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I did it My Way by Sam Evans

 

The subject of this week's article is concerned with perhaps the most vital ingredient in the recipe for consistently profitable Forex trading: the individual. As well as grasping a deep understanding of market price action, a solid awareness of risk management principles and objective analytical technical skills, every trader across the world today also needs to fully recognize that in the end, when all is said and done, they are the true variable in the distinction between ongoing trading success or financial ruin.

A few hours ago this very morning, I was presenting my regular Extended Learning Track (XLT) - Forex Trading session where we analyzed the European FX session for setups and opportunities to take low risk high reward trades. For me, one of the most enjoyable aspects of teaching and mentoring my Online Trading Academy students is the interaction we have in both the classroom and the virtual environment of the XLT program. As many of my readers will know, trading can be a lonely existence, as it's pretty much a solo endeavor between the trader and the market. The only analysis that counts is our own. Sure it's great to have the freedom to live a flexible lifestyle as a trader but it can also make you a little stir crazy when you only have the charts and yourself for company each and every day! Contact and communication with like-minded individuals helps to break up the isolation of market speculation and it's during these times when I often get inspiration for another topic for my writing. Today was one such day.

After about an hour into today's session, the students and I got into a talk about different ways to place protective stop loss orders, following a recent small loss on a trade the day before. The loss was taken on a previously planned short order on the NZDUSD pair. Let's take a look at the trade.

 


Figure 1

 

Earlier this week, we had planned a short position on the currency pair, as it was approaching an objective area of Supply. Note how price left this area the last time it was visited? This was also a clean pivot high of resistance and offered a low risk entry with a minimal stop loss and decent potential reward. I took this trade along with some of the students and was filled around 3am GMT, while I was sleeping (my favorite type of entry!). For the rest of the day the market sat pretty flat, dipping either side of my trigger price for a number of hours before making a big surge to the upside in the late afternoon and triggering the stop loss exit. After doing so, it reversed and fell to our first profit target area of 0.6990. I was not around to see this happen, as I honestly have better things to do than sit there and watch a swing trade unfolding but I did return later in the day to see what had happened and discovered that I had endured a small loss on the trade, even though I got the direction right.

So what is my point in telling you this? Well, I am sure that the vast majority of people reading this article right now have also had a similar situation happen to them, whereby you get stopped out by a few pips, only to see the trade work out as planned and as you can see, it happens to me too. However I have now learned to not let this bother me, because I know that the market will always be full of surprises and it will never be under my control. A few of the students in the XLT room also suffered the same fate as me on this trade, yet a handful were also successful on the trade and are still currently in the position. You see, although we were all looking at the same trade setup in the room, each trader who took the opportunity executed and managed the trade a little differently. I personally decided to place my stop a few pips above the pivot high of 0.7078, as my belief is that a stop loss order should always go in a technical place where the market will prove me wrong. This is the rule in my trading plan. On the other hand, I have students who like to place volatility-based stops using a technical indicator such as ATR (Average True Range) as a guide. On this particular trade, the students who used this method of risk management were not stopped out and are currently enjoying the rewards of price action.

Later that same day, I was also triggered into another pre-defined trade, this time on the USDCAD. Let's take a look:

 


Figure 2

 

This was a long setup and again, just like the previous NZDUSD trade, I placed my stop loss in a technical area a few pips below the pivot low where I knew I would be wrong. Unlike the other trade though, this one took very little heat from entry and within one hour reached my first profit target, instantly paying for my previous loss and now giving me a free trade in the USDCAD, where I can hope to let it run, should it continue in my favor. I don't know what will happen next but the key factor in this equation is that I stuck to my rules and I can now just sit back and let the market do its thing. I didn't change my risk management rules on this trade because of my earlier loss on NZDUSD because I know that in the long run, consistency in any activity comes only from doing the same thing over and over again and sticking to the plan.

You may be wondering then if I would recommend you to use a technical stop or an ATR based stop in your trading and this was the very discussion we had in the XLT today. If you are looking for an answer to this question then I am more than happy to give you the very same answer as I gave to my students: "It's up to you"! There is no right or wrong answer and trading offers a whole variety of different tools and methods, with each having its own pros and cons but this matters little in the grand scheme of things. The individual trader must simply decide which technique is right for them and stick with it. If you feel comfortable and have confidence in your style of trading then you will find it far easier to analyze, execute and manage your positions, giving you the ability to allow time to do its work and gain consistency from the methodology. The worst thing to do is to keep changing the goal posts and trying new things, as you will have little hope of ever achieving a fundamental balance in your trading career. In closing, my simple message is to be objective in your analysis, cut those losers off quickly and allow your winners to run. Just lay these all important foundations first and then pick the tools to match your style of trading. Do things your way and take ownership of the methodology - after all it's only going to be your account which feels the effects in the end.

Have a great week,

Sam Evans sevans@tradingacademy.com

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