Since Forex4noobs was created over ten years ago, there is a common issue that new traders face which can be difficult to overcome – how to use your trading method. This issue affects traders who have gone through the basics and are still struggling to generate profit.
Typically, these students are those who:
- Fully understand the basics of Forex.
- Have a trading plan and money management plan in place.
- Have a working trading method.
- Have understood and nailed down their trading psychology.
- Barely breaking even.
These new traders have all the steps to become a successful trader but are still failing to be a profitable trader.
Well, in my experience, the most common reason for failing is because they are following their trading plan too strictly!
What is a trading method?
Your trading method is an essential part of your overall trading plan and process. Ideally, your trading method will lay out a set of guidelines to follow and gives you a set of tools you can use to:
- Analyze the market.
- Plan trades.
- Enter and exit trades.
Over the years, I have received a lot of requests for help and this issue is a common one amongst struggling traders. This is not surprising – almost all new traders are bombarded with misleading trading information and advice. Self-proclaimed trading gurus and copy traders give a very common and destructive piece of advice:
“Trust you trading method – if your trading method tells you to go long, go long. If it tells you to go short, go short.”
This advice may seem logical. However, it is in fact extremely counterproductive to a trader. If you take this advice on board you are effectively turning off your brain and trading with a blindfold on. In trading, it is vital that you question your trading method. It is a healthy practice that maintains flexibility and adaptability with your trading.
Your method may work for certain setups, but with any trade there are several variables that will affect the likelihood of a trade being profitable. You should always look to improve your trading method – no method is perfect. Whenever you look to take a trade, you should assess the market conditions and read price action.
Your trading method is not there to make you profitable. That is what you are for. Your method’s job is to suggest potential trades to you – to alert you. As a trader, it is then for you to analyse the information and decide if the trade is viable.
Your trading method should not be the deciding factor on whether you should enter a trade. If you let this happen, you will immediately reduce your chances of a successful trade.
What is a Traders Job?
Now, we have established that the trading method’s job is to suggest potential trades for you. So what about a trader?
The easiest way to understand a trader’s job is to stop thinking of yourself as a trader and start thinking of yourself as an information gatherer.
Your trading method is there to give you information. For example, my trading method consists of four main forms of analysis:
- Candle patterns.
- Support and resistance areas.
- Moving averages.
- Trend lines.
Each of these forms of analysis are pieces of information that I assess. So my trading method is really just a tool for me to gather the necessary information on a potential trade. As a trader, my job is to interpret the information and assess whether or not I enter a trade.
In the image above, you can see an indecision candle has formed. Under my trading method, the candle pattern has given me information that a long reversal is possible. I then look at my other three forms of analysis (SR areas, trend lines, moving averages) to see if they support the claim made by the candle pattern!
As you can see from the image above, there is major resistance in the way of a long reversal trade. What’s the point of entering long if it is immediately going to hit resistance? So, that means it is unlikely I take that long trade.
Many new traders stick too closely to their trading method. Instead of absorbing all of the information and coming to a decision, they will blindly take the trade because of one trade indication. They are not trading the bigger picture.
What’s The Solution?
Inside your head is an extremely powerful organ called the brain. The solution is to use your brain when you trade. Trust in yourself and your interpretation of the charts. Don’t mindlessly follow your trading method – question it, adapt it, improve upon it! It is in our nature to question things so don’t suppress it in your trading.
Practice will also improve your trading. If you exercise your brain and look for improvements with your trading and dedicate the time and effort, you will get better as time goes on. These things take practice and failures in order to reach success. It is normal for there to be speed bumps in the road – it is up to you to navigate around them and keep pushing forward.
Your trading method is a tool that gathers information. You are the one that makes the final decision to enter a trade once you have assessed all the information.
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