How to Draw Market Structure with a Rules-Based Approach

How to Draw Market Structure with a Rules-Based Approach 3

It’s no secret that one of the most high-return and successful styles of trading taught for contemporary markets is the application of smart money concepts. 

This is the art of analyzing where institutions with deep pockets and massive order sizes place their trades. Then take those trades alongside them rather than against them. 

If you find yourself wanting to learn how to trade smart money concepts or if you’re already well on the path to profiting through this effective approach, then it’s likely you’ve learned a thing or two about market structure. 

Accurately drawing market structure is the most important step to successfully applying smart money concepts and it’s also one of the hardest to master. 

This article will help you understand what market structure is, how to draw it, some of the common mistakes you should avoid when drawing market structure, and a step-by-step approach to easily draw market structure in an objective (rather than subjective) way. I’m going to teach you the mechanical process I use to draw market structure for my own trading and help you clearly understand how to do so for yourself. Let’s begin!

What Is Market Structure?

To recap, market structure is the underlying trend and direction of price movement. 

When looking at price over time as it’s drawn visually, an uptrend is considered a series of higher highs and higher lows. 

profit market struc ture smart money concepts

A downtrend, conversely, is a series of lower lows and lower highs. 

market structure downtrend dfx

When a market is in a trend, it’s assumed price will continue to go the same way until a previous retracement is broken. 

continuation of trend break of structure smart money concepts

So with the example of an uptrend, if price were to come back and break through the previous higher low, then this trend is considered broken and price will likely begin a downtrend or oscillate in a ranging market from that point. 

When market  structure is accurately drawn, it’s possible to make profit by entering on pullbacks and exiting with the next wave in direction of the trend, like so.

trading smart money concepts market structure

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Common Mistakes When Drawing Market Structure

This model of market direction is easy to understand and makes complete sense when describing price action by drawing these clean arrows. It may also appear logical when drawing market structure on past data in hindsight. But when we look to live charts, it can be much more complicated to determine where market structure is continuing or breaking. 

Many traders subjectively draw market structure as they see fit. Often, traders will draw a pullback or breakout with nearly every change of candle color. 

trading market structure smart money concepts

Here’s a common example of how a trader might subjectively draw market structure on a live chart. If we fast-forward a bit, we can see how this trend looks like it’s broken. 

how to draw market structure smart money concepts

If you’re trading smart money concepts, then this may seem like a good area to start shorting against the trend, by placing a trade like so.

how to draw market structure smart money concepts

However, if we fast forward a second time, we can see that the market is actually still in an uptrend! 

how to draw market structure smart money concepts

How to Draw Market Structure

So how can we possibly know when a pullback is over or where to accurately draw the pullback wave?

The key is to focus on pullbacks that have enough evidence or “weight” to be considered a valid pullback and to focus on continuation of structure (AKA “break outs”) that have enough price power behind them to be deemed valid.

With a handful of rules that follow these underlying principles, the above example would have a more accurate market structure that looks like this:

how to draw market structure smart money concepts

See how much cleaner this market structure looks? 

And you would have profited with a trade that focused on entering with the trend, like so:

profit market struc ture smart money concepts

The way I learned how to draw market structure with greater precision involves simple rules for designating valid pullback waves and valid breakout movements.

For the purpose of this article, I’m going to focus on teaching you how to draw market structure, so if you’d like to learn more about how to trade off of market structure levels for high-probability profit, then I invite you to join and learn how to do so in the Disciplined FX Scalping Course.

Draw Market Structure According to a Rules-Based Model

Here’s how to draw market structure in a nutshell:

  1. Draw valid pullbacks

  2. Draw valid breakouts

Let’s go over the rules for each one. I’m going to teach you by using an uptrend as our example, but you can apply the same rules to a downtrend, just inverted. 

To draw a valid pullback, we want to focus on areas that will most likely have a lot of big orders where institutions are accumulating entries into the market.

Remember, when big money comes into the market, it leaves a footprint. When orders cost millions of dollars, they’re not taken with one singular order (otherwise the market would move too much from the displacement!). 

Instead, big money needs to enter gradually, over a series of many smaller orders. This also will show some push and pull even done on a smaller scale.

Thus, one little pullback candle isn’t likely a sign of big money entering the market. So too, a tight ranging area might not be the right place.

We want to see the markets pullback from the recent high with a bit of conviction.

One way we can make a rule for this is to consider pullbacks that are at least two candles closed opposite the trend, the second further from the first.

This is an example of a valid pullback. 

Draw Market Structure According to a Rules-Based Model

These are not valid pullbacks.

how to draw market structure smart money concepts

We also want to make sure that the second pullback candle closes outside of a range. So if the first candle makes a pinbar, then the candle that follows need to be sure to close outside of that candles low. The low of the second candle isn’t the signal, it must be the close. So these series of lows don’t count.

From our example chart, here is a valid pullback. The boxed area is an invalid pullback because there isn’t another candle that closes below the first pullback candle.

how to draw market structure smart money concepts

Now for the rules of a valid breakout. 

With a breakout, we want to be sure that the market intends on moving higher and isn’t just making a fake breakout to trick traders into buying. 

Therefore, we want to see at least two candles close outside of the previous high. 

Here’s an example:

Draw Market Structure According to a Rules-Based Model

It doesn’t count if the second candle opens above the previous high but closes back below that previous high price. Also, the highs of candles that don’t close above the breakout area now create a range from which we want to see a break out of. Even if we see one candle validly break out of the previous high, the next valid breakout candle must close beyond these candle highs.

how to draw market structure smart money concepts

Here’s a valid breakout from our example trade. In the box is an example of a fake breakout.

how to draw market structure valid breakout

So using these two sets of rules for valid pullbacks and valid breakouts, you can now see how we can avoid a lot of noise on the charts and focus on the strongest areas of underlying market structure. 

This model helps us drastically simplify chart analysis and allows us to focus on areas where price will most likely react.

It’s important to note that this model is not perfect.

It just gives us a “probabilistic” edge. Sometimes the market is more volatile than other times. Higher time frames may respect these rules better than lower ones.

These rules, however, allow us to focus on best-case areas and to simplify a typically subjective and haphazardous analytical process.

Try it out for yourself! Backtest on your own charts and see if this rules-based approach to drawing market structure helps you better understand the underlying trends on the charts.

As always, I wish you nothing but the best of strength and luck in your trading!

Making the Switch: From the 15m to Daily Time Frames

Making the Switch: From the 15m to Daily Time Frames 90

Last month, I failed my Funded Trading Plus challenge. This was due to making too many changes during the challenge (such as no longer being able to get up at 5am to trade the NY session and attempting to scalp trending strategies off of Asia instead) and also fumbling over my own discipline (pulling winning trades too early and taking trades that didn’t fully match my rules). 

It was time to take a step back and evaluate what was going on.

Since I first started learning how to trade stocks and onwards with learning to trade Forex, I’ve always sought out scalping strategies. I liked the focus that came with partitioning a set amount of time each day to watch the markets and know that my account was cleared and safe at the beginning and end of the session. It was tough to learn to scalp from the outset, as many professional traders will tell you, yet in time, I was able to make a profit. 

That is, until the last few months. 

I’m a big believer that your psychology and discipline are the most important edge in your trading success. And while most traders seek out a holy grail strategy and will spend endless hours researching ways to optimize their trading rules and analysis (to be fair, there’s merit in having a strategy that works), ultimately it will be your ability to make calm, responsible decisions that will determine your success or failure in the markets. 

So once you have a halfway decent strategy, the leg work that will improve your trading isn’t necessarily watching more YouTube videos on technical analysis. Instead, spending time strengthening your relationship with your emotions, taking care of your mind and body, and ensuring that your trading regiment is sustainable with your lifestyle will play a greater role in helping you rise in the ranks from beginner to intermediate-level trader.

Over the last few months, I fell out of sync with my trading regiment. 

Suffering from insomnia for many years, I was running into issues with waking up late in the middle of the night, or not being able to fall asleep until the next day. I started missing my 5:00am NY trading sessions or would wake up foggy and exhausted just to make mindless mistakes, like trading in the wrong direction or miscalculating position sizes. These may seem like silly mistakes, but their costs are severe when they add up over a consistent basis.

