Why You Need A Forex Trading Journal

Journaling?!?

Isn’t that only for silly high school girls who write about their silly crushes on silly high school boys?

Heck ya!

Ok, not really… high school girls keep DIARIES.

Forex traders keep trading JOURNALS.

Two entirely different things! Get it right! Geez!

Keeping a trading journal is actually a crucial task in any performance or goal-oriented endeavor. The key is to have some way to measure, track, and stay focused on improving your performance.

World-class athletes do it to keep track of what helps them to be better, faster, and stronger on the field or court. Scientists do it in the process of finding their next greatest discovery. And forex traders do it to help get them duckets!

What “getting them duckets” means in simple terms is to become disciplined, consistent, and most importantly, profitable.

A disciplined trader is a profitable trader and keeping a trading journal is the first step to building your discipline.

This might sound simple or easy but we assure you that to actually get started can be very difficult. In fact, many forex traders give up after a while and rely on the logs that the forex broker provides.

The logs or transaction history from your forex broker gives information that is, at best, marginally useful as it doesn’t tell you much of WHY you entered and exited the trade.

That information provides NO help to your next trade.

Zero. Zilch. Nein. Nada.

A forex trading journal isn’t just about writing in the prices of your entry and exit and the time you executed the trade. The trading journal is also about refining your methods and mastering your own psychology.

To be even more specific, it is about your individual emotional psychology before, during, and after the trade.

For example, your trading method says to buy USD/JPY.

But your gut feeling tells you that the trade is NOT going to work…

So you remind yourself, “I don’t think this trade is going to work. BUT I have to follow my trading plan so I’ll take it.”

During the middle of your trade, the price comes 3 pips away from your stop loss and you’re thinking, “OMG. This trade isn’t looking so good. I knew it! Why didn’t I listen to myself? I’m such an idiot! I’m about to lose here! I’ll just exit now.”

You then decide to close your trade.

A few moments later the price shoots to your original profit target. Had you stayed in the trade you would have made a gazillion pips.

This is why you should write a trading journal. This is a classic case that probably happens to too many traders.

We fail to stay in the trade, we fail to trade the plan and most importantly, we fail to distance our emotions from our trading!

If you keep trading like that and you don’t keep a trading journal, the balance on your trading account will become a big fat ZERO before you realize what you’re doing wrong. 

tracking our progress,

what do you think?  

Source by: BabyPips

Daily Life of a Trader

 

Would you agree to this?  

Source by: AdityaTrading

15 Types of Forex Traders

 

Which type are you?

Source by: Orbex

Why do candlestick patterns work? Learn to trade price action

Price action and candlesticks are a powerful trading concept and even research has confirmed that some candlestick patterns have a high predictive value and can produce positive returns. Especially interesting is a research paper by Gaginalp and Laurent in which they showed that the candlestick patterns: Three White Soldiers, Three Black Crows and Three Inside Up have a significant short-term prediction value for the course of price. ¹ Their research showed that those patterns are predictive about 75% of the time for most of their data sets.

Why do candlestick patterns work?

Traders often mistakenly believe that the patterns themselves drive the markets. The first important thing you have to know is that you can’t treat candlesticks like blueprint templates although 99% of all trading websites teach this wrong approach. Only when a trader knows how to “read candlesticks“, he will be able to understand what the patterns tell him about the underlying market dynamics and the behavior of traders.Candlesticks are no magic trading tool, they are just a way of visualizing price movements.

The trader who can follow the path of price and knows how to interpret the thought-process of other financial players can take advantage of this knowledge and use price action to his advantage.

Trading is all about mass psychology and candlesticks are a manifestation of crowd behavior.CLICK TO TWEET

Two proven candlestick patterns

As mentioned earlier, there are a few patterns which seem to have a much greater predictive power and we will now examine two of those patterns to gain a better understanding of how to read the information provided by candlesticks and price action. Afterwards, we will take a look at the most important dynamics that allow you to understand any candlestick pattern.

Three Black Crows. The Three Black Crows pattern is a powerful bearish pattern because it nicely shows the fight between bulls and bears. Each candle opens higher than the previous close, but every time bears take over and push price back down again, making a new low each time. The Three Black Crows pattern shows that, although bulls create a gap up, they don’t have the power to push price higher during active trading hours. Bears are in control. Often, the Three Black Crows pattern is followed by a strong sell-off once the bulls finally give up and stop pushing price higher.The Three White Soldiers is the opposite, bullish, version of the Three Black Crows.

