where R = risk and success is measured in multiples of it. So, a 2R winner means we risked R and doubled our risk to make 2R. To learn more about this concept, check out this article: Measure profits in R, not pips or percentages

Conclusion

I’m not going to pretend that the above points are all you need to become a successful trader, but I will say that unless you take note of these core ideas and implement them into your trading, your chances of success are greatly reduced.  With sixteen years of experience trading and markets and nine years teaching people how to trade, I see it as my duty to instill into you the ideas, processes and belief systems that I have had success with and that I know others have had success with (including some of the members of our trading community) since I launched this blog back in 2008.

Becoming a successful trader isn’t necessarily difficult but one thing is crystal clear, if you don’t think and act like the winning traders whom you’re competing against, you will get chewed up and spit out faster than you think. It’s time to stop being naive and start thinking differently if you want to have a real shot at making money as a trader. Ask yourself one question; if you do whatever everybody else is doing and think how everybody else is thinking, what will you get? You will only end up like them, and as traders, we need to be thinking and acting differently from the ‘herd’ (who lose) to gain an edge and become successful. I hope the tips and insights in today’s article help give you a better understanding of some of the ways professional traders think and act so that you can start acting more like the ‘shepherd’ and less like one of the ‘herd’.

Now I Would Really Love To Hear What You Thought Of This Lesson ? Please Leave Your Comments & Feedback Below …

rfxsignals May 4, 2019 No Comments

A Simple Mindset Hack That Will Make You a Better Trader Almost Instantly

What if I told you that you could become a significantly better trader starting next week? Well, you can, and it’s totally within your control. All you must do is decide to change how you currently think about trading and change how you are currently behaving in the market. If you aren’t happy with your trading results right now, it’s time to change something, wouldn’t you agree?

One of the most common reasons that traders never make it to the top of the trading ‘mountain’, is that they get stuck in an insane cycle of placing trades, obsessively watching the price of the instruments they’re trading as it moves up and down, and fiddling with the trade while it’s live, typically by exiting too early or too late.

These traders instinctively know their position sizes are far too big. Trading too big of size causes most people to become addicted to the ups and downs of the market; they can’t stop thinking about a trade until they are out of that trade. Have you ever caught yourself frantically checking your phone or computer throughout the day, waking up in the middle of the night thinking about a trade and feeling like you ‘need’ to check the profit / loss?

This destructive behavior quickly becomes a VERY serious lifestyle problem that will ultimately lead to a trader’s financial and mental demise.

Why do traders fall into this destructive mental loop?

So, why do so many traders seem to fall into this destructive mental loop of worrying too much about their trades? There are three main reasons for it:

Trading a position size that is too large, which makes the trader overly-worried about losing the money they have risked (that they can’t afford to lose).

Many people start trading without having obtained the skills or mindset of a professional trader, so they end up acting like a gambler in the market, going all in at a ‘casino table’. Subconsciously, many traders are simply trading for entertainment (gambling) and have not yet learned to treat trading like a business.

Trading addiction – many traders are skilled chart technicians, but they simply become bored in life and they end up watching the screens all day (and night) for entertainment and because their brains are addicted to the rush of dopamine that gets released every time they enter a trade.

As any regular reader of my posts will know, I often say that the goal of a trader should be to place a trade and not think about it obsessively. Set the trade, walk away and forget about it (set and forget trading approach), let the market do its thing. You are in the market to take advantage of price movement, so stop interfering with the movement. All you can do is pre-define your trading plan and execute it properly, but once you enter the trade your job and involvement should typically be done; watching the charts won’t help a damn thing!

4 Solutions to Cure You of This Doomed Mindset and Behavior…

If you listen to the following four points and implement them, I promise it will turn your trading around completely…

Trade a position size that matches your trading ability and knowledge

Too often, beginning traders ‘bet the farm’ right out of the gate, quickly losing a lot of money to the market. This is a gigantic error that you need to fix or prevent before it’s too late.

I want you to be realistic with yourself; if you have only been trading for 6 months or a year, you don’t know it all yet and you should only be risking tiny amounts relative to your overall risk capital pool and net worth. Until you’re a professional trader and you don’t need to read lessons like this you’re technically still a novice, so be humble and remind yourself that a novice has no place walking out into the market and pretending they have the skill level to bet 20% of their account on one trade.

I will never understand why some people jump into the market with a 5 or 10K account and start risking $200 per trade just because some book or blog says “hey, risk 2% of your account” or whatever, it’s ridiculous. If you want to survive long enough to become a profitable trader, you must allow enough time to experience the ups and downs of trading (that will teach you real live lessons). If you want to live another day in the market, you must preserve your bankroll by making sure you only trade a position size that you can tolerate given your trading ability and mental state. Protect your bankroll and play good defense, always.

Trade a position size that lets you sleep soundly at night

Forget about what people say about risking a certain percentage or dollar amount per trade and forget about how much money you have in your account; the only thing that matters is what you know is a comfortable amount to have at risk on any one trade… know your limits and be at peace with an amount you can go to bed at night and lose.

You need to trade a position size that you can mentally tolerate to the point where you can go to sleep at a normal time and not lay awake thinking about your trade(s).

You do this by first figuring out your real risk number – be serious and honest with yourself about this. What is your income? What is your debt? What is your overall net worth? Do the math and come up with a figure you know you can risk comfortably on one trade and live with if you lose. The best way I have found over many, many years in the markets is still a simple ‘sleep test’. If you can fall asleep as you normally do and stay asleep and not wake up thinking about your trades, you have risked an acceptable amount for YOU (this will be different for each trader).

Remember, you need to start somewhere and if you can’t make money on a smaller position size, how will you ever make money on a larger position size? The market will always be there, so get rid of any notion of ‘urgency’ or FOMO (fear of missing out) – it’s all in your head, and if you don’t control it, it will control you.

A regime to re-build trading confidence

If you’ve fallen off the wagon regarding your trading discipline and consistency, I can get you back on it, just do something like the following…

The most important thing is to work on rebuilding your self-confidence in your trading. You need to eliminate doubt and fear from the equation, which can be a hard thing to do if you’ve gone off on an addiction-fueled trading excursion and lost a lot of money in the process.

You will need to ‘exercise’ your brain and condition it properly so that you develop the right habits and routine, this will simultaneously boost your confidence in your ability to execute your trading edge.

For example: you can try setting up 20 trades in a row with a 100% set and forget mentality. Risk a smaller size than you were before and aim for 1 to 1 risk / reward on each trade. Remember this is an exercise to train your brain to place a trade, believe in the trade, walk away and let the market do its thing. You are working on letting go and being less-involved with your trades. You set a goal of doing this for 20 straight trades and you should see wins and this should build your confidence back up and program your brain properly – so that you see the value in doing nothing.

The best distraction

In the opening, I discussed the need for distraction and that many traders simply become bored (even good traders) and this results in trading addiction. The way you prevent this is by distractions. These distractions can take the form of many things; hobbies, family time, vacations, etc. But, perhaps the best distraction will be an unquenchable thirst for knowledge and trading skill development. Ideally, you should combine all the above. You want to find things to occupy your time, so the hours go faster so that you don’t even have time to check your trades or worry about the money you’re risking. Be productive! Sitting in front of your charts watching the markets tick by tick is NOT producing anything except poor trading results and a ton of unnecessary stress.

Conclusion

The point of today’s lesson is essentially that you need to change the way you think about trading. The simple mindset ‘hack’ I alluded to in the title is that if you want to succeed at trading, you must be realistic and stop trying to get rich fast. Trading can offer you the world, but the more you feel you ‘need’ it to work, the less likely you are to succeed. When people start feeling desperate or like they ‘need’ to make money in the market, they start doing all kinds of things that lead to their failure. They start trading too big of position sizes for their accounts and skill level, they start trading too much, and they just turn into trading addicts. Be realistic, be honest with yourself and start small and slow and work your way up as you learn, build confidence and improve your abilities.

If you apply the ideas put forward in this article dramatically reducing position size (even if temporary) and commence the mindset re-training regime I put forward above, then over time it’s going to become fair easier to look at a chart, spot a signal and pull the trigger with a stress-free and confident mindset. This is where you want to be, it’s where I am and it’s where you can be with true dedication and discipline. You may not make $1 million in the next year, but you will certainly be acting and thinking like the top 1% of traders, and that’s a great place to be, the world is then your oyster and you can build upon that foundation. Aim for one win at a time and don’t become mentally attached to your trades (be ok whether they win or lose). Get to a point where you can execute trades confidently and leave the trade alone. You need to get these things right because they are the real ‘keys’ to trading success, 16+ years trading and almost 10 years teaching traders has proven to me this is a fact.

Now I Would Really Love To Hear What You Thought Of This Lesson ? Please Leave Your Comments & Feedback Below …

rfxsignals May 4, 2019 No Comments

Beware of The Trading Pandora’s Box

In Greek Mythology, Pandora’s “box” was actually a large jar given to Pandora (the first woman on Earth), which contained all the evils of the world. Pandora opened the jar and all the evils flew out, leaving only “hope” inside once she had closed it again.

Today, the phrase “Open Pandora’s box” means to perform an action that may seem small or innocent, but that turns out to have severely detrimental and far-reaching negative consequences.

How does the metaphor of Pandora’s box apply to trading? Glad you asked 😉

Sometimes, an action or even a thought or idea we have regarding trading the markets may seem small and innocent but leads to disaster. Have you ever been cruising along in your trading routine, doing well, staying on track, staying focused, but then you take one trade you knew was a bad one and it seems to lead you off course and you spiral you out of control? In trading, we are constantly battling temptation to trade too much, risk too much, make the wrong decision, listen to the wrong ‘guru’ and just one little misstep can ruin months or years of hard work.

Simply put, as traders, we grapple every day with the potentially disastrous consequences of opening the “Pandora’s box” of trading mistakes….