Even worse, when one doesn’t sleep well, it’s far more difficult to stay disciplined. Consider how often you’ve made naughty food choices when you didn’t sleep well the night before. The same thing can happen when facing your trading rules. 

I was forcing my lifestyle to my trading routine. 

To do so, I was muddling with my health and my ability to get enough hours of sleep at night.

This impacted other areas of my life as well, as I had to take naps in the afternoon and miss work sessions or class in order to get enough rest.

I forced my lifestyle to accommodate my trading under the assumption that I only knew how to scalp the markets and that New York was the only session that would fit my approach.

This is a big mistake.

You should never have to bend over backward to make trading work for you. 

Remember, this is more of a psychological game than a tactical one. 

Your trading style needs to fit your lifestyle, not the other way around.

Doing otherwise can lead to built-up stress, and other areas of your life going unnurtured, which come back full circle to compromise your ability to make calm, rational choices with your trading account.

Like a pro athlete taking every chance possible to ensure optimal recovery, your trading routine, and your lifestyle need to synergistically work together. If one becomes suboptimal, the other will soon follow. 

So this is all to say that after losing my Funded Trading Plus challenge, I realized it was time to make a change. My trading approach did not work with my life.

Thus, taking a hard look at my geographical location, my health symptoms, my inconsistency with following scalping rules under stress and lack of sleep, I decided that it was time to shift my trading style.

It was time for me to move to higher time frames and find a time of day to trade that wouldn’t impact my sleep.

What I’m Leaving Behind: Scalping

Even though it’s commonly encouraged for beginners to avoid scalping and start with longer-term time frames, I believe there were a few benefits to taking the contrary route. 

  • Lower time frames don’t require an understanding of fundamental analysis – learning how markets move and the kinds of data that impacts them is a heady task. Being able to focus on technical analysis helps prevent information overload when first starting out
  • Scalping requires you to create a trading routine – You need to show up every day to evaluate setups. This helps you create a trading routine that comes with quick feedback. If you are organized about scalping, you should be getting into the habit of writing up a trading journal nearly every day. This immediate data and practice is useful and will help you grow more quickly as you reflect on the role your emotions play in your trading.
  • You can get plenty of practice in a short amount of time. Each session is an opportunity to work on your discipline.
  • You can focus on the movement of the charts during the session. You’ll get more exposure in a shorter amount of time compared to waiting another day to evaluate the next candle. 

While the chances of failure during your first and probably second years of scalping are nearly 100% (Sorry, I just want to be honest with you!), the experience you gain is priceless. 

I believe you learn far more from your trading mistakes than you do your successes. Sure, you will need to invest in trading income as partitioned between different trading courses, mentors, or other learning resources, but another form of tuition is paid through your losses as you gain experience. 

This type of trading tuition is mandatory, there is no avoiding it.

Even if you demo trade (which is highly encouraged!), you will still need to learn how to manage your decisions and emotions when your own money is on the line. Demo trading helps minimize the costs, but it cannot teach you the lesson that comes with feeling the pain of irresponsible losses.

So instead of trying to avoid the storm, sometimes I think it’s appropriate to head right into it and prepare yourself to focus on learning from the experience. Just be sure to do enough prep to avoid killing your account over it.

In this way, I have no regrets about learning how to scalp the markets first. It eventually helped me pass time-sensitive prop firm challenges and make money. The strategies I developed from learning to scalp have made money for my students, as well (many of which are lucky enough to live somewhere that allows them to do so at a preferable time!)

I believe scalping can be a worthwhile, although tricky endeavor. Nonetheless, at this time such a style is no longer appropriate for my lifestyle and trading goals. 

What I’m Moving Towards: Day/Swing Trading the Daily Charts

During the last couple of weeks, I’ve started researching different ways to trade the Daily chart. I’ve bought a couple of courses that focus on using the higher time frames to minimize the time spent in front of the charts while focusing on high probability setups. 

I decided that a 4H or daily chart would be my best option because the NY markets close at 2:00pm PST, in my location. I use charts that follow the NY close on the daily chart, which lets me use the most recently closed candle in my analysis.

This is an optimal time for me to trade because no matter how late I get to bed or how late I sleep in, I’m almost always awake at 2:00pm. 

Another benefit of moving to a daily chart is that there is no rush to take a trade. I have enough time to evaluate the technicals, look at the fundamentals, and pinpoint whether I want to set a limit order or act on the recently closed candle. This dramatically lowers the stress that comes with risking money on a trade. 

I also suffer from pretty severe brain fog, with my thoughts stopping and starting like an Autopia car at Disneyland. When using the daily charts, I can type out my trading ideas and better organize my thoughts about my strategy before taking the trade.

But most importantly, this approach drastically reduces my time in front of the charts. I was in the routine of spending upwards of 3.5 to 4 hours a day with scalping. 

I think it’s pretty common for traders at the 3+ year level to seek to spend less time trading. Trading can be exhausting when done too often and it can feel boring when done right. Taking on longer-term charts usually means less time in front of the screens. This means you can have more time to focus on more important areas in your life and reduce the pressure to act quickly.

Now that I’m focusing on daily candles, I can analyze and set (and forget) multiple trades in under an hour. This is huge – so much time is freed up to better take care of myself and meet the demands of all my other responsibilities. 

My initial impression?

I wish I made the shift sooner! This feels so much more appropriate for my health and living situation than waking up before the sun and grinding out quick trades. 

For a long time I believed the only way to pass a challenge would be through scalping or watching the charts all day. I thought it would be a waste of my experience (and a hit to my profitability) to attempt to learn a whole new approach. 

So too, I was afraid of using discretionary analysis. I didn’t trust myself to learn how to use multiple analysis tools to decide on an optimal setup. I feared that many tools, like trendlines and candlestick patterns can lean subjective. There are so many options that I didn’t know what to choose. I thought I had to be available for every movement. I thought the daily charts only held opportunities for long-term swing trades – some that wouldn’t complete in time for, say, a prop firm challenge or monthly account withdrawal.

Long-time trading professional and educator, Dr. Van Thorpe, always says, “You don’t trade the markets. You trade YOUR BELIEFS about the markets.”

My own beliefs about what I was capable of and what was possible held me back from trying an approach that is utilized by professional traders and investment firms.

And my first week of putting money on the line with a daily chart strategy resulted in a 1.3% profit! Not bad after nearly five weeks of continuous losses!

daily chart strategy

If only I could have let go of my fears and trusted the process, accepted that my condition and my lifestyle may not be appropriate for scalping, I may have been able to better prepare myself BEFORE taking my Funded Trading Plus challenge.

However, there’s always another trade – as long as I continue to succeed in my demo trading and small account trading with the Daily charts, I can attempt this challenge again in the coming months. 

I share this all with you to remind you that you have options. If you are continuing to face drawdowns each month, perhaps it’s time to evaluate your situation and determine whether you’re trading with a style that fits snuggly in your life and accommodates your trading experience. Whether that means going up or down a couple of time frames, or moving away or towards discretionary strategies, sometimes making a big shift is the answer. 

No one is going to be able to tell you what works best for you. You’ll have to learn what approaches are profitable and select those that match your personality and availability. Luckily, there are multiple roads to Rome – many strategies and styles of trading will get you to your profit goals. Keep your mind open and always stay reflective!

How to Create a Trading Plan: The Definitive Guide

How to Create a Trading Plan: The Definitive Guide 18

Here’s a fun fact:

Do you know what people do when they’re blindfolded and told to walk 20ft in front of them?

This is an experiment done across many different landscapes and timezones, yet the results are always the same.

If you were to blindfold a group of people in an open space and then tell them to walk across to the other side of the field, they’ll start walking in circles.

It turns out, that humans need some kind of horizontal plane of reference, be it the horizon or buildings, to help guide a path forward.

Otherwise, the brain can’t fixate on a direct path.

You need to be able to see where you’re going.

So when you’re seeking to build skills as a trader to achieve consistent profit, having a destination in sight helps you get there.

Maybe you’re familiar with the symptoms of not trading with a plan:

  • you circle back to the same failed strategies or psychology time and again,
  • you do extra work finding new strategies or ways to become a better trader,
  • you change your mind about what you want or how you want to trade,
  • and overall, just second-guess yourself as a trader.