Three Black Crows bearish candlestick pattern

Three Inside Up. The Three Inside Up pattern is an extended version of the well-known Inside bar pattern. The initial bearish candle is followed by a small bullish candle and the whole second candle typically falls into the range of the previous candle. The smaller second candle shows a change in sentiment: the initial bearish price move stopped and markets consolidates. If the smaller second candle has a wick sticking out, it usually is a much stronger indicator for an upcoming shift in direction. The third candle is a larger bullish candle which breaks above the high of the first candle, finally confirming the change in direction. The Three Inside Up pattern is a reversal pattern because it shows the slowly changing sentiment of market participants from bearish to bullish.

Three Inside Up reversal candlestick pattern

This is what you need to know about price action

There are many dozens of candlestick patterns out there, but we highly discourage you from trying to remember all of them – it won’t make you a better trader. Instead, learn to read price and what the way price moves tells you about what is going on in the markets. The way we explained the thought process behind the Three Black Crows and the Three Inside Up pattern should be applied to all candlestick patterns and price action. Once you understand that it’s not about identifying exact patterns, but about knowing how to read price movements, you can analyze charts in a completely new way.

There are three main components of any candlestick pattern:

1. The sizeAre candles getting larger or smaller? As seen in the example with the Three Inside Up pattern, the candles first become smaller (indicating a shift in sentiment and bears leaving the arena) and then become larger again when the bulls take over. When analyzing price action, always compare the size of the most recent candlesticks to get an idea of what is going on.

2. The wicks (shadows)

Wicks can provide a variety of different information: A wick can show the rejection of a price level like on the Pinbar pattern, but it can also show indecision in the markets like on the Doji pattern when wicks stick out to both sides and a large candle without wicks often indicates greater strength and more conviction.

3. The close

As mentioned earlier, a candle that closes near the high or low and thus does not have wicks, often shows greater strength. Analyzing the close of a candle in combination with the size can provide meaningful insights about the current strength and the balance between bulls and bears. When price is trading into important support and resistance levels, the close also be a very important tell and it can often indicate the likelihood of levels holding or breaking.

You can apply those three concepts to all other candlestick patterns out there and you’ll very quickly realize that the only thing you need to know about candlestick patterns are those three aspects. Here is what we mean by this:

Pinbars: A meaningful pinbar is usually relatively large in comparison to prior price action. The wick should be long and stick out into the opposite direction of the ongoing trend to show the shift in direction. And the close should be very near the top/bottom and only leave one wick to confirm the sentiment change into the new direction.

Doji: A doji signals indecision and, therefore, it is usually smaller than past candlesticks. A doji typically has long wicks to both sides which further illustrates the indecision and the close is very near the middle of the candle. You can see that all three clues (size, close and wicks) point to indecision.

Engulfing: The engulfing pattern shows a reversal and the clues are very obvious. The first candle is usually small and indicates a temporary pause in the ongoing trend. Then, the next candle is typically much larger and the small candle completely falls into the range of the large bar. This shows that the trend pause is over and that markets have changed their mind. The large bar usually has a very strong close near the top/bottom with very small wicks, further confirming the strong trend change (see infographic below).

As you can see, every single candlestick pattern can be dissected easily by analyzing the size, the wick and the close of the candles. Thus, you can stop remembering arbitrary patterns and focus on reading real price.

Two components of price action trading

Besides understanding what a single candlestick pattern tells you, there are two additional concepts that will help you identify high probability price action signals and avoid signals that fail more often. When trading price action, it’s important to be very selective and not jump on any one signal; blueprint-thinking and looking for fixed rules should be avoided.

1. Comparing candlesThis is often a very overlooked aspect of price action trading because most traders just look for blueprint patterns and focus on individual candlesticks. However, if you want to trade price action successfully, you have to set recent price action in relation to what has happened before. A small pinbar after a trend wave with large candles is less meaningful than a larger pinbar after a trend with small candles; an engulfing candle that just barely engulfs the previous one has less predictive power than a candle that engulfs the previous one easily. Always look at your chart as a whole to put things into the right perspective.