As the Greek myth says, once Pandora opened the box, all the evils were released and only hope remained. This is very true in trading as well; once you get off track, it really leads you down a road of temptation that often results in worse and worse trading mistakes until one blows out their account and is left with only the hope of making money. The best way to achieve trading success is simply to make sure you never open “Pandora’s box”. The first step to accomplishing that is by knowing all the ways in which this box can be inadvertently opened…

Here are a few common things that result in Pandora’s box of trading mistakes being opened…

The Pandora’s Box of Trading Mistakes will open if you…

Here are the two big ones…

Over-trade

Ah, over-trading, perhaps the arch-nemesis of all traders as it is constantly lurking in the darkness, waiting to snatch us from the path of prosperous trading. Perhaps more so than any other trading mistake, over-trading is one that very quickly leads to an ever-growing avalanche of trading mistakes. You take one trade that you knew beforehand didn’t meet your trading plan criteria and boom, you’ve opened Pandora’s Box. Maybe you can just ignore that bad trade and go right back to being a disciplined trader, but sadly, most people cannot do this. The feeling of regret sets in, then the anger comes, then they jump back into the market to try and “make back the money” they lost on that one ‘stupid trade’. At this point, the cycle is basically set and stone you’re very likely to lose a lot of money as you continue to chase the market and try to ‘fix’ your past trading mistakes (by trading more). They end up over-trading more and more until they blow out their account.

Perhaps you heard a ‘tip’ from a friend, but you know it doesn’t mesh with your trading plan, but you take the trade anyways. Sure enough, it results in a loss.  You are mad now, because you knew you shouldn’t have taken that trade and it cost you money, and you broke your discipline and consistency. Most people will then commit another error by jumping back into the market to make back the money they just lost from that stupid trade. This leads to more losses and it snowballs out of control.  One break from your routine, can cause this, just one. One little slip-up and you’ve opened Pandora’s box.

Risk too much

Risking too much on a trade, more than you are comfortable with losing, is an excellent way to open the Pandora’s box of trading mistakes. Think about, what better way is there to become overly-emotional about a trade than by betting too big on it? It makes you think about it constantly and makes you micro-manage it, causing you to exit prematurely or otherwise at the wrong time. Not only that, whether you win or lose on a trade you’ve risked too much on, you’re doomed to open Pandora’s box…

If you lose, you will be hurt that you lost more money than you knew you were OK with losing. So, you’re probably going to try jumping back into the market to “make it back”, probably on a trade that isn’t there or that doesn’t meet your criteria, leading to yet more losses. If you win, you’re going to get over-confident and probably continue risking too much until you lose, sending you back to the market to make that money back and probably lose more.

You can see how one wrong move, either trading too much or risking too much will start a snowball effect of trading mistakes that simply get worse and worse until you blow out your account.

Here are some other things that may cause the Pandora’s Box of trading mistakes to open…

You had a fight with your spouse or friend or perhaps a death of a loved one (or you’re otherwise in an emotionally distressed state) and you’re emotional from that, you turn to the market for ‘comfort’ – enter a stupid trade and lose, bam Pandora’s box is opened. Simply put, you MUST be in a good or at least a normal emotional state to be able to trade with discipline and consistency.

Here’s one you probably didn’t think would open Pandora’s box: Trading from your phone. This seems little and innocent, but in my opinion, it’s a quick way to open the ‘box’ and let the evils of trading out. For one thing, the charts look smaller and more compressed on a phone, they simply look out of scale and you don’t see the price action or price patterns how you would on a computer or laptop screen. This is very dangerous. Trading from phones also can easily induce over-trading because you’re constantly tempted to look at your phone all day at work or wherever you are. For these reasons and more I advise against mobile trading.

Finally, do you want to open Pandora’s Box quickly and easily? Start trading real money before you’ve learned how to read a price chart or before you’ve developed a strategy and trading plan. I get emails all the time from people who have clearly just started to learn about the markets and who are also trading live accounts and wondering why they’re losing all their money. Trading looks easy on the surface, but to profit from it consistently, it takes proper training, experience and time.

How to Avoid Opening Pandora’s Box

To start, the main thing you need to do to avoid opening the Pandora’s box of trading mistakes is to simply make sure you don’t commit any of the above errors. Now, that’s easier said than done, I know, but I’m going to give you some insight into how you can avoid them…

Survive long enough to thrive.

You need to think of trading as a game of survival of the fittest, because it truly is. Only the strong survive in the trading world, and if you want to survive you have to plan and protect.

One of the biggest things that beginning traders get wrong is not managing their risk capital properly. They trade it all way and then when a high probably trade signal finally comes along, they have very little or no money left to take advantage of it. If you want to thrive or even just survive in trading, you must trade smaller position sizes in the beginning so that you preserve risk capital long enough to figure out what you’re doing. When you have truly mastered your trading strategy, then and only then should you increase position size. Remember, trading is a marathon, not a sprint.

Learn to walk before you run

As I mentioned earlier, traders who start trading live before they’re ready, usually end up opening that Pandora’s Box of trading mistakes. So, how do you know if you’re ready to trade live? Well, it will vary from trader to trader / person to person, but, you should have attained a solid understanding of price action and how to read it and trade, as well as trader psychology and money management before you start trading live. Therefore, you need a proper trading education, so that you can learn these things in a proper manner.

Don’t worry about getting rich fast because it’s not going to happen. Worry about learning to trade properly and applying what you’ve learned slowly and small at first, then as you get more experience and confidence you can work your way up.

Too much of anything will kill your trading account

I’ve written many articles on over-trading, but if you still don’t know why it’s so bad for your trading account, consider this…

Do you want to behave like a gambler in the market or like a skilled, calm and collected trader? I suspect your answer is the latter, and if that’s the case, you need to listen up…

You aren’t going to find a lot of high-probably signals every week or month in the market, because they just don’t happen with high-frequency. If they did, everyone would be rich. There’s a reason only 10% of people really make it as traders, because most people simply do not have the patience or self-discipline to withstand days and days of doing nothing if there are no trades worth taking, and that’s what you must do! Also, most people don’t learn enough to really know when a high-probability trade worth risking money on is present on the charts. So make sure you’ve learned enough to know what you’re trading strategy is and what a high-probability trading edge looks like so that you know when to trade and when to sit on your hands.

If you play with fire, you’re doing to get burned

Do you like your money? Stupid question, right? Well, most people trade as if they HATE their money, which is REALLY stupid, right?

If you’re risking more than you can comfortably stand to lose per trade, you’re acting as if you hate your money. How do you know how much you can afford to lose? Well, you can plan it all out and figure it out mathematically, or you can simply do what I call the risk sleep test.

Can you fall and stay asleep soundly at night? Are you Ok with not looking at the charts / your trades for 24 hours? If so, you’re probably risking a safe amount. However, if you’re preoccupied with your trades in any way, shape or form, you’re risking too much and as a result you need to dial-down the position size you’re trading.

Learn to plan and anticipate

The best way to prevent your future trading self from inadvertently opening Pandora’s box, is to learn how to anticipate trades. You need to develop a trading plan built on anticipation, instead of only reacting to the market.

Your approach to the market should be to learn enough about price action and technical analysis so that you can begin reading the market like a book and identify areas on the chart you’d like to trade from before the market gets there. Then, if the market reaches the areas you’ve predefined and forms a price action signal there ideally, you only need to execute the trade, not think. The thinking and planning should be done in advance. If you wait until you think you see a signal to start planning your approach, you’re already too late in most cases.

Have a trading plan

Finally, perhaps the ultimate tool at your disposal to keep Pandora’s box sealed shut, is a good trading plan. You need a trading plan so that you rely on the plan to guide you, rather than just your feelings. We humans are flawed, but our saving grace is our ability to plan into the future. By planning our trading approach, we eliminate much of the possibility of self-sabotage in our trading.

Trading plans also provide accountability. Trading is a very solitary endeavor. Whilst it’s awesome there are no bosses telling you what to do, it’s a doubled-edged sword. What’s stopping you from over-trading or risking too much? Only you, and you cannot trust yourself 100% in the trading realm where you’re constantly bombarded with temptation. But what you can do is develop a trading plan and commit to staying accountable to it.

The key is to stay disciplined, stay consistent and stay accountable. You must do this for every aspect of trading because if you get off track on anything, you’re going to open Pandora’s box and then it’s lights out!

Conclusion

I’m here to help you avoid opening Pandora’s box, to survive the trading game long-term so that you can not just survive, but thrive. I want to help you so that you will be ready and waiting to strike like a crocodile with capital ready when you have mastered and honed your skill.  You can’t hack or cheat the markets, if you don’t follow the basic principles you will be chewed up and spit out faster than you think. Don’t let your ego and impatience destroy your trading account or chances of success…

However, I can only share my knowledge and experiences with you, but it’s up to you to listen and take action and heed the warnings I’m providing. If you do this, you will end up with the results you’re looking for, if you don’t, then sorry but you likely won’t make it.

What’s did you think of this lesson? Please share it with us in the comments below!

rfxsignals May 4, 2019 No Comments

Trading is Survival of the Fittest – Will You Evolve or Die?

Do you want to be the best trader you can possibly be, and make consistent profits trading? Of course, you do.

Do you want to be and feel the best you can? Do you want to enjoy being alive as much as possible? Who doesn’t?

Stupid, questions? Maybe. But, maybe I am getting you warmed up for my next question…

Are you fit?

Being fit, or in good physical shape is on people’s minds this time of year (New Year’s resolutions) and for good reason. It is the way you maximize your enjoyment of being alive. After all, what good is money or success without being fit and healthy? The answer is, not much.

Similarly, being a “fit” trader is how you become the best trader you can be. How do you become a fit trader? It’s like how you become physically fit: doing the hard work, being dedicated, being patient and most of all, being motivated.

Guess what? Getting in good physical shape is going to knock you outside of your comfort zone. But, the long-term payoff is HUGE. Guess what? Getting in good trading shape is also going to knock you outside of your comfort zone, but the payoff here is also HUGE.

Do you want the good life as a trader? Do you want the good life in general? Then you got to get fit and stay fit, and to do that you must adapt, you must evolve in both trading and life. It’s not enough to just know a lot of things if you don’t take MASSIVE ACTION and CHANGE what you’re doing.

To survive you must evolve, to thrive you must optimize

The term “survival of the fittest” is commonly associated with Charles Darwin and evolution. However, the term was first used by Herbert Spencer – after reading Charles Darwin’s On the Origin of Species – in his Principles of Biology of 1864 in which he drew parallels between his economic theories and Darwin’s biological, evolutionary ones.