As the saying goes, if you fail to plan, you plan to fail.

Walking in circles isn’t just a metaphor, there are so many ways in which our brains use logic from the physical world to influence our inner world and the ways we think. So in order to guide your path to profitability, you’re going to need to develop a trading plan.

Whether you write a plan for each of your strategies you perform or a plan for each phase of a prop trading challenge, the beginning of every trading pursuit or goal you aim for needs to have a trading plan.

Yes, I’m implying a written document, not just an idea in your head.

While a goal may name the destination, your trading plan is supposed to show you some of the milestones along the way by listing what you should and shouldn’t do during each session, as well as what you plan on doing if you face unexpected challenges or lucrative opportunities.

In the world of trading where there’s so much movement and so many different assets changing direction all at once, you need to narrow in and define for yourself what you’re going to focus on.

You can’t trade everything you see in the market and make up a plan on the spot.

You need to create rules for yourself.

In this way, you are responsible for defining what you do and don’t trade and how you go about doing so. In this tutorial we’re going to go over what you need to include in your ideal trading plan. I’m going to show you a trading plan I’m making for the Funded trading Plus challenge, and we’ll go over different things you can include to adapt it for different trading goals.

The Components of Your Trading Plan:

  1. Goal
  2. Your Motivation/Why
  3. Strategy
  4. Risk Management
  5. Contingencies
  6. Log (Optional)
  7. Other Components

What to Include in Your Trading Plan:

1. Title

This may or may not seem obvious, but be sure to give your plan a title that makes sense for the role this plan will play in your greater trading career.

You will likely have a few different trading plans over time, so it helps to name them in a way that keeps things organized.

For example, if you are making a plan for a prop firm challenge, like the FTMO challenge, you can title it “FTMO $100K Challenge 2022”. Or if you name your plans for different strategy systems, you can title it according to the name of your strategy.

How to create a trading plan2. Goal

Next, your trading plan should immediately tell you what the purpose of the plan is, that is, what your goal is for trading this system.

Be descriptive, here.

Some examples:

  • Return on average 2-5% per month for 2022
  • Have 3 consistently profitable months in a row
  • Follow 100% of my trading strategy checklist rules for 21 days straight
  • Grow my account by 20% this year
  • Build my account to $50k within 5 months
  • Pass the FTMO challenge within 30 days by returning 10% of $100k

Notice how some of these goals have clear time-based or performance-based outcomes? Such targets are easier to track – you’ll know whether or not you’ve profited +2% in your account this month by looking at your brokerage statement. You want to be able to clearly say whether you’ve achieved your goal or not.

The reason for putting down clear numbers in your goals is not to constrict you, but to help you decide how you’ll design your trading strategy and risk management plan, especially the latter.

You can adjust these numbers as you go, but by having a target you can track how well other components of your trading plan help you meet your goals or not.

3. Your Motivation/Why

ALERT!

This is possibly the secret key to ensuring that you will actually follow through with your trading plan.

Anyone can write a plan and make it look like a good idea.

This isn’t only true for trading, but other big behavior-changing goals, as well. Think about fitness.

Here’s a simple fitness and nutrition plan:

  • Lift 3x/week
  • Jog 3x/week
  • Yoga on rest day
  • Go on an evening walk every day
  • Stick to a whole food plant-based diet, no sugar or processed foods

Seems simple, yes?

But performing this every week is the hard part.

The plan is effective. You will definitely morph your body into a healthier version of yourself by following these simple rules, but you will only achieve that outcome if you put the plan into practice regularly without fail.

Fitness coaches will often say that you need a really good “why” to help you sustain motivation while you’re still changing your habits and gaining momentum. Sometimes wanting to look good isn’t enough when you’re 5 seconds away from eating a chicken waffle slathered in high-fructose corn syrup after a long and tiring day of work as you pass an old favorite restaurant.

Better health and fitness reasons that will make you second guess short-term pleasure in order to achieve long-term freedom:

  • I want to be able to be there for my kids when they’re in college and stop feeling so winded every time I play with them
  • I want to see my abs for the first time in my life so that I can prove to myself that I have control over my body and my energy levels
  • I want to end this illness and see if I can use a safer and more effective approach in place of expensive drugs so I can live a vibrant life again

The pain of the greater loss needs to outweigh the pain or inconvenience in the moment.

Your trading plan is similar and your mindset as you execute the plan is likely going to have a greater effect on your results than the system rules.

I am diving deep on this topic for this guide because I want to emphasize how important it is to have a CLEARLY DEFINED MOTIVATION for pursuing profit from trading.

Your reason for choosing this highly risky, long path to becoming financially free as a trader needs to be so moving that it can make you second-guess acting out a trading mistake as you’re thinking about doing it.

Wanting to earn something like $5k per month won’t cut it.

Money, itself, usually isn’t the reason people want it.

Instead, it’s the options that money gives to life that make it so useful.

What can trading success help you feel or experience in your life?

Is it to be the first person in your family who isn’t indentured to debt? To afford a life-changing opportunity, like a professional degree? Is it to quit your job that makes you feel like you’re wasting away your life?

Make your motivation crystal clear. Make it emotional because it will be the emotion-evoking moments in your trading that will make or break your success – you need to be able to speak to your emotions in the language of emotion.

“Yes, I know I really don’t want to take a loss on this trade today, but I can’t let myself chance a bigger loss – I need to trade skillfully, otherwise I’m never going to get out of debt. Following my trading rules is key and right now they’re telling me to take this loss.”

I want you to begin thinking like that for every single move you make in your trading.

Your reason to trudge the path will help you prevail and learn from your mistakes. Give this one time and thought.

4. Overview of Your System: Your Trading Strategy

Usually, most traders focus all of their attention on this section.

That’s fair, you need a strategy that’s profitable for your trading goals, whether that means greater profit in the short-term or long-term.

However, I recommend keeping this as simple as possible. Your risk management and psychology will have the greatest effect on your ability to profit, overall, and other parts of this plan help you mitigate when those areas face problems.

For your strategy, be sure to include the main rules and principles that your strategy utilizes.

Your rules should define, clearly, what you do or do not trade.

For many traders, this could mean listing a specific set of candlestick patterns you trade, the main mechanics of an indicator setup for entry, etc.

Your trading principle should tell you what high probability situation you seek to use with your strategy.

Some common ones include:

  • Trend trading major/minor pairs
  • Trading a NY reversal
  • Trading London breakouts
  • Scalping News
  • Trading smart money liquidity setups

Again, like your trading goal, you should be able to simply and clearly understand the basis of why your strategy should work and how its rules were chosen to take advantage of the situation.

I think this is important to include, because you may find over time that your strategy rules don’t actually fit its principles. When you discover this, you can decide how you can change your rules or change your principle in order to ensure you’re only trading high probability setups.

Be sure to also include important technicalities regarding your strategy, such as:

  • The sessions you trade and the time you trade
  • What pairs or instrument classes you trade
  • The mechanics of your entry and exit plans
  • Your expected R:R and even expected win rate

 

5. System Cont.: Your Risk Management Plan

While most traders spend a ton of time fine-tuning and working through a trading strategy, seasoned pros know that the most important aspect of your trading plan is actually your risk management plan, which includes the ways in which you handle emotionally-charged trading situations.

So if you’re feeling like you’re running around in circles way too often, it’s probably because you’re spending too much time focusing on your strategy.

Stop that.

Instead, put your time and energy into learning about risk management, discipline building, and developing the ability to understand your own emotions and make systems to address them as they come up.

