You’ve decided that you want to be a trader.
Now, what do think most people first learn when they start trading? If you guessed indicators, well done!
Indicators are used by traders to predict movements in the forex market.
When most traders understand a particular indicator, they move on and hunt for others that work. If they don’t get them to work, they keep searching. The ongoing quest for perfect, fool–proof indicators is like the ‘holy grail’ of forex trading. Remember, indicators are supposed to make trading easy and winning way more likely.
The question is, do they really?
Why do most traders insist on using indicators for extended periods of time?
It’s because they want to take shortcuts. The number one goal is to learn as much as possible, within a short amount of time. Like we said above, most forex traders are looking for a single solution to solve all their problems.
Most forex traders ― especially those who are unsuccessful ― are constantly searching for a magical, almost mythical, indicator that will help them get rich quick.
In the real world, it takes a long time ― with numerous setbacks and losses ― before profitable traders find which indicators work for them. Mind you, some professional forex traders don’t use indicators. But those who do find success with indicators will be surprised to learn that their success had nothing to do with what they expected.
Remember, these widely sought-after indicators won’t earn huge amounts of money in the blink of an eye. You will find that the indicator teaches you how to become a better trader. In other words, it won’t be the indicator making you money ― it will be your trading ability.
Some forex traders rely on a number of tools to make trading decisions, instead of making decisions based on their own judgement. They can use various indicators, which help guide their trading without the burden of decision-making. Put simply, these actions show that they don’t want to be responsible for their decisions.
Instead, they prefer to blame indicators in the event that they suffer losses.
Ironically, they also take credit if they win a trade, yet blame the indicator if they lose. It’s convenient, but also a little sad.
Forex traders who are just starting off face many issues when using indicators.
Not all indicators help.
In fact, most don’t…
It’s known that indicators make life more difficult for forex traders. Worse, the more the trader becomes confused with indicators, the more he feels the need to use them…and the more confused he gets.
Suddenly, the forex trader is totally dependent on indicators. And while he may win using his favourite indicator, eventually he will lose.
The logic is simple.
If an indicator helped make a winning decision, the next one will help even more, so the forex trader bets bigger on the next trade. If the forex trader loses, he will look for a new indicator until he finds one that works. With this kind of thinking, the trader will constantly be looking for a new and better indicator so he can find an easy way to ‘win’…and keep ‘winning’.
That’s why unprofitable forex traders are always looking at trading websites, and asking other people on online forums for their strategies and indicators. They simply feel they can’t rely on themselves, and their own judgement, when making trade calls.
Fundamental trading mistakes
It’s not possible for forex traders to get every trade right, without fail.
Let’s say Joe places a forex trade and doesn’t take profits at his target. The price reverses against him and, as a consequence, he loses money. Not only did he lose money, he leaves the trade open and loses even more money!
Joe exits his position for a huge loss.
Believe it or not, this happens to most unsuccessful forex traders.
A rookie mistake.
Joe didn’t want to take profits out of greed and he feared losing, since he already lost on the last two consecutive trades. He needed to make back the losses. After Joe sold for a huge loss, he watched the trade turn around and start making a big win. But he was out of his position with a big, fat loss.
You must realise this type of thing happens all the time.
But it doesn’t mean you shouldn’t use a stop loss.
If the trade turns around, and you’re stopped out of your position, just jump back in and have another crack at the trade. Forex trading is a game of probability. You must know where your line in the sand is.
It’s better to make a small loss than a career–ending loss.
There’s always another trade and another day.
Many traders choose to repeat the same mistakes.
They even write down their own rules and trading plans, but choose not to follow them. It’s vital to discuss this fundamental trading mistake to get this message across: You can be an expert on every trading technique that exists. But if you don’t make the right decisions and stick to your own trading plan religiously, then you’re going to be a losing forex trader.
We wrote this guide to help you comprehend what you need to do, and the direction you need to take, to become a successful forex trader.
It starts with price action…
Price action has been in existence for hundreds of years. Seasoned traders still use this method in trading to this very day.
You should know by now that money is exchanged between players in the forex market. There’s a winner and loser for each trade.
What you might not know is that this exchange leaves a footprint.
The footprint, or money trail, made is a market’s price action. If this footprint is plotted out on a price chart, patterns becomes visible. Professional forex traders can determine these patterns with ease.
Profitable forex traders see patterns made by price movements in the past.
Good forex traders ― no, GREAT traders ― trade what they see the price action doing. With experience, they can see the patterns made on the price chart, such as when the price is going to change direction.