Our main interest in this term is how it can be applied to economics, finance and more specifically, trading.

If you want to survive as a trader, you’ve got to do many things right, consistently right. The weak-minded and those with an inability to stay dedicated, disciplined, consistent and motivated, simply do not make it. They lose. You don’t want to be them.

Just like someone who is in good physical shape is going to enjoy their life a lot more (even if they don’t have much money) than someone who is one meal away from a heart attack (even if they’re rich), a trader who is in good trading shape (even if they are trading a small account) is going to enjoy trading and the fruits that come with it much more than a trader who is in poor trading shape (even if they are trading a large account).

It is not the most intellectual of the species that survives; it is not the strongest that survives; but the species that survives is the one that is able best to adapt and adjust to the changing environment in which it finds itself. – Louisiana State University business professor, Leon C. Megginson – 1963

However, just surviving is not enough, after all, we want to thrive as traders, right? The first step is to learn to survive, to stop hemorrhaging money every year and start keeping your head above water, so to speak. To do this, you must change. You cannot keep doing what you’ve been doing if that hasn’t been working for you. Only those who learn to evolve and learn from their trading mistakes will be able to survive long enough to thrive as traders (make money).

So, how do you become the fittest trader you can be, so you can not just survive but thrive? You’ve got to optimize. (pretty good rhyme there)

How to be the “fittest” trader you can be (so you can more than just survive)

Preserve capital:

If you want to survive, preserve your capital. In the wild, an Australian saltwater crocodile is one of nature’s most finely-tuned and evolved predators. Another highly-evolved, and finely-tuned predator is the African lion. Both amazing predators display behavior that as traders, we can learn from. One such behavior is the way they conserve their energy for the easiest (weakest) prey. They may wait for days before finding an ideal prey, they certainly don’t go charging after everything they see, because they know that will result in starvation. Over time, they have adapted and evolved to learn that waiting (being patient) is the quickest way to get a good meal. They preserve their capital (their energy) so that when an ideal prey comes along they can hunt it and kill it with ease.

As a trader, if you go risking your money on every little intra-day pattern you see, you’re going to quickly run out of money (capital) and then when a good / easy trade (prey) comes along, you’re going to be crying on the sidelines, wishing you had been patient and conserved your capital better. Learn to trade like a crocodile.

Pick trades wisely:

In a similar vein to the point above – Just like predators choose their prey wisely, so you must choose your trades wisely. You cannot throw your capital after bad trades, you must stay disciplined and remain patient. Just like a lion isn’t going after the strongest prey, he is choosing the easy / obvious ones, because he knows his energy reserves are limited and if he continues to expend energy and get no prey, he will die.

Similarly, if you continue to over-trade and not follow an anticipatory trading plan of waiting for high-probability trade situations to set up, you are going to quickly lose money and your trading account will also die.

Like Warren Buffet said; trading is a no-called-strike game – you don’t have to swing at every pitch!

Understand that time will help you:

Evolution takes many, many years to act on a species, as organisms change and adapt to their environments. Over time, you will learn from yourself and others and become a better trader. The point here is, you can’t expect it to happen overnight. The earth is 4.54 billion years old and the human brain didn’t form until about 7 million years ago, evolving into its current manifestation mostly over the last 2 million years. The point is, for things to become efficient and perfect, it takes time, no matter what it is.

The sooner you accept that you aren’t going to get rich overnight in the market, the sooner you can start on the path to profitable trading. Think about trading like a freight train; it takes time to get up to speed, but once it does, it’s hard to stop. However, if you try to go too fast too soon, you’ll “de-rail” and lose any chance of really making it. Start small and slow, learn more until you really know what you’re doing, then over time you will know when to risk more.

Develop and use your trading intuition

As you grow and evolve as a trader, you will develop a trader’s gut feel or intuition. This is one of the last pieces of the puzzle that will come after you consistently do all the other things discussed in this lesson. The best traders, like the market wizards, can look at a chart and instantly have a high-probability gut feel about where it is going next. From there, they need only wait for an entry trigger, proper risk reward scenario and execute their trade. To someone new to trading, this might look easy, but they aren’t seeing the years of persistent dedication to the craft that led up to that point.

Evolve / adapt:

The most important piece of the puzzle of becoming one of the “fittest” traders, is accepting that to progress and profit you must evolve and adapt.

First off, in the beginning, you must study and learn how to trade properly and as time goes on you will continue to learn from the charts and from studying the price action on the charts. You then must begin the process of trial and error and of learning from your past mistakes and evolving from a beginner to an intermediate trader.

Next, understand that adapting and evolving also means you can adapt to changing market conditions. If you keep trying to trade a trending market as it transitions into a range-bound or consolidating market, you’re going to lose money. The ability to look at a price chart, interpret the price action story that’s being told on it and act accordingly, is how you know you’re on the right track.

You must learn from mistakes and from screen time. If you cannot use your mistakes to your advantage, to evolve, you’re not going to make it as a trader. So, don’t let mistakes get you down, look at each mistake as a chance to learn something and to improve.

Conclusion

If you don’t continuously learn, adapt and improve, you will not survive the trading game. Trading truly is survival of the fittest. Only the fittest chart technicians, price action analysts and those most passionate about their craft will survive. This means if you’re in this to try and make some ‘fast money’ you are not going to survive. Part of being a fit trader is truly loving trading, which will simultaneously influence you to trade in such a way that brings you more profits than losses.

My trading has evolved over 16+ years and I have passed the point of just surviving and moved onto thriving in the market. I’ve evolved. I feel it’s my duty to share what I’ve learned with you by helping you evolve into the fittest trader you can be, so that you can move from losing to surviving and ultimately to thriving as a trader.

What’s did you think of this lesson? Please share it with us in the comments below!

rfxsignals May 4, 2019 No Comments

Trading is a Marathon, Not a Sprint

If you’re trying to win the Ironman Triathlon where contestants must first swim 3.86 kilometers, then bike 180.25 kilometers followed by a 42.20 kilometer run, here are some of the key ingredients you need: A long-term committed outlook, years of consistent and serious training, years of studying and observing other Ironman participants, a mentor, sound nutrition, physical & mental fitness and sleep. It should go without saying that if you start out sprinting as fast as you can you’re going to quickly burn out and even worse, you’re going to lose.

Just like an Ironman triathlete or marathon contestant must be well-prepared and pace themselves to win the race, you must do the same to win the trading ‘race’.

Simply put, without the proper knowledge, training, preperation and skills, you will never win at the game of trading. So, in today’s lesson, I am not just going to preach to you that you “can’t get rich quick” in trading (you really can’t), instead, I am going to give you sound, actionable insight into what you need to do to win the long-term trading game, which is the only game that matters.

Have you heard the fable of the Tortoise and the Hare?

Remember the old fable of the tortoise and the hare? That story is as applicable to trading as it is to anything else. The hare got over-confident, arrogant and lazy, essentially, he was thinking and acting emotionally rather than logically. Conversely, the tortoise, was slow but he was consistent and methodical, he wasn’t in a rush, he wasn’t burning up all his fuel right away and he wasn’t emotional or arrogant or lazy. We all know which one of them won the proverbial race, and if you don’t, read my article The Tortoise and the Hare trading metaphor.

In a trading ‘race’, the slowest guy tends to win. What I mean by that is, if you start off going too fast as most traders do, trying to make a lot of money fast by trading constantly and risking a lot per trade, you’re going to lose and eventually get passed by the guy taking his time and doing things right.

I know you may not want to hear it and I know if you’re a regular reader of mine, you’ve read this before, but if you want to be a successful trader over the long-term, you’ve got to go slow and be consistent. If you start trading too much and risking too much, you will burn all your money and be out of the race quicker than the hare. If you find you are so worried about your trades that you CANNOT STOP watching the charts after entering a live trade, you are trying to sprint and being arrogant (like the hare), and this will QUICKLY lead to your demise. You should be able to turn your charts off after entering a trade, walk away until tomorrow and be totally find whatever the outcome. Be like the tortoise, not the hare.

Pace yourself to win

What matters is your end of year trading results. Most traders don’t consider that when placing a trade. They get lost in the trees, so to speak, and can no longer see the ‘forest’ (the bigger picture).

One trade shouldn’t matter, so make sure you don’t make any one trade matter by risking too much money or by feeling desperate to win. Traders get themselves into trouble by making every trade too important. This is not how you pace yourself. Remember, it’s your results over a large sample size of trades that matters.

You pace yourself to win the long-distance trading race, by doing the following:

Learning

Identifying your edge

Sticking to the edge (not over-trading) – waiting for your edge.

Preserving risk capital

Having a plan and following it

How to become an expert on trading, or anything

It’s common knowledge that to become an expert on anything you must commit considerable time and energy. Trading included. But, can we break this down into more specific chunks so that you can better understand what it takes to become an expert trader? Yes, I think we can…

First off, you may have heard the “10,000 hours concept” which says it takes 10,000 hours of practice to become an expert at just about anything. This was propagated by a popular book some years back, but it’s since been rebutted by many scientists who have stated that whilst practice and time spent certainly matter, the exact number of hours to become an expert on something will vary from person to person depending on multiple variables that differ from one person to the next.

However, you would agree that consistent long-term study is a critical component to becoming an expert in any professional field, right? Think doctors, scientists, lawyers, college professors etc. for these people it’s a long-term commitment and the wealth starts when they finally get a career in their chosen field, not whilst they are still learning.

So, how do you become an “expert” trader? What do you need to do?

Be committed. You have to decide early-on if you’re in trading for the long-haul. It’s a proven fact that people who commit to something long-term have a much better chance of succeeding at it over those who are maybe just experimenting or unsure.

Learn what’s important. In trading, if you spend months learning all the minute details of all the different technical analysis indicators, not only are you wasting your time but you’re missing out on learning about what actually matters. Learn to read, interpret and trade based on simple price action strategies, learn to read a chart from left to right, learn trading psychology and money management, ignore everything else.

Train like you mean it. You will need to demo trade before going live. But if you just screw around on your demo account and don’t trade it like you are trading a live account, it’s not going to do much good. I suggest traders only demo trade for a month or three, to get the hang of the platform, then start live trading with small amounts of money. You’ll learn a lot more trading live with small amounts of money anyways.