For your risk management plan, you’re going to want to include these key trade-related measurements and tactics:

  • How much of your account you’ll risk per trade
  • The maximum number of trades you’ll take each day
  • The maximum amount you can lose per day
  • The maximum drawdown you’ll let yourself experience with your account/prop challenge

To make your risk management strategy effective, these outcomes you’ve listed from above need to come with consequences. You need a plan for how you’ll address each situation and set yourself up to learn as much as you can from losses. You’ll also want to include in your risk management plan:

  • What happens when you exceed your risk per trade
  • What happens when you hit your max. # of trades per day
  • What happens when you hit your max. loss per day
  • What happens when you hit your drawdown

You’ll also want to add:

  • What happens when you break your trading rules

Your strategy and gameplan for what you do when you’re in a loss or breaking rules needs to cover two things:

  1. You need to create space between yourself and the trading desk
  2. You need to replace bad behavior with good behavior

Some ways to do this include:

  • No longer trading for the session, day, week, month, etc. – that is, take a break from trading because either the market doesn’t currently work with your strategy or you can no longer trade your strategy without breaking rules
  • Take time to review what happened – going over your trading journals, your account equity over a period of time, etc.
  • Learn from experienced traders how to manage drawdowns or improve trading behaviors/psychology – do some research
  • Make a plan to implement any tactics or behaviors for better trading performance that you learn from your research
  • Put the plan into action – schedule your tactics/habits, get someone to help hold you accountable, etc.

Make sure you write out a plan that works for you.

Think of this as a flow chart:

  • If X, then Y
  • If I break my rules during my trading session, then I stop trading for the entire day. If I break my rules more than two sessions in a row, then I stop trading for the entire week.

By having a “Worst Case Scenario” plan, you don’t have to rely on yourself to make a decision about your trading in the moment. You won’t likely be in the best mindset during a drawdown or some serious rule-breaking, so it’s better to make these plans while you’re feeling confident and in control.

6.  Contingency Plan

A trading contingency plan focuses on what you’ll need to do when things not necessarily related to trading go wrong, yet will still have an effect on your ability to trade with a sound mind.

In the contingency plan I created, I include a list of reasons for not trading, or at least reducing the frequency you trade or risk you take. These are contingent upon 3 key areas:

  1. Psychology – this would include any emotional states that affect your ability to make sound technical analysis or risk decisions. I would include here depression, grief, anger, stress, etc. Your worst trading mistakes arise from similar states of mind (anger can lead to revenge trading, depression can cause taking greater risks or avoiding setups because it doesn’t feel like trading matters anymore – it’s better to stay out during these transient times)
  2. Life – I included this category to cover any life events that can take away from your availability to trade – this can be weddings, funerals, change of jobs, moving to a new city, etc. It’s up to you to decide how emotional/physically you’ll be available and you can decide whether you want to reduce your risk, reduce your frequency of trading, or just stay out of the markets altogether until you’re situated again
  3. Personal – This last section is more of a grabbag for anything that doesn’t fit the others and may be individual to your personal life – for example, I’m currently pursuing a PhD in Business and will either stop trading or show up only for red news event days when I’m in finals for my courses.

Technical Troubleshooting

You also need to include contingency plans for what you’ll do when your tech breaks, the internet goes out, or any other trading resource is unavailable to use.

I promise you, if you’re in this for the long haul, you’re going to run into your internet going out or your computer/laptop/mouse/platform glitching or breaking on you while you trade.

The best plan is to always have a backup or figure out a place you can go to in order to set yourself up to trade for the rest of the session.

7. Optional: Log

Lastly, I included a log, but I don’t recommend using this unless you’re trading for a prop trading challenge or some other relatively short-term goal. An excel spreadsheet or software trading journal is a better tool for tracking your trades over the long run.

When you’re evaluating your trades during a challenge, it’s helpful to have your rules and strategy all in one place. By keeping a log of your trading outcomes on the same sheet as your plan, you’ll have an easier time deciding on how your plan is performing and whether you need to make any important changes.

8. Other Optional Components

The above categories and parameters will cover the majority of what you’ll need to plan when you’re setting yourself up for success while trading. However, there are a few other components you could  include if they are relevant to your situation. Feel free to also add others that you believe will help you.

The goal in creating this plan is to put everything you need to know to do while you trade, written down in one place.

Some additional things to include:

  • How you’ll break down your risk plan across multiple accounts
  • Equity chart as you track weekly or monthly balances over time
  • List of brokerages and which strategies you trade on each one
  • Worst/Good/Best targets for your performance goals
  • A “Retry” plan for when you should consider aiming for a retry for a prop trading challenge instead of completing the goal

I hope this article helps you organize your thinking and planning as you put together a working system for your success in the markets.

Your plan will likely shift, change, and evolve over time.

Instead of seeking to create the perfect plan, get yourself comfortable and familiar with the art of planning and gathering feedback from reviewing your plans regularly. This habit will accelerate your path to profit.

As always, I wish you nothing but the best of strength and luck with your trading!

7 Things Every Trader Should Do

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Before I dive into the details of this post, I just want to say a very big heartfelt shout out to all Ukrainians around the world – I am so sorry and in so much pain as I see all the suffering, war, and destruction that’s happening in Ukraine right now. This is an unethical move on Putin’s part and I genuinely hope that this war ends soon and that Ukraine can recover and repair the damage.

These are difficult times right now – all around the world, inflation is pretty bad.

Here, in California, gas is just about six dollars a gallon.

Like any market, global economies go through ebbs and flows as they play out boom and bust cycles. Hopefully, we are still in an uptrend overall and in time the world will repair and grow again.

Amidst this volatility, you may be learning how to trade right now – and wanting so badly to get into profitability, or at least make sense of the market.

Or perhaps you’re three years in and you’re in a fumble and you don’t really know what to do as markets are changing. Just when you think you may be gravitating towards clarity, suddenly volatility is all over the place and you’re just kind of stuck in information anxiety.

To help abate some of that anxiety, and clear away the confusion, I want to help you regroup and be able to center in on 7 things you can focus on doing in order to become a profitable trader.

Now, I didn’t just pull these out of thin air. I actually derived these 7 ideas from Alexander Elder’s “The New Trading For a Living”. This is one of the first books I ever read on trading and I continuously go over and over again as I try to remind myself what do I need to be focusing on as I continue to grow as a trader.

<<This is also one of a number of books I personally recommend and have listed in a free guide that I’ve compiled just for you>>

You’re going to find that there aren’t only just trading books on that list but some other personal development and money management books as well. At the end of this article, I’ll touch on why I’ve included those other books.

So let’s dive in and go over 7 things every trader should be doing as they not only learn about markets but also grow into different levels of expertise.

In my notes, I call this list the “Seven Words of Fatherly Advice” from the trading father himself.

7 Things Every Trader Should Be Doing

1) Decide That You’re in This For the Long-Haul

Elder’s first suggestion is to decide that you’re in this for the long haul – for you, trading isn’t some dabbling activity. It’s not like when you go out and you just want to try quizzo for the first time and you know you can have fun with a one-off…no! You’re in this like you’re going to become the next star on Jeopardy.

You want to get into trading with a level of commitment where you know and anticipate that you will still be trading 20 years from now.

The kinds of things you’ll commit to doing in order to gain knowledge and endure the ups and downs that come with the experience will look different when you assume you’ll be in this for a long time versus just browsing with no true commitment.

2) Learn as Much as You Can

The second suggestion is to learn as much as you can, especially in the early stages. It’s really important to get a nice range of information from different sources – you don’t want to just follow one trader. Instead, you’ll probably look up a number of traders on youtube or you’ll probably read a couple of different books.

At the get-go, you want to be expansive and get a little taste of everything you can find in order to collect and later reflect on what to do with this information.

You’ll learn about day trading and scalping and swing trading…and then maybe after watching different videos or trying out different trading styles on your own, you’ll eventually decide on becoming a scalper or a swing trader. But at first, it’s a good idea to learn as much as you can.

The caveat that Elder gives (and that I think is the utmost of importance, too) is that it’s important to keep a healthy level of skepticism.

You can’t necessarily believe in everything you read or see, especially on youtube or other forms of social media.

It’s going to be up to you to filter this information through your own analysis and decide what might be useful what might be unfounded.

Following a bruce lee quote: Take what is useful, discard the rest, and basically come up with something of your own understanding.

3) Don’t Rush the Process

Elder’s third word of advice is to not rush this process. Don’t be greedy – don’t assume you’ll make money during the first couple of months.

You want to take this process slowly, especially if you’re in your first year, don’t start making any plans about quitting your day job.

Assume a slow learning process. Some people will compare day trading to getting a master’s degree – it can take a couple of years. You could try to get all your credits sooner but you tend to frustrate and overwhelm yourself in the process and maybe not do as well in certain courses as if you were to take the process slowly and maybe spend three years on a master’s degree instead of trying to do an accelerated one year.