2. Location

The concept of location means that you only trade price action signals around high probability price levels. Instead of jumping on every price action signal you see, you can significantly increase your odds by only trading around high impact support and resistance areas or supply and demand levels. Although you need to be more patient, your trading will benefit significantly as well.

And that’s all you really need to know when it comes to understanding candlestick patterns and price action trading. Don’t make it more complicated than it has to be and focus on what is really important. Don’t forget: candlesticks are just a way to visualize price information – it’s a manifestation of crowd behavior in the markets. Candlesticks are typically not meaningful to trade them by themselves, but by combining price action with other trading concepts, you can generate a robust trading methodology.

How to read candlestick patterns?

Source by: Rolf

Rise of the Female Trader

 

any gender can trade, 

would you explore the Forex Market?

Source by: CityIndex

How The Economic Machine Works by Ray Dalio

\

its up to us to maximize this economy cycle, 

what would you do? 

IF YOU WANT A MILLION DOLLARS TRADING, DON'T FOCUS ON THE MONEY. DO THIS INSTEAD....

When people get interested in trading, there is usually only one reason behind it:money. And there is nothing wrong with it. Trading is a great opportunity to generate an income where you are not paid by the hour and you can even set up your trading in a way that it generates a more passive income stream where you make some money on the side.

This is all good and being motivated by money can be a great driver. However, this can quickly change into the contrary when a trader approaches his monetary goals from a wrong perspective. In this article we want to highlight some research findings that show that when people view money in the wrong context it can actually harm their trading and, then, we want to help you adopt a healthier relationship with it to set yourself up for success.

If you need money, you won’t get it – research confirmed

When it comes to being driven by money, there are usually two things that happen when a trader has a wrong perception:

#1 Unrealistic expectations

We are all guilty of that to some degree: when starting out as new traders, we projected that it would only take a few years to turn a few hundred or thousand Dollars into a huge pile of cash and quit our day jobs. Having unrealistic goals quickly leads to frustration when those expectations aren’t met. The quitting rate for new traders is astronomical (40% quit within 1 month) and one of the main reasons are probably wrong ideas and expectations.

Source and references here

Once a trader sees that trading isn’t going to be the easy and fast way out, there are usually three things that happen: he either quits, he takes a riskier approach to trading (larger positions, more trades, gambling mentality), or he starts system-hopping if he still believes that there must be a trading method out there that can generate those returns.

Investors with a large differential between their existing economic conditions and their aspiration levels hold riskier stocks in their portfolios. 

– Kumar: Who Gambles In The Stock Market? – Accessed through: econ.yale.edu

#2 The need to trade

High expectations, as we said, can lead to taking more trades and increasing risk to meet return goals. As we will see shortly, setting yourself goals for X amount of money is the surest way to trading failure.

Especially traders with small accounts struggle with that because they soon realize that a small account will not get them to where they want to be. Although you can read that trading a small account is no different, it’s just not true. Trading with less capital is definitely harder – much harder. With a small trading account, your wins are often close to meaningless which then creates the need to trade more and introduce more risk in your trading.

High net worth investors are likely to have lower turnover.

– Anderson, Stranaham: Account Turnover and Demographic Profiles: Which Investors Trade Too Much? – Accessed through: Bradley.edu

What not do when it comes to trading goals

When it comes to setting goals, there are a few don’ts and I will explain why you have to avoid them at all costs if you want to become a better trader.

#1 Daily/weekly return goals

I see so many traders say that they want to generate 3%, 4% or 5% per week because they have calculated that this will help them achieve their goals in a certain amount of time.

Monetary goals are the worst of all because it creates the need to trade and it puts the traders in a constant state of hunting for signals. 99% of the time, such traders will never meet their goals and they end up losing money because they take mediocre trades, hoping to realize their target.

You can’t control how much you can take out of the market. The only thing you can control is the risk of your trade and the types of trades you take. The outcome is not in your hands. Some weeks, you will get more and better trades and sometimes you just have to sit it out. You have to eliminate the need to trade as much as you can.

#2 Capturing x points per week

Go to any trading forum and you’ll see people looking for methods that give them 20 pips per day or 100 pips per week. Again, those traders tackle the problem from the wrong side and measuring performance in pips is meaningless because you neglect the risk-aspect of your trades.