Find a mentor. Quickest way to learn ANYTHING? Learn from a mentor. I can be your trading mentor; my course and members area are designed for this.

Get feedback. You need to know if you’re on the right track. If you are a member of my traders’ community, you can get help and feedback from other traders in the forum and you have access to me on the email support line. To master anything, you need good constructive and even critical feedback at times (to learn and improve).

A marathon winner trains and plans

If you think you can just open a trading account, waltz into the market and start pulling down cash like Gordon Gecko, you’re going to lose the race.

You must train (learn and demo trade) before running the real race. You must have a plan of how you will win the trading race. People who run the Ironman train for YEARS, they plan, they prepare, from everything to their clothes to what they will eat to how much sleep to get the night before.

The goal is to win long-term, not short-term

I’m not gonna lie. You can get lucky in this game and make some fast money. However, it won’t last if you aren’t doing everything else I’ve discussed here today. You will QUICKLY give your wins back to the market. In this vein, I am telling you that you need to have a long-term goal of winning each year and you work your way back from there. Break that goal down into smaller and smaller pieces you can act on every day. The more you prepare and plan and calculate how to reach your trading goal (or any goal) by breaking it into smaller actionable goals the more likely you are to achieve it. Trust me when I say 90% of traders lose on the long-term and 90% of traders are NOT doing what I just told you to do. Be one of the 10% of traders who win.

Here is a very small list of some of the many world-famous investors and traders who built their fortunes over the long-term, not quickly….

Warren Buffet – Everyone knows his story, greatest investor of all-time, slow, methodical, consistent.

George Soros – It might seem like he ‘got rich quick’, but Google his history and you’ll see he dedicated his life to finance and investing long before he “Broke the Bank of England”.

Check out my market wizards article for many more!

Conclusion

Over my 15+ years trading the markets, I’ve done and seen it all. Really. I’ve learned that you simply cannot get ahead in the trading world by deviating from what you know is the right thing to do. The people who can remain self-disciplined in the face of temptation are the ones who make great traders. You will be faced with constant temptation after you fund your trading account, it will just be you, the charts and your key board and mouse. No boss, no one watching you…will you have the integrity to do the right thing when no one is watching? Will you have the ability to pace yourself or will you try to ‘sprint’ to the finish line?

I can tell you without doubt, the teachings in my trading course and my trading strategy and approach, if applied how I teach it, will get you to the finish line a winner. It may not be the fastest route, but it’s the right one. You don’t want to lose all your trading money a week after you open your live account, trust me, it’s not fun. You need a mentor to show you what to do but perhaps more importantly, what not to do, to answer your questions and guide you. It’s up to you to make the next move and take the first step on the path of profitable trading.

What’s did you think of this lesson? Please share it with us in the comments below!

rfxsignals May 3, 2019 No Comments

You’re Only as Good as Your Last Trade

Today’s lesson is going to help you eliminate one of the biggest psychological handicaps that is standing in the way of your trading success. First, we will identify the issue and then help you cure it and prevent it from returning. Essentially, we are going to ‘vaccinate’ you against one of the worst trading ‘diseases’ that ‘kills’ many traders each year…

This trading ‘disease’ is something that often develops following your last trade. As that last trade’s results permeate your brain, depending on whether you are trading properly and (or) are mentally prepared to deal with your last trade’s results, you may be at serious risk to getting stricken with this trading ‘disease’. Read on to learn what it is and how to vaccinate yourself from it…

Why your last trade matters so much, or does it?

Your last trade will tell me a lot about you as a trader and as a person. For example, does your last trade look consistent with your other recent trades? If it was a loser and I see it was 5 times as big as your previous loss, you’re doing something seriously wrong; all your losers should be very close to the same amount and some maybe at breakeven. Winning trades will naturally vary a little more (some 1r, 2r, 3r or more), but if I see many  tiny winners less than 1R (1 times risk) and some super big ones, you are likely not on the right track either.

Your last trade can negatively influence your mindset and thus your next trade. Ideally, your last trade will have no effect on your next trade, but far too often for most traders it has a huge effect.

Your last trade only matters if you are trading wrong and thus allowing that last trade to take on too much importance. The fact is, your last trade should be totally irrelevant in the grand scheme of things, and so it should have ZERO impact on your mindset and your decision to take your next trade or not.

If you just lost, it has no bearing on the fact that your next trade might be a winner.

If you just won, it has no bearing on the fact that your next trade might be a loser.

If you stuck to your plan, whether it was a win or loss, you are on the right track. Re-read that last sentence again.

Recency bias explained in the context of trading

As I discuss in my article on the topic of recency bias in trading, a trader has recency bias when they focus too heavily on their most recent trading decisions / trades and lose perspective on the bigger picture. In other words, when a trader has recency bias, they can’t see the forest for the trees, so to speak.

“It is human tendency to estimate probabilities not on the basis of long-term experience but rather on a handful of the latest outcomes.” – Your Money and Your Brian, Jason Zweig

A trader can have both winning streak recency bias and losing streak recency bias.

Winning-streak recency bias:

Winning streak recency bias says that traders who are on a winning streak (or who just hit a huge winning trade) are too heavily influenced by that winning streak. The implications of this are, traders may increase risk size on their next trade above what they are comfortable with losing and (or) they may enter increasing number of trades that violate their trading plan / trading edge. The primary psychological error at play here is over-confidence. As a trader wins, it’s human nature to perceive less risk in the market and start inflating their sense of trading ability and how much they were responsible for that last winner, to the point where it becomes detrimental. This usually ends in a massive loss or series of losses that quickly voids all the gains made during the winning streak.

Losing-streak recency bias:

Losing-streak recency bias says that traders who are on a losing streak (or who just incurred a large loss) are also too heavily influenced by that losing streak. The implications of this are, traders may decrease risk size below their normal 1R risk amount and (or) they may enter decreasing number of trades due to fear of losing more. The primary psychological error at play here is fear. As a trader loses, it’s human nature to start perceiving more risk in the market than is really there and to start over-worrying about losses and this works to deflate one’s sense of trading ability and confidence. This usually ends up in missed opportunities and can result in a perpetual cycle of fear and losing until the trader ultimately gives up trading altogether, feeling jaded and even ‘scammed’ by the market.

How to cure recency bias in trading:

I wish there was a magic pill that I could send you in the mail that would cure your susceptibility to recency bias in trading, but sadly, there isn’t. So, you’re going to have to listen closely and do what I say if you want to avoid this mental trading plague.

Avoiding recency bias in trading begins with knowledge, with education. You must first understand that it’s simply human nature to become overly-affected by your last trade’s results. Once you understand this, you will start to become more self-aware and hopefully you’ll catch yourself in the middle of becoming too influenced by your last trade. This is your cue to take a break, step away from the market for a day, go read a book, play golf, do whatever, and come back tomorrow or the next week, after all, the market will be there tomorrow. Maybe not what you want to do or hear, but it works, trust me.

Next, you need to understand that one trade simply doesn’t matter. So, don’t make it matter! If you are managing risk properly on every trade and sticking to your trading plan, you should not be surprised or overly-emotional about the results of your last trade, win or lose. And, as we will get into next, you must remember that any one trade, looked at individually, is essentially a random event. Your trading edge that gives you a better than 50% chance of winning, is ONLY realized over a large enough series of trades. Thus, looking at the results of ONE trade within a chain of say 20 to 40 trades, is completely pointless.

The only thing you should be worried about regarding your last trade, is IF it was consistent with your trading plan or not. The results of your last trade mean nothing and should mean nothing, otherwise you’re doing something wrong. Drill that into your head if you want to permanently overcome recency bias.

You must train your brain to ‘behave’ properly after your last trade

As I touched on above, we are all basically pre-wired in such a way that allows our brains to naturally give too much significance and become overly-influenced by the results of our last trade. For most traders, their last trade impacts their next trading decision far too much, and the resulting emotional highs and lows in confidence can lead to trading account destruction very fast.

Note: I am not saying you should totally discount when you feel confident in your trading abilities or even when you feel fearful. Indeed, these feelings can be healthy and normal in the right amounts and they are part of a savvy trader’s gut feel for the market. But, they become dangerous when they are too frequent or intense and this is what we must prevent from happening.

Here are some tips on how you can train your brain to function properly after your last trade so that you do not become negatively affected by that trade’s outcome:

Trick your brain into not feeling any pain. By utilizing the power of positive thinking and using positive trading affirmations as well as meditation, you can basically distract your brain from obsessing over negative thoughts (like a losing trade, for example) and even physical pain as discussed in the article trick your brain into not feeling any pain.

Having a strategy to block out negative thoughts as well as to deal with them when they do arise will also go a long way in helping you eliminate the recency bias we discussed previously.

Make SURE you are sticking to your predefined risk on every trade. If you don’t, you will quickly become overly-emotional whether that trade wins or loses. If it wins you will be influenced by the winning recency bias and if it losses you will be influenced by the losing recency bias as discussed above.

Make SURE you are not over-trading by sticking to your trading plan criteria consistently no matter what. If you over-trade you’re going to become addicted to the feeling of trading, as I discuss in my recent article on anticipatory trading plans. Over-trading stems from giving too much weight to your last trade.

Remember that any given trade’s results are simply one instance of your edge in a large series, see next section for more on this!

Edge vs. Emotion

Your trading edge is the basically the entry trigger that, played out over a series of trades, provides you with a better than random chance of making money. The edge needs to playout undisturbed however, regardless of your emotions. However, your emotions can impact your ability to trade the edge, so this is the paradox of trading edges vs. emotions.

Thus, your last trade needs to be irrelevant to you, so that you can truly let your trading edge play out over the series of trades it needs to MAKE YOU MONEY.

As the late great Mark Douglas teaches, there is a random distribution of wins and losses for any given trading edge, and this is THEE reason why your last trade is and SHOULD BE irrelevant. You need to continuously remind yourself of the random distribution between wins and losses so that you remember why your last trade shouldn’t matter, and so that you don’t let it negatively influence your next trade.

What you feel is 100% irrelevant as it relates to what the market will do next. Yes, you can use your gut feel as a tool, but there is a very fine-line between savvy gut trading feel and over-use of it.