So using that as an analogy for going into your first year of trading, don’t assume you’ll even make anything at the end of the year.

There’s common project management advice that says however much time you think it will take for you to complete a project, add in at least 30 percent more of a time buffer.

-Because things come up, mistakes happen, and you might not have all the information you need at the get-go.

You’re not a bad trader if you don’t make money your first year and you’re not even a bad trader if you don’t make money your second year.

It can take a lot of time to learn the skills you’re going to need to espouse in order to do well in the markets.7 things every trader should do

4) Be Able to Use Several Analytical Methods to Confirm Trades

Fourth, we’re getting more into the nuts and bolts, here. You’re going to want to have a way of analyzing the market. This is the aspect that most people pay attention to, as this involves having a strategy and being able to conduct technical or fundamental analysis.

Elder goes on to add that you need to be able to use several analytical methods to confirm trades. He also recommends that you should test everything on historical data and be able to move with markets and know how to approach a bear market versus a bull market. Overall, anticipate that you’re going to need a variety of approaches for different market conditions and it may take some time to learn this, as well.

5) Develop a Money Management Plan

Fifth- and this is huge- Elder recommends that you develop a money management plan. He explains that there should be three main goals with profiting in the markets and they’re ordered in level of importance:

A. Have a long-term plan

B. Aim for steady growth

C. Have high returns

That’s the order you should approach this. For your first couple of years of trading, you are probably just going to focus on making sure you can stay consistently profitable over the year even if you’re not returning a lot.

As you grow as a trader, then you can start looking to hit regular targets for steady growth. This could be profiting every month or every quarter, depending on your style of trading.

Your third goal is to eventually hit a high-profit level.  You’ll see this more in experienced traders, maybe going to the fifth sixth year and beyond, where you have a foundation, you’re solid in your discipline, and now you’re looking to increase the amount of profit you make each month. Of course, Elder goes into this more deeply in his book and I do recommend that you check it out to learn more about money management.

6) Remember That the Trader is Always the Weakest Link in a Trading System

I almost want to write it down as a note and put it on my computer to remind myself. He says that it’s important to remember that the trader is always the weakest link in a trading system – not the strategy, not the risk management plan, but the trader. Obviously, the trader is the person who decides the risk management strategy and which strategy to use or whether to enter in impulsive trades or not, because the trader is in command.

Given this information, it is crucial to understand your own weaknesses as you trade and this is something that I don’t think anyone’s going to be able to tell you.

You’re going to have to observe it within yourself.

Elder adds that you need to have a way to examine yourself and be able to cut and end those impulsive trades.

That’s gonna have a lot to do with psychology – you can learn a little bit about this by talking to other traders or learning from the mistakes of other traders, but the most important tool you’ll ever have to understand your psychology and gain control over yourself as a trader is to conduct a trading journal.

Keep track of what you’re thinking and doing as you perform in each trading session and review those entries regularly.

7) Winners Think Differently From Losers

It may be hard to conceptualize now, but how you think in this moment in your current trading sessions will look vastly different from how your mindset will work and the way your thought process will unravel as you’re trading in the future.

Elder specifically writes that you are going to need to change and develop your personality.

This is huge!

This is implying that what it takes to grow as a trader is going to involve work that expands beyond what you think about when you think about trading.

You’re going to have to develop your personal self – you’re going to have to grow into emotional maturity in order to reach that high-level success you’re aiming for.

This is why in the resource guide I list a number of personal development books that have made a huge impact on my life and my own trading, which may make a big impact on yours, as well.

7 things every trader should doOther actions, like going to therapy or maybe getting on medication if you’re struggling with a mental health illness, are also crucial tools you can use to develop yourself as a trader.

Remember that who you are now and who you will be when you are a profitable professional trader are two different human beings and there will need to be growth and some steps taken to get to that place.

It’s not going to happen overnight, so it is very much in your interest to get into the field of personal development if you want to grow as a trader. I often recommend books for this research because there’s no better way to start thinking like someone else than to hear their thoughts and their words inside your own head.

—

So these are just seven of the most foundational steps you can take to continue on your journey as a trader. There are others out there, but I think this is a very concise list if you’re ever feeling lost and you just want to regroup. I think you could use these seven reminders almost as a checklist to ensure you’re doing the things you need to do in order to profit as a trader.

I hope everyone stays strong and be prepared to deal with a continuation of this volatility in the coming weeks.  I wish you nothing but the best of strength and luck in the markets – take care!

Mechanical or Discretionary Strategies – Which is Better?

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Lately, I’ve been spending some time learning about the Wyckoff method and “Smart Money” concepts, both of which are discretionary approaches – I firmly believe that it’s always important to grow as a trader and do what you can to become more comfortable and aware of how the markets work, and while these two approaches are by no means easy to understand in-depth, they are incredibly efficient for producing phenomenal returns.

I think of myself as an intermediate trader – not quite a professional, but definitely not a noob. I started out with learning a grabbag of trading approaches – breakout candle structures, triangles, Fibonacci retracements, and ultimately landed on mechanical strategies using indicators as the way to defy the gravity of trading mistakes and finally get into profitability.

Discretionary tradingMechanical strategies can be fairly easy to learn, as long as the conditions for signal, entry, exit, and trade management are clearly described in rules. They’re also easy to program if you want to get into algorithmic trading and have a bot submit trades on your behalf. But every mechanical strategy has periods of drawdowns as they don’t necessarily adapt to new changes to typical market behavior.

Now that I’ve passed a couple of challenges with the mechanical strategy I teach in the Disciplined FX Scalping Course, I’m thinking about ways I can improve from here and not only increase my typical return but also stay vigilant of inevitable changes in market types.

Does this mean discretionary strategies are “better” than mechanical ones? I believe the answer to this question depends on your trading style, your level of experience with trading, and what kind of returns you hope to get out of the market in exchange for the amount of study, preparation, and effort that you put in.

If you’re relatively new to trading, I believe mechanical strategies are the best way to be able to focus on building emotional discipline with trading first. It’s difficult enough to determine appropriate entries and exits in market structure, but it’s nearly impossible to achieve any kind of consistency and profit if you have no reign over fear, greed, and impatience from upending your trading plan. While you might not see 1:20 risk-to-reward ratios with a day trading mechanical strategy, you can still get into profit and keep it. If this is an experience you’ve never been able to maintain for months at a time before, then that alone is achievement enough.

For me, getting back into discretionary trading methods feels like the logical next step. Now that I know myself better as a trader who is capable of following rules and not making common early mistakes such as holding onto losses, revenge trading, or putting more than 2% of my account at risk for a trade, I’m better prepared to handle the learning curve that comes with developing an intuitive and experienced eye for reading market behavior.

<<WANT TO SEE AN EXAMPLE OF A DISCRETIONARY STRATEGY? CHECK OUT THIS FREE CONCEPT I CREATED>>

I think the important takeaway from this question isn’t a final decision over whether one strategy approach is better than the other, but to instead regard the behaviors of each as unique. They each have their benefits and drawbacks, with their own skills that need to be mastered, regardless of your time in the markets.

Mechanical trading might be for you if: You’re new to trading; you are struggling with trading discipline; you want to turn your strategies into robots; you don’t have a lot of time to study market structure or trade; you’re having a hard time grasping discretionary concepts, or you are okay with less return in exchange for less effort committed to learning how to trade; you want to be able to trade while you are also working

Discretionary trading might be for you if: You’re looking to improve your trading skills while gaining a better understanding of how markets work; you want to improve your typical return of profit; you are confident in your trading discipline; you have more time to evaluate different time frames and setups; you have time and are available to watch the charts and wait for prime entries; you want to stay on top of changes in market behavior and profit from doing so

Mechanical Trading Skills to learn: How to implement trading tools like indicators, fibbonaci tools, or candlestick patterns; Discipline in following rules

Discretionary Trading Skills to learn: How to read market structure; How to profit on different market setups; dynamic entry and exit positions; How to use technical analysis tools to aid in understanding market structure and behavior; Discipline in following a trading plan

Interview with The Forex TradeHER

Interview with The Forex TradeHER 6515

This past week, I had the opportunity to interview an up-and-coming Forex mentor, who is populating Instagram with both informative, and might I say, sassy, content!