Traders who set themselves points/pips related goals are more likely to close winning trades too early when they hit their goal and rob themselves from making larger gains. Or, they desperately try to ride trades too long and then end up with nothing. Always stay open-minded and take what is available.

Characteristics of good goals

When it comes to goal-setting, whether it’s trading related or in your regular life, you have to set goals that can be achieved through your own actions. Often, people set goals that they have no control over and then they are frustrated when they don’t reach them.

This becomes obvious when we come back to our two anti-examples. Setting yourself the goal of achieving a certain amount of %-return is not going to work because you have no control over it and no matter how hard you try, your actions don’t control the outcome. You can’t control if the market gives you enough signals, if the signals lead into profitable trades and how long you can ride your trades.

The graphic below compares the things that we as traders can’t control and the things we can control in our trading. At first glance it is obvious that 90% of all traders focus exclusively on the left side and they try to control the uncontrollable. They are even often completely blind to the fact that as traders we have so much things we can influence and then see themselves as victims.

By the way, there is a great non-trading related TED talk about setting goals, being your own coach and think in terms of the process: Building your inner coach by Brett Ledbetter

The right goals

Now let’s explore how goal setting is really done in trading and what you should be focusing on if you want to become a better trader. Here are 4 things that will almost guarantee trading success:

#1 Execution

This is also the so-called process-oriented mindset where you detach yourself from the outcome of a trade and only focus on making the best trades possible and follow your rules as closely as possible. It sounds cliché, but it’s the so important if you want to improve as a trader.

Even with a good system, you will often have losing trades and there is nothing wrong with that. You only have to control your reaction to those losses. Thus, you should accept that as long as you follow your rules, you have done your job as a trader and that it’s not your job to force trades into winners.

#2 Routine

Many (or most) losing traders don’t follow a routine and their trading is all over the place. A good routine will help improve your trading A LOT because it adds structure and a new level of professionalism. I love and honor my routine and it gives me structure and certainty. I know that as long as I follow my routine and do my work, I have done everything I was supposed to do.

My edge is directly related to the quality of the work I put into my trading.

#3 Habits to form a routine

This ties in with the previous point. We have all heard the quote below so many times that it has lost its meaning, but it so true. A professional trader is a structured and organized trader who has adopted good and helpful habits.

We are what we repeatedly do. Excellence, then, is not an act, but a habit. Aristotle

Here are some of my personal habits that I connect with successful trading:

• Setting a few hours aside every Sunday to recap my last trading week and create extensive trading plans for the upcoming week.
• Using a physical checklist before entering trades to make sure I avoid unnecessary mistakes.
• Journaling all my trades after I have taken them.
• Performing a detailed performance review each Saturday and going over all my past trades once again to find weaknesses and analyze trading behavior.

You can see, there is no secret or something earthshattering new here. Successful trading is the sum of repeating good habits that form your routine.

A personal tip: create an environment where you enjoy the process. Each Sunday, I start with a gym workout, I go for a swim and have a good breakfast at my favorite restaurant. Then, I head to my favorite coffee shop and do my Sunday prep for the next 4/5 hours while enjoying amazing coffee, nice company and some good music. I wouldn’t miss this routine for the world and for me this does not have anything to do with work.

#4 Recognize and focus on progress

This is especially important for new traders or people who trade with small trading accounts. It’s very easy to get demotivated and frustrated if you are not seeing the level of success you were hoping for. However, to make sure that you are growing, focus on how far you have come already. Remind yourself of where you are coming from and how you started and how much progress you have made already. It’s unrealistic to believe that you can become a professional trader within 1 or 2 years, but by making constant improvements week after week, succeeding is not an accident but it’s plannable.

“You don’t try to build a wall. You don’t set out to build a wall. You don’t say ‘I’m going to build the biggest, baddest, greatest wall that’s ever been built.’ You don’t start there. You say ‘I’m gonna lay this brick as perfectly as a brick can be laid,’ and you do that every single day, and soon you have a wall.” – Will Smith 

Interesting perspective, what do you think? 

Source By: Rolf

The Pre-Flight Forex Checklist you need before trading with Real Money

Learning to trade Forex is like re-training for a new career, because simply put, you are taking on a new profession.