If you are trading with discipline and managing your risk properly on every trade as well as not taking stupid trades, this will go a long way to eliminating much of the negative feelings traders experience after a win or loss. After all, if you know you stuck to your plan, even if the trade was a loss, you have nothing to be ashamed of or mad it, you just chalk it up to a losing occurrence of your edge (one in large series of trades) and move on; let time go by and stick to your plan. Once you start trading as if every trade is independent of the next (because it is), you will naturally start to interact with the market in a way that leads to trading success.

Trade like a hedge fund…

Top-performing hedge fund managers know that to make money for their clients they must be calm, collected and calculating. They simply cannot afford to constantly be jumping in and out of the market, chasing every little thing they think might be an opportunity. They know if they did this, they would quickly have many very angry investors after them. Similarly, you cannot afford to constantly jump in and out of the market, transaction costs eating away at you aside, trading like a day trader is simply not conducive to the proper trading mindset.

If you want to trade like you are running a top-performing hedge-fund, you better get ready to do a lot more study and observation and a lot less actual trading. If you had $1 million under your management, would you feel any need to “Make money fast”? No! Because you know just ONE good trade a month or even every three months can make you a huge gain, and you know that the best way to maximize your long-term gains is simply to avoid stupid trades (over-trading).

Hedge fund managers know that less trades = better results, this is a proven statistic in fact. When you trade less it’s a more peaceful existence and provides you with a far better ability to obtain the neutral state of mind towards the market that you need to succeed (by that I mean, not letting your last trade matter, essentially). If you’re always trading, you’re feeling the highs and lows of those trades a lot more, or at east you’re a lot more likely to. The more often you put yourself in the way of the temptation to be overly-affected by your last trade’s results, the more likely you are to be affected by it. Similar to eating healthy in that the easiest way to do it is to simply not stock your house with unhealthy food, the easiest way to avoid allowing your previous trade to affect you negatively is to make sure you aren’t over-trading or over-leveraging for that matter.

Conclusion

Your last trade is a microcosm of your overall trading performance and mental trading state. If a trader is successful over the long-term, I could look at their last trade at any time of the year and it would make sense with his trading plan and it would reflect a disciplined, consistent approach, win or loss. This is because the professional traders know that the very things that lead to successful trading like, consistency, discipline and patience are the same things that help to ‘vaccinate’ them against the ‘plague’ of their last trade’s results infecting their minds to influence their next trading decision.

If I look at a snapshot of your last two or three trades, could I say the same? Could I say that it reflects someone who is not being influenced by their last trade? Or would it be glaringly obvious to me that you ARE letting that last trade dictate your next move in the market? To get to the point of being a calm, collected professional trader who is totally unaffected by the results of his or her last trade, you must start learning the proper techniques and strategies discussed both in this article and expanded upon in my professional trading course.

What did you think of this lesson? Please share it with us in the comments below!

rfxsignals May 3, 2019 No Comments

The Myths Of Trading You Must Remove From Your Mind

There are numerous misconceptions and incorrect assumptions that surrounding trading. These myths are held both by aspiring traders as well as the public. Not only are they untrue, they are hurtful both to you as a trader and your chances off success but also to the reputation of trading in the minds of the public who know next to nothing about it.

In this article, we are going to dispel 11 of the most common myths of trading and explain to you why they are not true…

Hopefully, after finishing today’s lesson, you will have a better understanding of the reality of trading, what to expect and how to profit from it. Each trading myth will be followed by the truth and an explanation of both:

The Myths of Trading:

Myth: Trading is all about making that fast-cash man!

Truth: Trading is about not losing money, you must learn to do that if you want to make any…

Perhaps the biggest myth about trading in the general public’s mind, is that it’s all about making money fast. High risk, fast money, fast cars, etc. etc. The stereotypes that surround trading are so widespread that most beginning traders get into trading due to these stereotypes and so they start off with the complete wrong mindset and expectations. These expectations come to a crashing realization once they lose a few trades and reality sets in. As the great Warren Buffet so famously said:

Rule No.1: Never lose money. Rule No.2: Never forget rule No.1. – Warren Buffett

That’s right, trading is about not losing money much more than it is about making it. The reason is, if you want to make money in the markets, you must be a risk manager more than anything, a capital preservationist, if you will. If you want to take advantage of big moves in the market, you’ve got to learn to preserve your trading capital by bidding your time and being patient in the face of constant temptation.

You will be in battle not only against all other traders trading the markets you look at, but also against yourself, which is perhaps the hardest ‘opponent’ to defeat. Once you get to the point where you can preserve your trading capital and only use it on trading opportunities that meet your strict, pre-defined criteria laid out in your trading plan, then you will have conquered yourself and you will start taking money from other market participants rather than giving it to them.

Myth: You need to be an Ivy-League, Wall Street hotshot to make it as a trader

Truth: You don’t need to be super smart, trading is as much skill as it is math…

Guess what? You don’t need to be a college graduate to be a successful trader. Trading isn’t only for some super-genius math wiz who sits there coding algorithms all day. In fact, just like being overly-emotional can be bad for trading so can being overly-analytical. Those who are too analytical tend to over-think and think themselves right out of perfectly good trading opportunities.

Ideally, you want to have a good mix of gut feel and analytical trading abilities. Your gut feel will give you many trading ideas and the desire to take them but your analytical /forward thinking abilities will be the check that keeps your trading in balance. Only when a trade idea passes both your gut feel and your logical, objective analysis should you consider entering it.

The point of the matter is that college degrees, IQ’s and other ‘credentials’ are nothing but background noise to the market. Those who succeed at trading are masters of themselves. Master your own actions and behavior and ability to control them and you will succeed at trading. All the books and an IQ of 180 won’t do you any good if you over-trade or risk too much or cannot remain disciplined.

Myth: You must have perfect timing to make money in the markets to pick highs and lows exactly

Truth: Trading is not about picking the highs and lows, it’s about reading the charts from left to right…

You don’t have to pick exact market turning points to make money trading like many people think. You do have to read the chart, the story on the chart and understand what it’s trying to tell you. You then look for price action signals that ‘make sense’ with that chart’s story.

In this recent Gold chart, we can see that the story on the chart was this:

An uptrend was in place on the daily chart as seen below. Then, we drew in the key horizontal levels of support to look for signals at. Then, price pulled back to support and formed an obvious pin bar reversal signal there, indicating a long entry was appropriate. You can see what happened next. We are reading the chart and considering the context a potential trade entry forms within, not just trying to pick the exact high or low with no rhyme or reason.

Myth: You need a lot of money to stand any chance at making money in the market

Truth: You don’t have to have a lot of money to start, a good trader can make money regardless of account size…

Often, traders believe that to succeed at trading they need a big trading account. But, this is simply not true. IN fact, you can lose money on a big trading account just as fast as you can on a small trading account. It’s best to start with a smaller account even if you have a lot of money to trade with. Will a large trading capital reserve allow you to make more money faster? Sure. But, fi you don’t know what you’re doing you can also lose that money faster.

The strategies, skills and mental attitudes you need to succeed at trading will work on a small account the same as a big account. It’s always best to start on a small account and hone your skills, then when you’re ready you can deposit more money if you have it or just keep building that small account.

Don’t be in a rush! If you build a track record of successful trading on a live account, even a small one, you will be a successful trader. Building a successful live account track record over a period of a year or more is something that FEW people can do. If you do that, even on a small account, your success will start to snowball.

Myth: You have to know what is going to happen next in a market to make money.

Truth: You don’t have to be right or know what will happen next to make money, you must understand that you can never know for sure what will happen…

One huge myth about trading is that to make money you must know what will happen next. This couldn’t be further from the truth and in fact, it’s not even possible. Part of trading is that there is a random expectation for any one trade you take. Meaning, any individual trade, looked at in a vacuum, so to speak, has essentially a random outcome. This is because there are thousands, maybe even millions of variables affecting a market at any given day at any given time. As a result, a trade really can go either direction, even if you believe you are 100% right about it.

Where your trading strategy or trading edge comes in, is that over-time, given enough trades, if you follow your strategy with discipline, it will play out in your favor. Most trading edges or strategies are simply taking advantage of repetitive market patterns or price action patterns that form because of repetitive human interactions with the market. So, whilst your trading edge might have 60%-win rate, any singular trade has essentially a 50/50 chance of working out. So, don’t start convincing yourself “I’M RIGHT!” about your next trade because you’ll start risking too much and getting too emotionally attached to that trade, which is a recipe for disaster.

Instead, realize and understand that there is something called a random distribution of wins and losses, which essentially means what I described above. For any given trading edge or strategy, over time and over a large enough sample size of trades, that trading edge will show a randomly distributed pattern of wins and losses. So, whilst you do need confidence in your trading ability and chart reading skills, you cannot afford to becoming convinced you are ‘right’ about any one trade and you must always remember that ANY trade can be a loser. For more on this topic, checkout my article on trading legend Mark Douglas.

Myth: You need a high-percentage of your trades to be winners to make money

Truth: You don’t have to win a high-percentage of your trades, you must maximize your winners instead…

You’ve probably heard of risk reward ratios, but do you really understand their power? You don’t need to win all your trades to make a lot of money in the market, in fact, you don’t even need to win most of your trades! How is that possible you ask? By understanding and effectively utilizing risk reward ratios.

Let’s say you set a risk reward of 1:3 for every trade you take. That means, you risk 1R where R = dollars risk to make 3R or 3 times your dollars risked. At this risk reward ratio, you only need to win 25% of your trades to breakeven and about 27% of them to make a profit (after commissions / spreads).

Let’s take 100 trades. Say you lose 70% of them that would be 70 out of 100; you have lost 70R   which for examples sake we will say is $700 or $10 per trade ($10 = 1R). Now, if you have a 1:3 risk: reward, you are making $30 on all your winners, but you only had 30 winners, right? However, that is still $900 in profit! So, you lost $700 but made $900, profit of $200 even though you lost 70% of the time!

Risk reward ratios: You only need to win 27 – 30% of the time to make money if your winners are 1:3. With a 1:2 risk reward you only need to be right about 35% of the time. Traders get caught up in trying to win on every trade, but this is a fool’s game, very stressful / time consuming and simply not possible.