Michelle of the @forextradeher is one of many women traders who are helping us turn this male-dominant market into a diverse and opportunistic experience for anyone who wishes to develop the lucrative skill of day trading.

From sharing her experience of becoming profitable in six months of intense study to discussing technical analysis and risk management approaches, Michelle imparts some of her refined trading insights and wisdom in our one-on-one session.

Be sure to watch the video below to enjoy this experience for yourself!

3 BEST Books on Day Trading

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I wonder how you’re feeling as you dive deeper and deeper down this rabbit hole of day trading for profit.

You may be feeling anxious, disappointed that you’re not where you thought you’d be by now, perhaps overwhelmed by all the information that’s out there, or maybe just eager and thirsty for knowledge that can help you focus on what you need to do to achieve your goals.

I want to share with you some resources that can help appease all of these feelings and leave you with a more structured conception of what it takes to become a profitable trader.

–But first – If you don’t know my story, I’m a Ph.D. student in the field of business and entrepreneurship, and I first taught myself how to day trade after developing a chronic illness and needing to look for ways to make money from home. After two years of lots of failure, persistence, and reflection on what I was doing, I was able to achieve profitability with day trading Forex. So a big part of what helped me break gravity and get into a streak of profitability involved consuming a ton of content on day trading and performance mindset.

Now, while I definitely learned a lot from YouTube, a big portion of what actually helped me to organize my own trading system and strategies involved reading copious books on these subjects. I believe that reading books helped me understand trading in a structured way and watching youtube was useful for filling any holes in that education and also finding inspiration in others’ stories of success.

So today, I’m going to share with you three of the most powerful and enlightening books about how to day trade, be it with Forex, Stocks, or Crypto – and become profitable by creating your own system and honing your discipline.

What all of these books have in common is that they’re written for beginners, they’re very well structured by breaking each component down into bite-sized bits, and tend to be all-encompassing in their discussion of what makes for profitability.

I’m also going to share with you a bonus book that has been the greatest catalyst in not only my trading progress but other roles in my life, such as pursuing a Ph.D. and starting a business, so be sure to stick around to the end to find out more.

Alright, let’s dive in!

3 BEST Beginner Books on Day Trading

1) “Come Into My Trading Room” – Alexander Elder

The first book on this list is actually the first book I ever read about day trading.

At the time, I was looking to learn to day trade stocks, but I managed to find some good books that outline a generalized approach to trading any market, including Forex. So Alexander Elder’s “Come Into My Trading Room,” was the best possible resource for my virgin day trader brain to become intimate with and develop an idea of what a well-structured routine and system could look like.

In this book, Elder talks about the 3 crucial elements of day trading success which involve what he calls the 3 M’s: Mind. Method, and Money Management.

Notice that Elder first discusses your trading mindset before even talking about strategies and risk management. Elder and I both encourage you to take your trading psychology and discipline very seriously and treat this aspect of your trading with the same level of interest and study as you would technical analysis or building a strategy.

In this book, he also talks about practical elements of trading, such as selecting the right equipment, how to keep a trading journal and equity log, and matters of position sizing and technical analysis. This book was such a boon to creating a map in my mind as to what I needed to do to get started and create an organized system to a trading routine and learning how to develop my own discipline.

2) “High Probability Trading” – Marcel Link

The second book on this list is similar to the first, as it’s also a general guide to trading, but spends more time focusing on basic technical analysis and important components of a strategy, such as determining entry and exits.

“High Probability Trading” by Marcel Link is a fantastic read if you want to learn more about technical analysis without getting overwhelmed, as many other traditional recommendations for books on technical analysis tend to be very dense and written in somewhat droll language.

He also explains what makes for high probability trades, such as with having a good reason for the trade when you see a confluence of positive signals and being able to identify what are bad reasons for a trade, such as with feeding an impulsive desire to jump in on a fast movement in the market. Like Elder, he also talks about the crucial components of trading with discipline, keeping an organized trading routine, and how to manage your funds.

3) “The Daily Trading Coach” – Brett N. Steenbarger

The third book on this list is specifically about trading psychology. “The Daily Trading Coach” by Brett N. Steenbarger is a useful resource that can be read like a day-by-day book since it’s broken down into 101 lessons about developing your discipline and managing your emotions.

I read this by reading two lessons a day, and it was incredibly useful for developing a better awareness of what I was doing that was causing so much failure and how I could turn that around by implementing specific habits and exercises to locate and correct the bad behavior. 

The Daily Trading Coach Brett SteenbargerSo these three books are a great place to start if you’re looking to either begin your day trading career or finally achieve some of your long-standing trading goals. I can’t emphasize enough that reading is a trading edge if you can make it a habit. You’re going to find much more thoughtful and well-structured advice from a book than a mishmash of youtube videos you find online.

Trust me, regularly reading a book on day trading is a necessary part of your trading education and long-term success. If you’d like a list of trading books I recommend every day trader to read in order to get profitable and build the life of your dreams, be sure to download my FREE list of study resources!

Now, before we go, I want to mention one more book that gets ~a little meta~ and can help you think about how structuring your trading system is part of a bigger plan for your overall life goals and success.

BONUS: High Performance Habits – Brendon Burchard

The book “High Performance Habits” by Brendon Burchard is probably the most high-leveraging book I’ve ever read and re-read time and again.

When I read this book and implement its advice and exercises, my entire life improves for the better, including my trading progress. Burchard talks about habits involved with six key areas of clarity, energy, productivity, necessity, influence, and courage, which combined make for a life that is effective, efficient, and meaningful.

I imagine day trading for you isn’t the end goal.  There are powerful things you want to do with the discipline and confidence you develop, as well as the money you make. Reading the “High Performance Habits” can help you discover what that looks like and how to use your trading to get to a new level.

So I hope you found value in this lesson – please let me know by commenting below if there’s anything you’d like to learn more about these books and what I’ve learned by reading them. I hope you all have a successful trading week ahead, and I wish the best of strength and luck. Take care!

How to Use cTrader’s Best Features for Your FTMO Challenge

How to Use cTrader’s Best Features for Your FTMO Challenge 274

How to Use cTrader’s Best Features for Your FTMO Challenge

[Note: This blog post features paid affiliate links for FTMO. I personally sought to become an affiliate of FTMO because I genuinely trust them to provide a reliable and realistic model for prop trading]

Hey there, folks! My name is Andrew Blom, founder, and CEO of Disciplined Fx. If you’re new here, welcome! I first started teaching myself how to day trade after developing a chronic illness and needing to find a way to make money from home with a minimal amount of time and energy.

I’m also a Ph.D. student pursuing a doctorate in business with a concentration in entrepreneurship, and the intention of disciplined fx is to provide a safe space that supports diverse traders from all walks of life to learn how to hone discipline and a trading mindset to succeed in forex markets.

For today’s tutorial, we’re going to tour my favorite platform FTMO offers its traders, the browser-based cTrader platform.

I’m currently taking the FTMO challenge and will report soon on those results!

I’ve chosen to use cTrader as my platform of choice because it’s the option most similar to TradingView, which I’ve used through Oanda for a few years now. I’ve tried my hand at mt4 in the past and never fully adapted to its interface.

I’ll explain why this platform is easier to use than mt4 or 5, list some of its best features and how to use them, as well as how to set up a chart for a free 5-minute scalping strategy I made for you. (Watch the video on this page for that last bit of information!) Okay, let’s dive in!

Why cTrader is Better Than MT4/MT5

So first, I want to sing praises of cTrader as it compares to mt4 and mt5.

I’ll admit that I never lasted with either of tcTrader ftmo challengehose programs for more than a few days, and my opinion of them would likely be different if I was forced to learn that platform because of a lack of options.

However, I actually think of myself as a lazy trader and will pick resources and strategies that minimize the amount of effort I need to perform during a trading session.

My biggest issue with mt4 and5 is that they’re not very intuitive and, frankly, they’re really archaic-looking despite how far technological design has advanced in just the last ten years alone.

I believe at this point in time highly technical programs almost act as a form of gatekeeping. Setting up and closing trades does not need to be complicated, even if making trading decisions is challenging, and charting software by TradingView and cTrader are much better examples of intuitive and clean design compared to mt4 or mt5. 

