Show Buttons
Share On Facebook
Share On Twitter
Share On Google Plus
Share On Linkdin
Share On Pinterest
Share On Reddit
Share On Stumbleupon
Hide Buttons

Category Archives: Other Forex Related Information

Risk Reward In Forex Trading

What is risk reward in Forex trading and how can it help you become a more profitable trader?

Well first off i will explain what is meant by risk reward.

When you are looking for trading opportunities it is important to calculate your potential risk against your potential reward. For example if you are entering a trade with a 20 pip stop loss on a risk reward of 2 to 1, your profit target should be at least 40 pips. If you are entering on a 3 to 1 risk reward ratio your profit target should be at least 60 pips, and so on.

Now if you are using a min risk reward ratio of 2 to 1, you can lose 50% of your trades and still be a profitable trader. If you are on 3 to 1 risk reward ratio you can lose 70% of your trades and still be a profitable trader. If you are losing 70% of your trades though you are doing something wrong, but i am just giving you an example of how risk reward can help in making you a more profitable trader.

Now that is what the books and all the other so called Forex experts say regarding risk reward. What do i say about risk reward? I say its a good method in theory, and you can use it if you are comfortable trading that way, but i look at risk reward in a slightly different way.

If i enter a trade and my logical exit gives me 10 pips i will take them. I will not say, well my stop loss is 20 pips so i need to get at least 40 from this trade because i am trading on a risk reward of 2 to 1. It makes no difference to me about a 2 to 1 or a 3 to 1. Pips are pips at the end of the day, profit is profit. If the market gives me 10 pips i will take them, if the market gives me 20 i will take them, if the market gives me 22.6 i will take them. I enter a trade logically and i exit a trade logically. Whats the point in waiting for 40 pips if you get to 20 and the market turns around and stops you out? You have just let a nice winning trade turn into a losing one. Who wants to use a 2 to 1 risk reward strategy, and feel good about losing 50% of your trades? I certainly don’t. I want all my trades to be winners. I don’t want any losers thank you very much.

Some traders say that losing is all part of Forex trading and you should not feel bad about losing. Well i do feel bad about losing. If i lose a trade its my fault, i have done something wrong, i have made a mistake. I have been too greedy, or i have entered a trade at the wrong point. Or my stop loss has been in the wrong place etc etc. I agree that you should not feel bad to the point where you revenge trade, but you should not feel good about losing trades. All losing trades are losers because of something you have done wrong. Occasionally you will get some unexpected news come out that will kill a trade, but more often than not you lose a trade because you have done something wrong, and you should be able to recognize what you have done wrong, and try not do it again.

I am a perfectionist, and my ultimate goal is to have trading perfection. 100% win rate all of the time. I firmly believe that this is possible, if you have a complete understanding of what the chart is telling you, and you are patient enough to wait for the high probability trades. This is what i do. I trade high probability set ups. Risk reward does not play a significant part in my trading. I understand risk reward completely, but i also understand price action and i can enter and exit the market with precision. I take what i am given and i look for another trading opportunity. This in my opinion is the way you should trade Forex. You enter with high probability, you take your pips and you exit, and move on to the next trade. I certainly do not want to be babysitting a trade all day long waiting for my risk reward to get hit. 🙂

If you want to learn how to trade Forex like the pros, please consider my Forex training and mentoring program here.

Forex Trading When The Markets Are Moving Sideways

According to most Forex rules there are 2 basic stages of market. Trending and consolidating. When the market is going up or down its trending, and when the market is going sideways its consolidating.

Now depending on what time frame you are looking at, the market can spend quite a bit of time moving sideways or consolidating. For example if you are looking at a daily chart like the chart the left you will see that the market is moving sideways.

Now every candle on that chart represents 1 day. So within each day you will have another chart pattern. You may have a consolidation pattern, or you may have a trending pattern. The point i am trying to make is the market is never really moving sideways, it is always trending, or moving up or down.

When the market is in consolidation most traders will tell you not to trade as you don’t know which way the market is going to move, and you may get caught on the wrong side of a breakout. I will agree with that 100%. But you need to qualify which time frame you are looking at before you can make a decision on whether to trade or not. I would quite happily trade a sideways moving market on a weekly, daily, and H4 time frame, or even possibly a H1 time frame, but i would not trade a sideways consolidation on anything less than H1. All time frames are made up of trends and within those trends there are trend trading opportunities.