A 50%-win rate, which is totally possible if you’re a master of price action, can make you a very large sum of money each year by trading with a 1:2 or 1:3 risk reward. Most traders believe they must win at a very high percentage, but it’s simply not accurate and not conducive to a proper trading mindset.

Myth: Automated trading robots or indicators (systems) are the ticket!

Truth: Not if you want to succeed long-term or on any level of magnitude…

All you need to do is read some of the Market Wizards books and you will quickly realize that most of the world’s greatest traders are not buying Forex trading robots and simply loading them onto their computers and getting rich. This pipedream sold by computer programmers who know almost nothing about how to read the charts, is a huge trading myth.

Any fully mechanized trading system or algo-trading method is going to fail over time. Trading conditions change frequently and even rapidly. It takes an experienced, educated and skilled human mind to discern between good trading conditions and bad. If trading was as easy as installing some software on your computer and pushing the buy or sell button when the software tells you to, everyone would be a billionaire.

Think about the most famous traders and investors you know: Warren Buffet, George Soros, Paul Tudor Jones, any of the traders in the Market Wizards books; they are using their minds not trading robots. Don’t fall for the hype, learn to trade properly and then use your mind to make trading decisions.

Myth: You can only make money in trending markets or ‘easy’ market conditions.

Truth: If you know how to trade with price action, any market condition is game…

A skilled price action trader can make money in a trending market, in a market that is swinging widely and not in a perfect trend, in a range-bound / sideways market or even counter-trend. Obviously, there are times when a market is just too choppy to trade, but this is where your price action skills come in again; reading that chart from left to right and determining whether or not conditions are ripe for a trade. One of the beautiful things about price action is that it can give you good trades in trending or sideways markets. As we see below, a market that is confined to a trading range can provide many good trading opportunities for the savvy price action trader…

Myth: Day-trading is the fastest way to make money and get a Lamborghini.

Truth: Day-trading will probably cause you to lose money faster than a trip to the casino…

Shorter time frames give you more opportunities, to lose money maybe! – Shorter time frames contain more choppy, meaningless price movement and false-signals that will grind you down to a bloody pulp. TRUST ME – WAAY more lucrative and less stressful to focus on the daily charts and see a signal, enter it /set it up, then walk away for a week, as opposed to constantly obsessing on low time frame charts. You will save transaction fees, time, mental energy, and you will make more money trading by taking one or several high time-frame trades a month with minimal involvement by set and forget, than you will day trading.

Myth: I can’t use wide stops because I don’t have much money.

Truth: Money has nothing to do with your ability to place wide stops and wide stops are what you need most of the time…

Have you heard of position sizing??! Here it is – say you want to place a 150 pip stop loss because that is the best stop loss placement for the trade you want to take. But, you only have a $500 account – think that stop is too wide for you? Wrong.

All you need to do is lower your position size. If you want to risk about $30 per trade on that account, you would just need to adjust your position size to 0.20 mini lots on a that 150 pip stop, that is $30 on any XYZUSD currency pair.

If you don’t understand position sizing, you certainly need to make sure that you do before you start trading live. Again, you do not need a lot of money to take on wider stop losses! You simply need to reduce your position size! I am all about wider stops as they can keep you in good trading ideas and help you from getting stopped out prematurely like many traders do.

Myth: My relative or friend or told me trading is like gambling.

Truth: It can be, if you let it!

Finally, perhaps the biggest trading myth out there is that Forex trading or any type of speculating on financial markets is the same as gambling. This is a broad generalization / stereotype that the public who do not trade and know nothing about it, hold in their minds.

The reality is that if you want to gamble, you can do it in the markets. However, you can also treat trading like a high-class, upper-echelon profession that takes time and persistence to get good at. Unlike gambling at a casino, you can put the odds in your favor as a trader through proper trading education, learning from those more experienced from you and screen time. When you go to the slot machine at the Bellagio, your odds are always about the same; extremely slim. A skilled price action trader can make a full-time living trading the markets, easily winning 35% to 65% of their trades. You will never go to a casino and win even 20% of the time. So, trading can be gambling, if you allow it to be, as many traders do. But, if you want to succeed at it you have to focus and become skilled so that you make into a high-skill game of probability and mental fortitude, one that has nothing at all to do with luck.

What did you think of this lesson? Please share it with us in the comments below!

rfxsignals May 3, 2019 No Comments

To Make Big Money Trading, Don’t Think About the Money

Obviously, you’re into trading to make money, the dream is always to earn money and live the lifestyle of our choosing and enjoy the freedom trading brings. I know those are some of the things that lured me to trading in the beginning of my career.

Almost 100% of people coming into trading are drawn in by the desire to make money and improve their lifestyle. Whether you want to admit it or not, that is probably why you are on my blog; because you think you can make a lot of money trading or you think trading can bring you an amazing lifestyle change. Hey, there’s nothing wrong with those kinds of thoughts and feelings because they ARE obtainable goals if you study hard, perfect your craft and manage to keep your bankroll intact long enough to live to trade another day and come out the other side profitable.

I’m certainly not hear to squash the dreams and ambitions of newbie traders (I was once one myself), but what I am here to do is help you achieve those dreams, and in order to do that we first must put these life-changing dreams and goals to one side and look at what’s actually going to get us there, we need to get smart, we need to be real and cut through the noise. You will only make money as a trader if you’re in this game for the right reasons and for most traders, at least in the beginning, they are not trading for the right reasons…

Do you love the money or the process?

Let me ask you this; do you REALLY LOVE THE PROCESS of learning about markets, studying and looking at charts and trading in general? Do you TRULY enjoy it? Or, are you just sort of slugging along because you think you can make fast money? For most traders, especially beginning traders, the honest answer is the latter.

In trading, as with any business endeavor and life in general, if you aren’t IN LOVE with the process you are VERY RARELY (if ever) going to achieve the goal. Read that last sentence 5 times before you continue.

How can you make an honest assessment of whether you are in love with money or the process of trading?

Here are some signs that prove you’re trading for the wrong reasons

You’re trading money you can’t afford to lose. If you’re doing this, it’ because you’re too focused on the money. People who risk money they really cannot afford to lose are doing so because they want to make money fast and they are only thinking about the prize, not the possibility of losing that money. Bottomline, don’t trade with money you really cannot afford to lose.

You’re thinking only of money, not enough about trading or your trading plan or strategy. Trading really shouldn’t be all about ‘money’ to you. The money is just a way to keep score in a game that tests your ability to remain disciplined and patient in a world of constant temptation. If you are trading properly and focused on the process and excited about the process, you will make money and that money is like the score, if you’re score is going up, you’re winning, if it’s going down you are losing. Ironically, when you focus too much on the score (money) you end up losing.

You’re already making plans of what you’ll do after you make XYZ money in the market, you only think about the rewards and not the risks. Like the last point, but a bit more specific; I know a lot of amateur traders who get super excited about the possibilities of what they will do with the money they make from trading. It’s great to have ambitions and goals, don’t get me wrong, but this cannot consume your thoughts. If you’re making plans of how you will spend money you haven’t made, your trading mindset is not right yet.

You trade for no good reason, even late at night before bed, pressing some buttons for the gamblers endorphin release, you need to be in a trade. If you end up trading all the time, entering one as another one closes out, you don’t want to trade anymore, you NEED it. This is trading addiction and I can promise you that it will very quickly drain your bank account.

You get enthralled by the next biggest trading thing (Like crypto currencies, which by the way, I think bitcoin and the like is basically a Ponzi-scheme and I encourage people to stay away). Stick to major markets, major Forex pairs and major stock indices and commodities, don’t trade every market under the sun, this will cause you to over-analyze and over-trade and lose money.

The right reasons to trade:

You should trade because you love trading, plain and simple. You must love the process of trading, not only the dream of the end-goal, or you will never achieve the end-goal

You’re becoming methodical and well-structured in your approach, making plans and keeping notes and spreadsheets, you’re taking this seriously. Once you start doing things like this you know you’re on the right track. Being methodical and having a trading plan and keeping a trading journal in spreadsheets of your trades is something traders do who truly enjoy the process. These things keep you accountable and help develop proper trading habits and routines.

You live and breathe markets, it’s what you do, it’s who you are, every precious moment of free time you’re reading a post on a blog like the one you’re reading now or you’re reading a classic trading book like The Market Wizards or Trading in the Zone or perhaps studying chapters in my price action courses, you’re studying charts religiously, even if you’re out and about.

Your family and friends don’t understand you any more, the conversations have turned into things people can’t relate to, you feel alone, isolated, and feel desperate to find others who think the same way.

You love self-improvement. Trading, more than anything else, is about self-improvement. Show me a successful trader and I will show you a person successful in other areas of his or her life. Intense discipline, focus, passion, patience – these are the ingredients of LIFE success not just of trading success.

You are competitive, you like the competition. The idea of competing with millions of other traders and putting yourself into the that top 10% who are making all the money – drives you more than anything – it’s inside of you – it’s NOT JUST about getting a lot of money it’s about the self-confidence and the feeling of knowing you are better than all those other traders and you out-competed them. It puts you in a very small group of upper-echelon individuals and is a true accomplishment, one you’re dying to achieve.

You simply love markets, you love charts, you love business and entrepreneurship, you love studying what drives the world economies and you find yourself watching CNBC even when you’re bored or (god bless you) the PBS nightly Business news.

Conclusion

If you want to get fit and healthy and achieve your optimal body composition, you must fall in love with the process of working out and eating healthy, because if you don’t fall in love with it all, you will never continue to do the little things day in and day out that lead to the type of body you want. Same thing in trading. To get the money and the cars and houses and the life you want, the life that IS possible from trading, you have to love the process, the little things, the details, otherwise you’ll never stay committed to the discipline that is required. As they say, the devil is in the details.

To succeed at trading you must let go of the need to control the outcome. You must trust the process. You must trust your intuition. You must trust yourself. You must fall in love with the process if you want to get the results you’re looking for.