That’s the kind of forex trading you should aspire to.
Price action is vital to learn in order to become an elite forex trader. Price movements in forex markets repeat all the time, especially since highly complicated algorithms ― mathematical machines ― battle it out in the market. So, if studied well, price action can become a great tool in predicting upcoming price directions.
You made it to the end of the forex course.
I hope you learnt lots about forex trading.
Today’s lesson should set you on the right path to become an elite forex trader.
In the previous lesson, we talked about indicators and how you should use them. Indicators aren’t everything and, certainly, don’t breed successful forex traders. What matters more is trading the price action. We already introduced price action and we’ll expand on it today.
If you want to be a successful price action forex trader, read on…
Trading systems using price action
Using price action is quite common among professional forex traders.
Most of these traders have simple systems as well.
As discussed in the previous lesson, most forex traders ― especially unsuccessful ones ― are distracted with looking for the best indicator, which they think will make them rich. While there are hundreds of indicators that will give you a win once or twice, eventually you’ll start to lose. That’s why we never encourage indicators for successful trading.
We strongly recommend using price action instead.
Now, price action may sound confusing.
But it’s simple.
There are straightforward rules to create a logical price action forex trading system.
As previously discussed in the last lesson, price action allows forex traders to trade using signs and patterns that show up in markets. Unlike indicators, which are hard to adjust to different markets, price action has been used for centuries now. Realise, price action has only stood the test of time because it’s been proven successful.
Profiting from price action
A common problem for new traders is knowing what to trade. Price action traders analyse charts to discover repeating patterns, so there’s really no issue in knowing what to trade. They search for major signals prior to entering forex trades, such as:
- Are there fake breaks in the price?
- Has there been a price trend?
- Has there been a range?
- Is the price trading near, or at, a key level of support or resistance?
- Has the price formed a reversal signal? Did it show that the market may potentially move in the opposite direction?
Forex traders who use price action look for major supply and demand levels on charts. These forex traders are also able to see whether prices will break out, or potentially move in the opposite direction. In other words, using price action, the best traders can make consistent profits in forex.
Price action forex trading
Forex traders who use price action are constantly analysing the price to enter, as well as manage, their open trades. Some forex traders look at major candlestick trends to enter trades, for example. A candlestick chart shows the high, low, open, and closing prices of a security for a specific period of time.
The pin bar is a classic example of a candle stick pattern:
Guess which ‘candlestick’ is the pin bar?
If you guessed the ‘nose’ on the above chart, you would be correct.
Pin bars are reversal signals and often trend continuation signs:
Forex traders use pin bars to execute their trades. As you become a more experienced forex trader, you can spot trend changes and continuations using pin bars. They are one of the most common price action tools that show trends. But, don’t forget, pin bars aren’t the only price action setup.
Other setups include:
- Inside bars
- Two-bar reversals
- Fake breaks
- Engulfing bars
The list goes on…
You should also know that price action setups aren’t fool-proof, especially pin bars. Just because you see a bullish pin bar, doesn’t mean that the trend is bullish or going to continue. If that was the case, every forex trader would be rich! You need lots of screen time to craft your price action trading art.
If you are going to trade pin bars, they should include the following:
- Opens and closes within the last bar
- Candlesticks with at least thrice the body length of the candle
- Long protruding noses from every single bar
Every pin bar is different.
Price action forex traders tend to use other things, besides looking at the last candle, to enter and exit trades. That doesn’t mean using indicators to assist your trading, mind you. In fact, as seen in the bullish chart above, I believe the best pin bars are traded if they follow the trend. They are also best traded if the price is at a major support and resistance levels.
Here are some other price action setups worth looking into:
Remember, while the above trade setups are common, they might not work out all the time.
There’s far more to price action than simply reading the last candle or noticing a potential double top, especially on a minor timeframe chart. Successful forex traders read the entire chart, prior to entering and exiting trades. Remember, the price is either trending or consolidating. You need to learn the way price moves with, and within, a major trend or consolidation zone.
How do you learn?
Forex trading using trends
Most forex traders want to trade in the same direction, but are worried the trend has gone too far.
It’s a mistake.
Remove your opinions.
You probably have heard the saying, ‘The trend is your friend.’
That said, you might not have heard the saying, ‘The trend is your friend until it bends.’
Focus on trading what you see ― not what you think. Most forex traders ― especially unsuccessful ones ― believe you need to buy low and sell high. The best forex trades try to take some meat out of the bone.
The best of the best are looking for the easy trade setups.
Don’t make life difficult for yourself.