Yet so many traders starting out for the first time tend to approach it like learning blackjack at the casino tables. Some traders are approaching the markets with the right attitude but just expect to become an ‘overnight expert’.

Much like starting out in a new career. You need to make preparations and build yourself up from square one before you can start trading Forex the smart way.

In this article we are going use our Forex checklist to some critical areas before jumping into the markets with your hard earned cash. There are plenty of DOs and DON’TS when it comes to managing your capital. Without proper planning/management on your part, you have failed before you even begin.

There are ways to integrate trading with your current life/financial situation. Take on trading as a profession without compromising your financial integrity. Let’s go over some points that will allow you trade without reducing the your quality of life outside of Forex.

FORMULATE A TRADING PLAN THAT SUITS YOU

Jim want’s to open a new business, but he has no idea what type business he wants to open. Jim doesn’t know what he is going to sell or what services he will offer. He just simply wants to be a business owner. Peter also wants to open a business, except Peter knows exactly what type of business he wants to run and what he is going to offer his customers. In fact Peter has pre-determined the what, how, when and whys and consolidated all the information into a business plan. Who do you think has a better chance of success here, Jim or Peter?

There is no getting away from the fact that Forex trading is a high octane, potentially stressful endeavor. There will be times that things don’t go the way you want and times when you question whether you are doing the right thing. The market can even punish you for good behavior and reward you for bad behavior, conditioning you to be a bad trader. This is called the random reinforcement principle.

That is why it is so important to have a Forex checklist and a trading plan that you are comfortable with. It’s important you create a plan that not only you understand completely, but also enjoy using. This way you will experience a much higher level of clarity with your trading and have a better chance of sticking with the plan and seeing it through to the end.

Make sure you trading plan integrates well into your normal life. If a trading system requires you to spend hours in front of the screen during London trading hours, and you’re in America where London trading hours run from 2am onwards. Throw a full time job in the mix, you’re not going to be able to see this through. This is one reason why we encourage traders to adopt end of day trading strategies so they can formulate a trading plan which marries well with a busy lifestyle.

Your trading plan should be your ‘trading bible’ which you can follow religiously. You’ll feel confident in your decisions and subsequently feel more in control than if blindly following a system you don’t fully comprehend. Consistency is key for trader’s success and following a trading plan is an excellent way to cement your obligation of consistency in the markets. Make sure your trading plan is ticked off on your Forex checklist before trading real money.

PREDETERMINE A BUDGET

Once you’re comfortable with how you are going to trade, the next step is to set out what you are going to trade. Once again, one of the most common mistakes traders makeinvesting money they can’t afford to lose. This is why a budget is second on our Forex checklist.

Don’t make Forex trading you’re primary focus of a quick fix solution to financial problems. If you’re in major debt and having trouble keeping up with payments. The Forex market is not the solution you need. You will be entering the market already in a heightened emotional state, playing around with money that’s need elsewhere.

Sit down and calculate how much money you need to survive each month. This includes food, bills like electricity, water, gas; debt repayments like your mortgage, car loans, personal loans etc. Once you’ve worked out the total of your monthly expenses, subtract that figure from your total monthly income.

Monthly Income – Monthly Expenses = Investment money

If you get a figure that’s in the negative then you’re not earning enough to cover your living expenses. This should raise some red flags. Create an action plan to fix this deficit before you even think about trading with real money. If you calculations output positive number, this figure becomes your ‘play money’.

Play money is basically money that left after everything is paid off and you can spend freely without compromising your financial situation. You should only invest play money into the markets, because in the event that you do (worst case scenario) blow your account it won’t put you or your family on the street.

I’m sure you will have heard countless times that people should only risk what they can afford to lose, but you’d be surprised how many traders bury themselves deep in debt trying to raise capital to trade with.

There is perhaps no starting point more important to remember than making certain you only invest what you can afford to lose. If you don’t stick to this you are setting yourself up to fail on two accounts. Firstly you will have already set the bar of required early success too high and secondly you will be impeding your ability to approach decisions with a clear and calculative thought process, absent from emotion.

KNOW YOUR RISK TOLERANCE

3rd on our Forex checklist is to know how much should you will be risking into each opened position?

This is where we move away from hard and fast rules, delving into opinions that fluctuate widely in the industry.