Don’t worry if you’re not yet feeling this quite yet or doing the things I discussed above, just stick with the plethora of inspirational and educative lessons on my blog and then study the chapters in my professional trading courses as well as follow along with the daily market analysis I post for members. You will soon find yourself enjoying your trading and hungrier for knowledge day by day, momentum builds momentum, and you must turn your desires into habits. Habits are what makes someone successful and when you start by developing the proper trading routine and stick to it, it will turn into a habit that leads you down the path to trading success.

For those who can’t yet make sense of it all and feel overwhelmed, the cliché saying holds true here; When the student is ready, the teacher appears; you just need to turn your desires into passion and to do that you need knowledge and consistent stimulation. At Learn to Trade the Market, we live and breathe trading… so we have you covered.

What did you think of this lesson? Please share it with us in the comments below!

rfxsignals May 3, 2019 No Comments

10 Things You Can Learn From The World’s Best Traders

Today’s lesson is a virtual treasure trove of wisdom and insight from some of the best trading minds of all time. We are going to go on a journey of discovery and learn a little about some of the best traders ever and dissect some of their famous quotes to see what we can learn and how it applies to our own trading.

The way to learn anything is to learn from the greats, have mentors, teachers, study and read; you must make a concerted effort to absorb as much knowledge from the best in your field as possible, for that is truly the fastest way to success, be it in trading or any other field.

Below, you will find a brief introduction to 10 of the best traders of all time, followed by an inspiring quote from them and how I view that quote and apply it to my own trading principles. Hopefully, after reading today’s lesson you will be able to apply this wisdom to your own trading and start improving your market performance as a result…

George Soros

George Soros gained international notoriety when, in September of 1992, he invested $10 billion on a single currency trade when he shorted the British pound. He turned out to be right, and in a single day the trade generated a profit of $1 billion – ultimately, it was reported that his profit on the transaction almost reached $2 billion. As a result, he is famously known as the “the man who broke the Bank of England.”

Soros went off on his own in 1973, founding the hedge fund company of Soros Fund Management, which eventually evolved into the well-known and respected Quantum Fund. For almost two decades, he ran this aggressive and successful hedge fund, reportedly racking up returns in excess of 30% per year and, on two occasions, posting annual returns of more than 100%.

Here is a famous quote from Mr. Soros:

“Markets are constantly in a state of uncertainty and flux and money is made by discounting the obvious and betting on the unexpected.”

The above quote is a big reason why I love George Soros. Indeed, what he is saying describes the way I think about the markets and even some of my price action strategies. My fakey pattern and even a false break strategy in general, are both setups that reflect a way we can use price action to “discount the obvious and bet on the unexpected” as Soros said. Typically, most market players become fixated on one view, one bias of the market, forgetting that markets can switch direction and bias on a dime. You must be ready for everything and be an adaptable trader if you want to be able to make money over the long-run. Certainly, for Soros, betting against the British pound when the whole world was long, paid off; it’s a good example of how not following the herd and not being over-committed to a view can pay off.

In the chart below, we actually see that an obvious bearish fakey (sell signal) had formed the day before the GBPUSD crashed in 1992, leading to George Soro’s most famous trade…

Jesse Livermore

Livermore, who is the author of “How to Trade in Stocks”(1940), was one of the greatest traders of all time. At his peak in 1929, Jesse Livermore was worth $100 million, which in today’s dollars roughly equates to $1.5-13 billion, depending on the index used. He is most famous, perhaps, for selling short U.S. stocks before they crashed in 1929, swelling his bank account to $100 million.

Here is a famous quote from Jesse Livermore:

“Play the market only when all factors are in your favor. No person can play the market all the time and win. There are times when you should be completely out of the market, for emotional as well as economic reasons.”

The above quote by Jesse Livermore is one of my favorites. I am all about keeping a low-frequency trading approach and trading like a sniper not a machine gunner which is also what Livermore is saying here. Playing the market when all factors are you in favor means, as with other quotes in this lesson (seeing a theme here?) trading with confluence. He says you should be out of the market at times for emotional as well as economic reasons. Meaning, for your trading account’s sake and your mindset’s sake, you should not be in the market all the time. In fact, most of the time you should be out of the market, which is a cornerstone of my trading philosophy.

Ed Seykota

Trading as a trend follower, Ed Seykota turned $5,000 into $15,000,000 over a 12-year time period in his model account – an actual client account. In the early 1970s, Seykota was hired as an analyst by a major brokerage firm. He conceived and developed the first commercial computerized trading system for managing clients’ money in the futures markets

Here is quote from Ed Seykota from The Market Wizards by Jack D. Schwager:

“Fundamentals that you read about are typically useless as the market has already discounted the price, and I call them “funny-mentals”. I am primarily a trend trader with touches of hunches based on about twenty years of experience. In order of importance to me are: (1) the long-term trend, (2) the current chart pattern, and (3) picking a good spot to buy or sell. Those are the three primary components of my trading. Way down in a very distant fourth place are my fundamental ideas and, quite likely, on balance, they have cost me money.”

What Ed is saying in the above quote is very important because it really is something I agree with and it reflects some of the concepts I teach in my courses. I am also primarily a trend-follower who uses gut feel as an assistant, and as I’ve written about before, a trader’s gut feel is something they must develop over education and screen time. Ed also talks about chart patterns, which to me means price action patterns, which obviously you know I am a huge proponent of.

Picking a good spot to buy or sell is what I describe as trading with confluence. It takes a keen knowledge of price action and staying in tune with the story on the charts to identify good spots to buy or sell. Lastly, what Ed says about fundamental analysis is pretty much spot-on with my trading outlook; I put little stock in fundamentals because the market has typically discounted them in the price. In other words, the price action reflects all market variables, more or less. Certainly, the price action gives you enough to analyze a market and find high-probability entry and exit scenarios, so don’t over-complicate it by trying to analyze every market variable under the sun.

John Paulson

Paulson became world-famous in 2007 by shorting the US housing market, as he foresaw the subprime mortgage crisis and bet against mortgage backed securities by investing in credit default swaps. Sometimes referred to as the greatest trade in history, Paulson’s firm made a fortune and he earned over $4 billion personally on this trade alone.

Here is a great quote from John Paulson:

“Many investors make the mistake of buying high and selling low while the exact opposite is the right strategy.”

What he means here, is that most investors and traders will tend to buy when a market is high, typically because that’s when it looks and feels good to buy. However, when a market has already moved up a lot, it’s typically ready to pullback, which is why I like to trade on market pull backs in most cases. The inverse is true for shorting; when a market has sold-off big time, you usually don’t want to sell, or you’ll end up selling the bottom, so to speak. You want to wait for a bounce in price, back to a resistance or value area, then watch for a price action sell signal there to rejoin the trend after a pull back.

Paul Tudor Jones

Paul Tudor Jones shorting of Black Monday was one of the most famous trades ever. Paul Tudor Jones correctly predicted on his documentary in 1986 based on chart patterns that the market was on the path to a crash of epic proportions. He profited handsomely from the Black Monday crash in the fall of 1987, the largest single-day U.S. stock market decline (by percentage) ever. Jones reportedly tripled his money by shorting futures, making as much as $100 million on that trade as the Dow Jones Industrial Average plunged 22 percent. An amazing trade to walk away from with a fortune when so many others were ruined in the aftermath. He played it to perfection. His funds had great consistent returns for decades.

Here is a favorite quote of mine from Paul Tudor Jones featured in the Market Wizards:

“That was when I first decided I had to learn discipline and money management. It was a cathartic experience for me, in the sense that I went to the edge, questioned my very ability as a trader, and decided that I was not going to quit. I was determined to come back and fight. I decided that I was going to become very disciplined and businesslike about my trading.”

What Jones is saying here, is that there will be a time when every trader makes a huge mistake regarding money management, and they must take a cold, hard look at themselves and decide what to do next. Will you continue to bleed money from your account by continuing to make poor money management decisions? Or, will you finally get disciplined and “businesslike” in your trading? In trading, money management is literally what determines your fate, so you need to focus on it early-on if you want to have any chance of success.

Richard Dennis

Richard J. Dennis, a commodities speculator once known as the “Prince of the Pit,” was born in Chicago, in January, 1949. In the early 1970s, he borrowed $1,600 and reportedly made $200 million in about ten years. Dennis and his friend William Eckhardt, are most famous for starting the Turtle Traders, which was a group of 21 average people to whom they taught their rules to and proved that anyone, given the right training, could trade successfully.

Here is a good quote from Richard Dennis:

“I’ve certainly done it – that is, made counter-trend initiations. However, as a rule of thumb, I don’t think you should do it.”

Richard Dennis was famously a very successful trend trader and in the above quote he is stating his feelings on trading counter trend. Interestingly, this is pretty much how I feel about trading counter-trend; sometimes it’s warranted, but most of the time it’s not, and it takes a skilled trader to be able to trade counter-trend successfully. I teach my students to master trading with the trend first and foremast and to make that the most important piece of their technical analysis.

Stanley Druckenmiller

Stanley Druckenmiller is an American investor, hedge fund manager and philanthropist.

In 1988, he was hired by George Soros to replace Victor Niederhoffer at Quantum Fund. He and Soros famously “broke the Bank of England” when they shorted British pound sterling in 1992, reputedly making more than $1 billion in profits. They calculated that the Bank of England did not have enough foreign currency reserves with which to buy enough sterling to prop up the currency and that raising interest rates would be politically unsustainable.

“I’ve learned many things from him [George Soros], but perhaps the most significant is that it’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.”

The above quote is reference to George Soros who mentored Druckenmiller for a while. This quote fits perfectly with an article I wrote recently about how you don’t have to be right to make money trading. Most traders get far too concerned about the number of winners they have compared to losers when really, they should totally forget about that number and instead focus on their overall risk / reward. In other words, how much money are they making for every dollar they have risked.

Jim Rogers

James Beeland “Jim” Rogers, Jr. is a Singapore based business magnate of American origin. Regarded by the business world as a brilliant investor, Rogers is also an author and financial commentator. He co-founded the global investment partnership, Quantum Fund, along with George Soros, another equally brilliant businessman.

Here’s one of my all-time favorite trading and investing quotes, courtesy of Mr. Rogers:

“I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up. I do nothing in the meantime. Even people who lose money in the market say, “I just lost my money, now I have to do something to make it back.” No, you don’t. You should sit there until you find something.”