How to Use cTrader’s Best Features

To show you the ways in which this platform outperforms mt4 or mt5, let’s go over some of its best features.

1) Easy and Informative Order FormcTrader order form FTMO

cTrader makes it so easy to make sure you’re trading the right position size and will even calculate the percentage risked for you. It’s so convenient! Also, setting up take-profit targets and stop losses, as well as trailing stops, is easy and can be set up right on the order form as part of one whole trade order. 

2) There is a lot of freedom of use when it comes to applying drawing tools and chart stamps.

There’s the cross-hair, which is the tool you’ll need to measure price ranges and pip sizes on the chart.

I’ll often use this to mark the points at which I’ll need to set an alarm for when I move my stop loss closer. This one feature alone makes me love FTMO’s cTrader more than Oanda’s offering of trading view.

Snapshot is also a neat tool for discovering the details of individual candles and price points. Then we have a list of charting analysis drawing tools, such as your fibonacci tool, as well as stamps and lines for marking up candlestick patterns and notes. You can also use their snapshot feature or your own computer’s snipping tool to capture chart screenshots.

What’s also cool is that you can draw on your indicators, as well. This is really handy if you use any of your indicators as setup, entry, or exit signals. 

3) BUY/SELL FTMO open position scalecTrader buy sell button FTMO

Another neat tool is that upon the ask and sell chart button, you can see this green and red bar that shifts according to how many other FTMO traders are in buying or selling positions. 

4) All of Your Account and Market Information Next to Your Chart

You can pull up economic news, data about your account, and even a kind of level 2 analysis of trading orders on the panel without having to open up another screen or go to the brokerage website. 

5) Time-Until-Next-Candle Countdown

Lastly, another useful feature for scalpers, in particular, is the countdown to the next candle that you can see right under the current candle. I personally time my entries with the closing and opening of certain candles so this little feature is gold!

FTMO.com - Funding for successful traders

What do you think, is cTrader your kind of platform? As you can see, everything you need is nested in one place without being displayed in a way that’s overwhelming.

If you haven’t already, I recommend checking out FTMO if you’re confident in your risk management skills and have a strategy you trust. A big hurdle for most traders who are new to the experience of consistently profiting is having too small of an account size to actually make a decent income. FTMO provides traders who pass the challenge with a 5- or 6-figure account and PAYS OUT 70% OF PROFIT to you, the trader, at the end of the month. It’s a great way to make an income off of your trading skills and discipline!

 

 

 

 

A Free, Once-a-Day Forex Scalping Strategy To Try Out

A Free, Once-a-Day Forex Scalping Strategy To Try Out 303

 

Have You Ever Tried Scalping in Forex Markets?

First off, if you’re new to the concept of forex scalping, I want to apologize for the horrid term. Whenever my non-trader friends ask me what I teach, I always get a concerned face because of this term. I’m going to take an educated guess and say that it’s likely that this was a term that came into play sometime around the same period when brokerages moved online and high-frequency trading became a common way to make a lot of money in the markets. So, 1980’s, maybe 1990’s? And we all know how culturally sensitive and gentle the social norms were during that time. (I’m being sarcastic, just to clarify) I’m also comfortable with being wrong about this theory, but either way, I’d love to see new slang come into the purview of the English trading lexicon. How about something like, “Swiping,” or “Tinder-Style Trading”? Not much better, huh?

 

Okay, let’s get serious! 

 

Today, you’re going to learn a new swiping/scalping strategy that can be used on the EUR/USD once a day. 

 

What are some of the benefits of using a strategy that only trades once a day?

  • You can keep your day trading session as short as possible
  • You avoid running the risk of breaking rules by spending less time in front of the charts, and therefore, will not be tempted to over trade or make impulsive trading mistakes
  • You can day trade while also keeping a full-time job or going to school or parenting young children or doing whatever activity that brings you joy and fulfillment in life and requires your time
  • It can be helpful for transitioning to day trading from investing or swing trading

 

WANT TO WATCH A STEP-BY-STEP TUTORIAL OF THIS STRATEGY? CHECK OUT THE VIDEO BELOW

WANT A PRINTABLE VERSION OF THESE DIRECTIONS AND A PDF OF A TRADING JOURNAL WITH THESE STRATEGY RULES? ENTER YOUR EMAIL AND WE’LL SEND YOU THIS KIT!


I remember when I was first learning how to trade. While it was exciting to learn about and participate in what I thought would be a “quick” way to make money, for months and months I felt so confused. I didn’t really know what to do or how to find or create a strategy I could trust. There are plenty of strategies available for free on the internet, but a lot of them felt really vague and rarely did anyone also post evidence that it worked in real time. Furthermore, a lot of strategies only work well during certain types of markets or during certain times of the day, and a lot of the strategies I came across were being marketed without clarification as to when to use them.

I just wanted someone to tell me exactly what to do! I wasn’t looking for THE ONE STRATEGY that would make me 50%+ return a month, I wanted something that I could sink my teeth into and trust to lead me to a little profit as I worked on weeding out the common beginner trading mistakes, like learning to always take my stop loss or take only five or less trades a day. 

 

Of course, it took some time to learn that if I wanted to find a strategy that I could trust the most, I would have to create one myself. But I didn’t have the experience, knowledge, or confidence to try that approach during my first year of day trading. 

 

Instead, I ended up paying for a strategy online. 

 

While it’s no longer the strategy I use today, using that paid-for strategy helped me to focus on one strategy and use most of my mental energy and time to train myself to stop committing expensive trading mistakes. Part of what made this strategy so useful was:

  • It came with video tutorials
  • The trader showed examples of how the trade worked
  • There was some guidance as to when and how to use it (instead of pretending like it was some catch-all for all markets, all currency pairs, or all times of day)
  • It was easy to backtest

 

I want to offer you something similar, but for free! 

 

I created this strategy with beginner day traders/scalpers in mind. I don’t think it’ll be the only strategy you’ll ever use, but it can be one that you trust enough so that you can focus more of your time and effort on developing good trading discipline. When you gain more experience, you can eventually develop your own trading strategy that works best for your personality, time zone, and personal schedule. Or, if you like it and feel comfortable, just keep using it!

 

So let’s dive into it!

Day trader diving into new easy beginner strategy from free course

First, What is Scalping? How is it Different from Day Trading?

Just a quick word before we get into the nitty-gritty of the strategy. 

Whether you’re new to scalping or you’re a seasoned trader on the hunt for a new scalping method, I want to clarify my own understanding of what scalping is. Because in the Forex markets, scalping can look a lot different from, say, scalping in stock markets or cryptocurrencies. 

Many people may assume scalping to be different from day trading because of the length of time a trade lasts. You probably know that a swing trader will take trades that last for a few days to a few weeks. And that a day trader takes trades that last from as little as a couple of minutes to a few hours, but always closes before the end of the trading day. Some may think that a scalping trade happens over a matter of seconds and mere minutes. 

And yes, sometimes it does!

You’ll see this most of the time with stocks, especially penny stocks.

But I don’t think of scalping as defined by the length of time it takes to trade.

Instead, I think of scalping as a way to define the number of ticks or pips that the trade covers. So if the EUR/USD moves 100 pips in a day, I would say a forex scalping trade is one that takes out less than 20 pips (20%) of that day’s range. Even if that one trade takes half an hour to close, I would still consider it a scalping trade.

You’re going to find with this forex scalping strategy that even though we are going to (usually) capture less than 20 pips on a trade, the entire trade may take more than an hour to complete. 

Summary: Scalping trades are those that seek to capture a small amount of pips/ticks/points. Sometimes this happens within a few seconds, sometimes this can take more than an hour to complete. It all depends on the market you trade.

 

The Disciplined FX Once-a-Day Scalping Strategy: THE OVERVIEW

 

Okay, so now that we know what a forex scalping trade looks like, we can talk about how this scalping strategy works and why it has a favorable probability of performing well for the EUR/USD when the NYC stock market opens.

 

THE PURPOSE OF THIS STRATEGY IS TO LET YOU, YOUNG NINJA,  PRACTICE WITH A WOODEN SWORD INSTEAD OF STEEL

This is not the only forex scalping strategy you’ll ever trade.