Typically accepted standards say that each trade should represent 2% of a fund’s total capital and many people stick rigidly to this. In truth though, there is no right or wrong answer and this is why it is so important to have gone through the previous stages of preparation before getting to this point.

The way to decide how much you put into each trade comes down to two things. Firstly how comfortable you feel with losing the total amount invested in one go, and secondly how confident you are in the outcome of the trade.

Put more simply, if you can’t set the trade and walk away from the computer, forgetting about the outcome until you log in again the next day. Then you are probably risking too much money.

Even career professional traders, the most successful ones at least, can turn off their computers at the end of the day, go back to their personal lives and enjoy a good night’s sleep. Set this as your benchmark for every trade. If you’re open trades are all that is on your mind through the day and are losing sleep at night over them, then you’re doing something wrong.

This is an important point on our Forex checklist. Think about every trade you take, you should already consider that money lost. If the trade comes back as a winner, that’s a bonus. Considering every trade a loser before you place it will help you determine a comfortable level of risk, decrease the chance you will emotionally intervene in the market, or let trading impact your normal life in a negative way.

FOCUS ON BECOMING AN AWESOME TRADER, NOT SOLVING YOUR FINANCIAL PROBLEMS

This might sound strange because at the end of the day, people are drawn into investment of all kind to make more money.

People don’t open savings accounts to learn about national bank base rates. But with Forex, because of the high levels of volatility in the market, having your main focus as riches could put you in harm’s way.

If you stare at the chart you will probably find literally hundreds of ‘hindsight signals’ that appear every day which represent an opportunity to profit. If you are focused on chasing the money, you are possibly going to see a lot of these as “missed opportunities” and beat yourself up over not trading them.

Instead of setting your goal as retiring early with a load of cash, try approaching your Forex trading with the intention of being good at what you do, in this case becoming a good trader.

That way you will be realigning your focus towards perfecting your ability in the markets. If you can commit yourself to becoming a good trader and be passionate about it, the money will naturally flow in. If you focus on making money, then your account will probably slowly drain out. Welcome to the irony of the Forex market.

A football enthusiast trying to make the local team isn’t as bothered about that one great goal they fluked early in their career half as much as being considered a consistently reliable part of the team. If Forex is your sport, don’t think about winning “goal of the month” in your first year of trading, set your targets at being worthy of being selected for the national side.

Those who get into Forex wanting to gain a deep understanding of how the markets work to give themselves a solid knowledge, will go far. Those who are thinking solely of the dollars open themselves up to be blinded by greed and subsequently face some difficult consequences.

WRAPPING UP THE PRE FLIGHT FOREX CHECKLIST

Forex trading’s reputation is often tarnished from the countless stories about people blowing their savings or falling into serious debt from it. It’s not an easy profession to ‘master’ and we know that a lot of traders don’t reach their end game goal of full time Forex trading. Make sure you can afford to trade and never fall into the downwards spiral of treating your activity like a night at the roulette wheel. Check every point off on our pre flight Forex checklist.

Technology and the internet these days allows anyone to become a trader with a few clicks on a mouse and the tapping in of a credit card number. So many people come to this arena with no more planning and preparation than entering lottery numbers. The result, most of the time, is that the account is blown almost as quickly as it was opened. Sound familiar? Don’t worry, you’re not the only one, we’ve all been there.

Hopeully if you’re reading this though, you have realized (like me) that the market is no place to “play around”. Approach the market with a clear mind, focused preparation and the confidence to build your knowledge and understanding.

If you’re a bit lost in the market and find yourself struggling to make sense of what appears to be a ‘chaotic’ and ‘random’ market environment, you may be interested in our war room membership.

If you have a look around this site you will find that our approach to the market is simple, logical and consistent with our price action trading methodology. Our Price Action Protocol trading course is structured so you can formulate your own price action based trading plan that you can feel confident and comfortable trading.

Whatever approach you use with the market, make sure you understand clearly what you’re doing. Check off the points on the Forex checklist and only invest ‘spare’ or ‘play’ money. Be involved with Forex only with the intentions of becoming a good trader, not a fix for financial problems.

Have fun with it guys, and cheers to your professional future trading success. 

Money Management Checklist, what do you think of this?

Source By: Dale Woods