I really like the part above where Jim Rogers says “I just wait until there is money lying in the corner…” because that really sums up what I try to teach my students as well as my own personal trading style. Rogers is dead-on with the above quotes; most traders do WAY too much…there is nothing wrong with doing nothing if there isn’t anything to do! In other words, don’t force a trade if an obvious one isn’t there, it’s better to save your capital for a solid opportunity that’s just around the corner.

Ray Dalio

Raymond Dalio is an American billionaire investor, hedge fund manager, and philanthropist. Dalio is the founder of investment firm Bridgewater Associates, one of the world’s largest hedge funds. As of January 2018, he is one of the world’s 100 wealthiest people, according to Bloomberg.

Here is a pretty deep quote by Ray Dalio:

“I believe that the biggest problem that humanity faces is an ego sensitivity to finding out whether one is right or wrong and identifying what one’s strengths and weaknesses are.”

This quote by Mr. Dalio is deep, for a few reasons. One, having a sensitive ego is very bad in trading, because the fact is, you’re going to have losing trades, probably more than you want. So, if you become overly-affected / emotional by every loser, it’s going to catapult you into a huge string of trading mistakes, as I wrote about more in-depth in my article on the top trading mistakes people make.

Next, being right or wrong is and should be 100% irrelevant in trading. As the late, great Mark Douglas teaches, you can be wrong on average and still make money, and your trading success or failure doesn’t depend on whether you’re right on your next trade, read my article on the secret to trading success for more on this. Finally, you must determine what your strengths and weaknesses are as a person before you can find trading success. We all drag our personal baggage into the markets and it influences our trading, for better or worse.

Warren Buffet

Known as the “Oracle of Omaha,” Warren Buffett is one of the most successful investors of all time. He runs Berkshire Hathaway, which owns more than 60 companies, including insurer Geico, battery maker Duracell and restaurant chain Dairy Queen. He has committed to giving more than 99% of his fortune to charity. So far, he has given nearly $32 billion.

Here is perhaps a lesser-known quote from Warren but one that I like nonetheless:

“Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble”

To me, this quote is saying that high-probability trade signals happen infrequently, which is something I teach as any of you know who have followed me for any length of time. Thus, when you do get a nice and obvious / confluent trade signal (there’s that confluent word again) you need to maximize your gains, not take a quick / easy profit. This fits nicely in my teachings about the power of risk reward and how to catch big moves in the market. I am all about waiting patiently, with discipline, for days, weeks or even months and then pouncing on that one super-obvious setup that will net me a large 1:3, 1:4, 1:5 or even greater winner. This is the basis behind my approach that proves you don’t need to win a lot to make money trading.

Conclusion

Personally, if you’re a beginning or struggling trader, I think the most important thing to takeaway from all the wisdom in today’s lesson is to first get YOURSELF straight; get your money straight, get your patience and discipline straight, know what your trading edge is and how to properly trade it BEFORE you start risking real money in the markets. If you do this, you will largely be trading in-line with the insight and advice that the above trading greats have provided you with.

What did you think of this lesson? Please share it with us in the comments below!

rfxsignals May 3, 2019 No Comments

This Brain Tweak Could Dramatically Improve Your Trading

Imagine if you could insert a plug into the back of your head and upload a piece of software code into your brain that would allow you to trade like some of the all-time best traders? Well, unfortunately we do not have the capability to upload software and upgrade our brains instantly like Neo could in The Matrix. But, there is a very profound lesson here that I want to teach you today, about how you must think and act if you want to make money as a trader.

What the best traders in the world know, whether instinctually or through trial and error (experience), is that your brain can trick you, so well in fact, that you won’t even be aware it is happening. Essentially, what you need to do since you cannot upload a new program like Neo and become part robot, is train yourself to use your more advanced and more highly-evolved thinking abilities so that the more primal brain processes do not take over and ruin your trading.

First, you must understand these two brain systems:

Our brains are composed of different pieces that serve different purposes. Some of the pieces serve our more primal needs, like telling us we need food, love and other rewarding activities. Those are the oldest pieces of our brain, and they also are the ones that get first crack at most decisions, which is not always good for trading purposes. Most traders tend to let these older brain pieces run the show, even if they are unaware of what’s happening. For example, have you ever experienced the feeling of looking at a chart that’s running in one direction really aggressively, and your heart starts beating faster because you want to enter a trade in that direction? That is an example of your primal brain areas taking over.

Our brains basically serve two purposes; primitive ones like fight or flight, rewards / urges and more modern ones like planning, math, thinking, etc. As traders, it’s critical that we learn how to use both brain functions in conjunction to achieve optimal outcomes.

Reflexive brain

Paraphrasing Jason Zweig in his book, Your Money & Your Brain – How the New Science of Neuroeconomics Can Help Make You Rich: The Reflexive brain system are the older pieces of the brain I was referring to above. The reflexive system works so fast that you often finish responding before the conscious part of your brain realizes that there was anything to respond to! An example of this is swerving to avoid a hazard on the highway before you could even identify what it was. The reflexive system gets first crack at making most judgements and decisions, which as I said above, for a trader this is usually what leads to disaster.

So, the reflexive system is all about emotion and intuition. Which, I am not saying is ALL bad, indeed, I’ve written articles on using a trader’s intuition. And as we will see later, one of the keys to trading success is learning how and when to use your reflexive trading intuition, and when not to.

Reflective brain

The Reflective brain systems are like the counterweight to the reflexive system. This function largely resides in the prefrontal cortex; which lies behind your forehead and is the most advanced and recently evolved portion of your brain. Here, neurons that are intricately connected with the rest of the brain draw general conclusions from scarps of information, organize your past experiences into recognizable categories, form theories about the causes of change around you, and plan for the future.

The reflective system is used mainly to tackle and solve more complex problems like “Is my investment portfolio sufficiently well-diversified?” or “What should I get my wife for our anniversary?”, according to Zweig.

Too much of anything is bad for you

As the saying goes, too much of anything is bad for you. When it comes to your brain and trading, using the reflexive side too much OR the reflective side too much can lead you down a path of consistent losses.

We all are familiar with what happens when we use the reflexive brain systems too much; you become emotional, heart rate increases, you do stupid things like trade too much, risk too much, etc. etc. Basically, when acting on your first impulse, as most traders do, you are using your reflexive brain system – and if you only rely on your reflexive brain, you’re essentially gambling, not trading.

When it comes to the reflective brain system, you might think that too much of it couldn’t be bad, right? Wrong. You CAN (and probably often do) think too much. You can over-analyze the market, I’ve written an article about analysis paralysis in trading and how traders often ‘freeze up’ in the moment when they see a good trade, they think themselves right out of it! Another reason why reflecting too much is dangerous is because you can convince yourself you are right about a trade, to the point where you want to bet your whole account, which obviously is extremely dangerous and leads to disaster.

As Jason Zweig states in his previously mentioned book:

“Although doctors get a bad rap as investors, in my experience engineers are worse. That may be because they are trained to calculate and measure every possible variable. I’ve met engineers who spend two or three hours a day analyzing stocks. They are often convinced that they’ve discovered a unique statistical secret that will enable them to beat the market. Because they have squelched their intuition, their analysis fails to alert them to the most obvious fact of all: There’s always something to measure on Wall Street, which spews out a torrent of statistics on everything under the sun. Unfortunately, at least 100 million other investors can view the same data, taking away most of its value – while, at any moment, an unforeseen event can blindside the market, rendering anyone’s technical analysis at least temporarily useless. “

How to trade like you’re half man, half machine:

To succeed in trading, you need to be half man, half machine, so to speak. Robots are cold, emotionless, binary, objective – more like the reflective system in our brains. Humans are full of feelings, ideas and emotions; which stems from our reflexive system.

So, the trick becomes utilizing our brains the best way possible, and not letting one aspect of our brain over-power another.

Take exercising for example: You may FEEL emotional about getting into better shape – you want to do it, you want the result that the hard work brings. However, the act of doing the work, the sweating, the discomfort, even pain, is too much for many people to consistently handle, so they give up the long-term prize to temporarily feel better. However, the worst part is, if you just push through that early discomfort and continue to be consistent, you will eventually start to enjoy the pain, so to speak. Once you get yourself to this point, you are using both brain systems together. The reflexive part of your brain is being rewarding not from inactivity, potato chips and TV, but instead from endorphins, strength, fitness and overall better health – this was something you planned and used discipline and commitment to follow through with, which stemmed from your reflective brain systems.

Here’s the main trading take-away:

STOP giving into the short-term temptations of ‘fast-money’ by over-trading and over-leveraging your account and not sticking to your trading plan – you are using the reflexive system too much! STOP entering a trade or what you think is a trade straight away without double checking your trading plan.

START using your reflective brain to plan things out, understand that consistently and discipline now will pay off LATER and that you won’t get rich fast or at all by always acting solely on your first impulse in the market. START using a trading checklist to double check any trade you spot against your trading plan. Take a deep breath and think through what you’re about to do before you push the buy or sell button (just don’t think TOO much ;)). After a trade ends, take a day off, step away from the computer screen. Pre-plan this and write it out and force yourself to follow it every day. Do use your trading gut feel, just make sure you combine it with your reflective brain system, so it doesn’t run rampant.

Conclusion

In the Matrix, Neo knew something was wrong in the beginning; he figured out he was stuck in the matrix that was causing his brain to be flooded with feel-good computer simulations that over-stimulated his reflexive brain system, which was keeping everyone obedient to the architects of the matrix. Neo wanted more though, he wanted the truth, and when he finally woke up from the matrix he was then using his reflective brain system in addition to his reflexive system, and that is when he really flourished.

You must be like Neo in the markets, with your trading. You must realize that if you are not proactive about it, you will naturally end up using your reflexive brain systems too much, and this is indeed what most traders do and why they lose money.

You must ‘unplug’ from the ‘Matrix’ that is acting on your first impulse and just following your urges and what ‘feels good’ in the market. You cannot make money trading this way. It’s hard to over come at first, but just like exercise, it gets easier and more rewarding over time, it becomes reinforcing. To learn more about this and to get started with a plan of attack that will get you on the right path, check out my advanced trading course for more in-depth training and information.

What did you think of this lesson? Please share it with us in the comments below!