This is not a holy grail.

This is not a strategy meant to earn you ginormous amounts of profit in a mere number of days.

checking new strategy works for forex EUR/USD

This is a strategy that takes the stress and pain out of researching and hunting for a profitable strategy and instead ALLOWS YOU TO FOCUS ON DEVELOPING DISCIPLINE when you’re first learning how to trade with rules!

 

All clear? Good!

 

The thinking behind this forex scalping strategy is that when you observe trends on the 5-minute chart, rarely do they keep plowing in the same direction all day long. Once the London markets close for the day, often any trends from the cross-over of the London Close and the NYC Opening lose their steam and start to pull-back or enter a range. Not always, but often enough that we can make a profit of it. That’s when we want to pop in for a quick swipe of a few pips!

 

As someone who has spent almost the entirety of his 12 years of adult life in academia, I don’t want to try to convince you of anything without first showing you some evidence. It’s not ethical, or influential, to do otherwise. 

 

So, here’s a screenshot of a backtest I performed for this strategy at the end of May 2021:

ATR = Average True Range at time of trade entry

R = ratio of pips won or loss to the number of pips risked

Wait, What’s R?

In this instance, R stands for “Ratio” and represents your risk-reward ratio. If your stop loss is 5 pips and your take profit is 10 pips, then you would have a risk-reward ratio of 2. For what you are risking, you are returning twice as much when you win.

I like calculating R when backtesting because it allows me to get an idea of what kind of profit this strategy could return for different levels of risk.

When you combine R with the percentage of your account that you’re risking each trade, you can figure out how much you would make on this strategy (assuming you risk the same amount of money each trade).

For example, if you are trading with a $1,000 account, you may decide to risk 1% of your account for each trade. That means that you would risk $10 per trade.

If your risk-reward ratio (that is, R) is 2, then for every $10 you risk, you would return $20. 

Got it?

Therefore, when we add up all of the R’s from each individual trade during this backtest, we get the sum total of 5. If you had risked 1% of your $1,000 account on each trade, then you would have returned 5% of your account (which is $50).

If you risked 2%, you would have returned 10% of your account ($100)

If you risked 3% you would have returned 15% ($150)

 

But before you start thinking you can go risking 3-5% of your account on a single trade, Look at that third week of the backtest sample. Three losses in a row. If your first week trading resulted in a loss every day, you could have had a drawdown of 15-25% of your account! That’s not good! A rule of thumb is to risk no more than 2.5% of your account per trade.

 

Some Observations from this Backtest:

  1. There were 4 days of no-signal/no-trade
  2. 4 trades resulted in a break-even
  3. 3 out of 11 trades resulted in a loss
  4. 4 out of 11 trades resulted in a win
  5. The third week would have involved sitting through loss after loss
  6. If you don’t include the break-even trades, this strategy had a 57% (rounded) win-rate
  7. If you traded this strategy and went by “feeling”, seeing how you would have only won four times, it probably would have “felt” like you weren’t getting anywhere with this strategy
  8. BUT at the end of these three weeks, you would have been in PROFIT

* NOTE: Backtesting is different from live trading. Sometimes you don’t get the same entry as you would have in a backtest because of the size of the spread between the ASK and BUY. This backtest also fails to take into account slippages and commissions

 

Overall, returning 3-10% a month in Forex is really good!! Actually, given the fact that most people lose when they trade, any kind of profit should be celebrated! 

 

Be careful of what kinds of expectations you place on yourself as a trader and the kinds of returns you think you should be getting from the markets. If you’re new, start with learning how to return any kind of profit. Then, once you’ve developed some discipline, you can try out other strategies that seek to return a higher amount of profit, should you take that route at all.

 

How to Trade the Disciplined FX Once-a-Day Forex Scalping Strategy

Now for the juicy part you’ve been waiting for!

 

Here’s a breakdown of the DFX Once-a-Day Scalping Strategy:

 

THE INDICATORS 

  1. ADX – this is the Average Directional Index. It usually measures the strength of a trend. Often, anything above a 25 is considered a durable trend. Anything below it is considered a weak or non-existent trend. 
  • Settings for the ADX should be 14, WILDERS (this should be the standard setting)
  1. ATR – this stands for the Average True Range. It gives the average size (in pips, from bottom to top) of the chart’s candles over a certain period.
  • Settings for the ATR should be 14 for ADX Smoothing and 14 for DI length (this should be the standard setting)
  1. Exponential Moving Averages – A moving average is the average price of the last length of candles depending on the number/length you select. So if you have a 9 moving average, it would measure the average price of the last 9 candles. However, the exponential moving average is different from a simple moving average in that it gives greater weight to the most recent candles. 

When price moves away from the candles, there’s usually a trend in the direction the candles are moving. If the moving averages are all tied up, crisscrossing each other frequently, then the market is likely oscillating or ranging. 

  • You are going to use 2 different EMA’s
  • The settings for each of the EMA’s = 5, 200 

 

THE RULES FOR ENTRY

  1. This trade can only occur between 930am – 1230pm EST on the EUR/USD (I haven’t tried it with any other pair, but feel free to backtest it and try it in a similar “end-of-one-market-opening-of-another” scenario)
  2. First, note which side of the 200 EMA that the candles are trading 
  3. If the candles are trading ABOVE the 200 EMA, look for LONG/BUY trades ONLY
  4. If the candles are trading BELOW the 200 EMA, look for SHORT/SELL trades ONLY

ENTRY SIGNAL:

  1. You are going to wait for the candles to touch and close ABOVE the 5 EMA if you are LONG/BUY/ABOVE the 200 EMA. Enter a BUY trade (usually via market order) with the opening of the next candlestick
  2. You are going to wait for the candles to touch and close BELOW the 5 EMA if you are SHORT/SELL/BELOW the 200 EMA. Enter a SELL trade (usually via market order) with the opening of the next candlestick

 

STOP LOSS = 1 x ATR (exp: if the current ATR at the entry is 5 pips, then you will put a stop loss limit order 5 pips above/below the entry)

TAKE PROFIT = 3 x ATR (exp: if the current ATR is 7, you will put a take profit order 21 pips away from the entry)

 

MOVING THE STOP LOSS

  1. After the trade moves 1 ATR in a favorable direction (towards your take profit target) move the stop loss to break-even (the price you entered the trade)

 

And that’s it! You take this trade only once!

 

Theoretically, if you know how to set up a moving stop loss, once you’ve entered this trade, you can walk away from the screens and move on with your day. 

 

This trade is meant to help you get started with forex scalping/day trading without having to dive in head-first. 

 

YOUR NEXT STEPS

  1. Set up your charts for this trade.  If you want a walkthrough, be sure to check out the tutorial I made to compliment these instructions
  2. Backtest the trade – Go over at least 100 samples of this trade from the last couple of months to make sure it’s still profitable for this current market. Your results may differ from the backtest report listed above because markets are always changing
  3. Demo Trade or start with a small amount of live cash – before risking your entire account on this trade, try out a few trades with a demo account or by risking a small amount of cash, like $5-$10 per trade
  4. Journal your trades – focus on honing your discipline and following these rules to a T. Note down any extreme emotions you have or if you make any rule-breaking mistakes. Furthermore, stay attentive to any issues that affect the trade, like the spread your brokerage offers or issues with getting your entry filled in time with the opening of the next candle.

 

 

Final Thoughts

I’ll say again, as I’ve said earlier in this article – this is a training wheels strategy not meant to return a whole lot of money, but to get you started with forex scalping and focusing on your own trading discipline. By recognizing that it’s possible to rarely win in a month yet still profit, you are more likely to take your stop losses and follow your trading rules. 

That’s what we’re aiming for – that’s the real WIN in all of this – DISCIPLINE. Once you’ve cultivated discipline, you can trust yourself to try out riskier and more elaborate forex scalping strategies. 

 

If you approach this process in the reverse, that is, get a risky, profitable strategy first and work on discipline once you’re making money, you’re setting yourself up for much loss and failure. 

 

But that’s not going to be you. You’re going to be responsible about this and grow from the experience.

If you ever need more help from me, you know where I can be found.

 

I wish you the best of luck and strength, as always.

 

See you in the markets!

 

Luv,

Andrew

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