Trading done well is simple.
Remember, if you trade with trends, you will often find good trades. The easiest way to make money is to trade with the trend. Ironically, even though it’s not complicated, most traders tend to do otherwise.
It’s not hard to see why most traders fail.
Trading is boring if it requires discipline ― and lots of it.
Don’t trade trends which aren’t obvious. If you have to think about the trend for longer than a second, it’s probably not a trend. If the trends are obvious to you, they are obvious to every other forex trader as well.
That’s how you make money.
I can’t believe that I’m not charging for this forex course!
In all seriousness, trading the trend is straightforward. If the trend is difficult to identify, or you aren’t sure whether price is trending, you should give up on the trade. Put it in the ‘too hard’ basket.
There are lots of ways to help spot trend continuations and changes. In fact, this is where some momentum indicators actually become useful! But all you really need is the price action. You don’t need complicated systems ― again, make life simple for yourself. Forex traders who use price action only need to learn how to read a chart to spot the trends and changes.
Levels of support and resistance
Finding the major support and resistance levels is vital for analysing the trend. Support and resistance levels are the key places of supply and demand. Every trader is looking for the supply and demand zones.
Try to see what everyone else is seeing.
Don’t look for minor support and resistance levels.
Look for the clear and obvious ones.
Remember, forex is the most popular market in the world.
Key support and resistance levels are well respected.
Even though you might find slightly different support and resistance levels to other forex traders, they are usually close together. If you see a potential area of supply and demand, chances are someone else is looking at the same thing. Major support and resistance levels can be called the ‘money zones’ because some traders tend to buy support and sell into resistance.
Supply and demand levels
Forex prices are determined by supply and demand. For example, when we buy our groceries and other shopping items, the prices are set by supply and demand.
Let’s use bananas as an example…
There was a banana shortage in Australia in 2006. Cyclone Larry wiped out most of the banana crops, which are grown locally and not imported. Because of the shortage, the supply of bananas dropped like a rock, at the same time demand was increasing. The net result? Banana prices climbed sharply!
The banana shortage sent prices skyrocketing by 400–500% in Australia.
Banana prices rose from $2 to $11 per kilogram.
Supply and demand happens in every market. It sends prices both up and down. Oversupply of a particular resource, with a low number of buyers (demand), results in plunging prices.
It’s the same thing in forex.
Forex traders who use price action analyse support and resistance on their charts, to show the supply and demand. They look for major support and resistance levels to trade. That’s because price action forex traders want to trade around the key supply and demand levels.
The best forex traders pair support and resistance levels with the overall trend, as much as possible. For example, regarding the supply and demand levels, large money flows tend to enter trades around those areas within trends. Therefore, it’s useful to pair support and resistance levels with trends ― especially if they’re strong ― to have the best results.
Your ‘Start With Forex’ takeaway
Remember, there are a million ways to make a million bucks trading forex.
But one of the best ways is price action.
When using price action for forex trading, the trader is not relying on any magical or miraculous indicator. He uses his skills by plotting out price movement to determine the next move in the market. Remember, at the end of the day, large trading wins are achieved by studying the market.
Plug yourself into the market and notice the way price turns.
Does price slow down before it turns?
What happens if it speeds up?
If you’re going to choose an indicator, choose price action. People look at studying the market’s price action with indicators. But all indicators are derived from price action. In others words, indicators are backward-looking. Price action is a real-time, live, forward-looking indicator.
Your bonus ‘Start With Forex’ takeaway…
But if you really want to boost your chances of winning as a forex trader, you should plot the support and resistance levels prior to taking a trade. As the price reaches your levels, build a system that shows high-probability setups to jump on opportunities. That doesn’t mean buying when price is around support or selling when price is around resistance, mind you.
You need more than that…
The best forex traders know where to execute, since they are looking for more information regarding price action, such as momentum, trend changes, breaks and formations, candlestick patterns…the list goes on.
If you take anything from this forex course, let it be this: Trading done correctly is simple.
The best traders in the world are price action traders.
They don’t have fancy charts, loaded with indictors. They make simple trades over and over. That’s how you can become a consistently profitable forex trader.
I hope that you enjoyed this free forex course. I’m biased, of course, but I believe it’s the best one on the net! I hope you agree. I’ll consider adding more lessons to the course in the future. So, if you think of anything useful to add, reach out. I’d be more than happy to help.
Finally, don’t forget to sign up for the email list, so I can send you my trade ideas and other interesting pieces to help you become an elite trader.
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To your trading success,
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