A good way to qualify if a consolidation is OK to trade is to measure the number of pips the consolidation covers. Basically you just draw a line at the top and the bottom of the range of the consolidation, as per the above chart, and measure the pips in between. The tighter the range the more risk will be associated with trading that consolidation. You may have a H4 consolidation that covers 100 pips or more. This would be OK to trade on say a 15 min or H1 time frame, as it would be made up of many trends. Now if this consolidation was made up of a 20 or 30 pip range there would be far more risk associated to trading it, as a breakout of a tight range is more likely to happen than a breakout of a large range, and you don’t want to get caught on the wrong side of the breakout.

A good example of a consolidation not to trade would be the Asian session, or Tokyo channel as some people call it. The Asian session often is a period of consolidation for the markets and a 20 to 30 pip trading range is often seen. When the UK session then opens you will get the breakout. If you have ever tried trading the Asian session you will know exactly how unpredictable this consolidation period is.

So to recap. Trading Forex when the markets are moving sideways is quite acceptable if the consolidation covers a larger time frame, and a larger number of pips. As within those consolidations there will be many tradable trends. Stay away from consolidations on lower time frames that cover less than 30 pips.

I would just like to add that this article has nothing to do with how i trade. Its just a general Forex article to give you a bit of help and advice on what not to do. What i teach is a complete understanding of price action trading, and how to read a chart. When you can read a chart and understand price action at a professional level, you can enter and exit trades with complete confidence. I will teach you how the big boys play this game. And when you have the same level of understanding as the best traders in the world you will be able to trade like they do.

If you want to learn how to trade Forex like the big boys, please consider my training and mentoring program here.

How Professional Forex Traders Make Money

Forex trading is a business and should be treated as a business. When you trade you are putting your money on the line against professional Forex traders.

What makes a professional Forex trader?
Why do some people consistently make money from trading Forex while others consistently lose?
What is the secret to making money from Forex trading?
What do you need to enable you to make money day in day out?

I am going to share this secret with you. I am going to share the secret that myself and other professional traders use every day to make big profits from trading.

The secret is knowledge, yes knowledge. Knowledge is everything in Forex trading. The more knowledge you have the better a trader you will be.

Despite what a lot of people say, a professional Forex trader does not trade with a feeling, or a gut instinct. He trades with knowledge. He knows when price reversals are likely to occur, he knows when to enter a trade, he knows how long to hold the trade for, and he knows when to exit a trade and bank his profits.

A professional trader will execute his trades with calm and precision, while amateur traders will run around like headless chickens, trying to scalp pips from everywhere.

When you have the knowledge, and you can apply it, you will become a laid back chilled out trader, and not a frustrated nervous wreck.

Knowledge is what separates the winners from the losers. So if you are a new trader just starting out, or you are an experienced trader that is struggling to make consistent profits, take my advice. Forget about adding money to your bank account, and concentrate on adding knowledge instead. Knowledge is how professional Forex traders make money.

If you want to add to your knowledge, and learn how to trade Forex like a professional, please consider my Forex training and mentoring program here. It will be the best investment you will ever make in the Forex business, i can guarantee that. 🙂

How To Enter A Forex Trade. Don’t Chase Trades

Don’t chase trades.

This is a good tip for you if you are struggling, don’t chase trades. The pros do not chase trades. When you start chasing a trade you pay more to get into the trade, and you tend to get out at the wrong time as you are trading emotionally. Set up your trade in advance so you are ready to go when the price comes to your entry, you can then trade with less emotion, and you are more likely to exit the trade at the right time, as your head is clear of emotion.

Emotional traders have a real hard time making consistent profits from Forex trading. You have to trade as mechanically as you can. If you see a set up you take it, its as simple as that. Don’t force trades either. If a set up is not there don’t trade. I have seen a few good trades pass me by in the last couple of days as i have been busy with other stuff, and i have been itching to take a trade, but i just compose myself and be patient and wait for the right trade to come along.

Some Forex traders will take 20 or 30 trades per day. This in my opinion is just gambling, you can’t possibly have 20 or 30 good set ups per day. This type of trading is very stressful and can be very costly. I much prefer a laid back approach to trading.

The correct way to enter a trade in my opinion is to do your analysis, set up your trade and wait to get filled. Jumping into a trade because you think you are missing something will cost you big time. You may get lucky and jump on a good trade, but long term you will lose with this style of trading. Also when you are in your trade try to manage it correctly and try and find a logical exit for the trade rather than just going for 10 pips, or 20 pips. If you can find a logical exit at 14 pips take it. 4 extra pips can add up to a lot of money over the course of a week.