This article will discuss the advantages and disadvantages of the human mind and of computer trading programs, and it will conclude with my personal perspective of why I believe the human mind is without a doubt the ultimate Forex trading and analysis tool.

• Price action reflects the aggregate belief structure of all market participants.

Free markets are created by human beings. Specifically, they are created by the beliefs that human beings hold and act on about whether the price of a particular security is too high, too low, or just right. Essentially, markets are a reflection of human emotion, and price action is the picture created by this emotion.

Just like human moods and emotions, markets can change very quickly, moving from calm to volatile in the blink of an eye. Taking this into consideration, it seems a bit counter-intuitive to suggest that a computer trading program could do a better job analyzing and trading a market than a skilled human mind. After all, computers are anything BUT emotional, so relying on a mechanical trading program to effectively predict the outcome of something that is almost purely emotional, does seem a bit silly. However, computer trading programs do indeed offer some advantages over the human mind, mainly in the realm of trading psychology.

• Computers are not emotional.

The ironic aspect of computer trading programs is that while they do not possess the ability to develop a “gut” human trading instinct, this also means they lack the ability to commit the emotional trading problems that plague so many aspiring Forex traders. Computers are ice cold, and a Forex “robot” trading program is only going to operate according to how it is programmed. This means that if it loses on a trade it’s not going to execute another trade right away out of anger or frustration; instead it is going to wait until the next pre-programmed trading edge appears in the market. Thus, the lack of the ability of a computer program to interpret and analyze human emotion is both an advantage and a disadvantage for computer trading programs.

So, what can we learn from computers about managing our emotions when trading the markets? We can learn this; we should not react to the market based on what happened in a previous trade. We should only react to the market based on what it is currently doing and whether or not our trading edge is present. We don’t have to use Forex trading robots to trade the markets, but they can definitely teach us some very important things. Mainly that we need to use our ability to interpret emotion and develop “gut” trading instinct to our advantage, and not allow this ability to work against us by giving into the emotion that results from winning or losing trades.

Emotional trading mistakes are the main reason why most traders fail to make money consistently in the markets, and the elimination of emotional trading mistakes is the biggest advantage computers have over the human mind in the markets. As far as analyzing and picking entries, the human mind is a far superior tool to computers, especially when it is trained to trade based off the raw price action strategies that occur each week in the market. For a computer to rival the ability of the human mind to spot high-probability entries in the market, we would need to have artificial intelligence, and we are not at that stage in computer development yet.

• Developing your discretionary Forex trading sense is important.

Yes, markets do form similar signals that are somewhat repetitive over time, but there is a lot more that goes into deciding to pull the trigger on a trade than what a computer program can calculate. A large part of Forex trading success is gut-feel, no matter how much some people in the trading world will preach against gut-feel trading, it really is something that traders need to develop. The trick is that you need to develop your gut-feel or discretionary trading instinct around an effective Forex trading strategy like price action analysis that gives you a frame-work to build your market perspective on.

We can develop our discretionary trading instinct built on the foundation of price action, it’s discretionary price action trading, meaning you don’t take EVERY single price action signal that forms. Instead, you learn to trade these price action setups according to market conditions and from confluent levels in the market. So, it is not just the price action setup or signal we are looking for, it is the properly formed price action signal occurring in the proper market conditions or at the proper level that we are looking for. Developing this type of trading skill and market perspective is what I teach here at learn to trade the market, and its how I personally trade and how I became successful in the markets. A computer program will simply see a “pin bar” or some other definable signal, but what it cannot do is decide effectively whether or not that pin bar SHOULD be traded according to the discretionary trading skill that the human mind can achieve.

In my opinion, Forex trading success depends upon developing an effective perspective on price movement and market mechanics, combined with the ice-cold discipline of a computer trading program. So, we are essentially trying to take the best aspect of computer trading software, which is the ability to not let previous trade results influence our future trading decisions, and combine this with the unparalleled ability of the human mind to interpret the raw emotion that is reflected via price action on a simple Forex price chart.

• A computer can’t teach you to trade.

Finally, another thing a computer cannot do is teach you to trade effectively. The most successful traders in the world are not blindly entering buy and sell signals derived from some trading “robot”. They are acting on years of live market experience and a very refined discretionary trading sense that is built upon analyzing price action.

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Part one: Master your mind

The main reason why most Forex traders lose money, is because instead of consciously controlling their emotions in the market by preempting all aspects of their trading, they get caught up in a game of emotional trading, mostly because emotional trading is easier to do and offers more “excitement” than disciplined, controlled trading.

The Forex market essentially offers traders two options:

1) Gamble your money away in an up and down emotional roller-coaster of trading.

2) Learn to master your mind by becoming a disciplined trader and make slow but consistent money over time.

I will assume that your aim and goal is to become a disciplined trader so that you can foster the proper trading mindset in order to not gamble away all your money in the markets like so many traders do. Let’s take a look at the two primary aspects of mastering your Forex trading mindset:

• Understand and implement proper Forex money management to attain mastery of your mind

If you want to attain the proper Forex trading mindset and really master your own emotions when interacting with the markets, you will first need to understand and implement proper forex money management. The reason why so many traders become emotional when they trade is usually because they are either risking too much money or trading too frequently.

When you risk too much money per trade, you inherently place greater meaning on each trade, since you have more to lose; this naturally causes you to become more worried about the trade and more emotional in general. Once you induce this type of emotional trading, it works to feed on itself and cause more emotional trading. When you lose on a trade you’ve risked too much money on, you put yourself in a very vulnerable position to continue the cycle because you will feel great frustration and anger over the amount of money you just lost, and this will work to fuel your desire to continue risking too much in order to try and make back the money you just lost. If you want to avoid this type of emotional trading, you must learn to become a disciplined forex trader.

Another way traders mismanage their trading account money is by trading too frequently. Many of my students are surprised when I tell them that I only enter one trade a week on average. Some weeks I might trade two or three times, some weeks not at all. The point is that most traders trade way too much and most traders also lose money over the long-term, I don’t think this is just a coincidence.

When you find yourself over trading, what you are really doing is acting emotionally and gambling. Thus, in order to stop over trading in Forex, you have to learn to control your emotions by having a detailed Forex risk management plan that also includes specifics on how you can avoid over trading. Perhaps the best way to avoid over trading is to know exactly what you are looking for in the market and always take some time off from the markets after every trade, whether it’s a winner or a loser. You should have all of your trading strategies detailed in your forex trading plan, this way you never take a trade that is not up to the standards you’ve detailed beforehand.

• Design and use a Forex trading plan and Forex trading journal to maintain mastery of your mind

In the previous section we discussed how understanding and implementing proper money management is necessary to attain mastery of your mind. Now let’s talk a little about how to maintain this mastery once you’ve attainted it.

The two main “tools of the trade” for maintaining mastery of your mind as you trade the markets, are Forex trading plans and Forex trading journals. As we discussed previously, having a Forex trading plan that details all of your trading strategies and setups is crucial for navigating the market in an objective and logical manner; so that you don’t enter trades for no real reason and so that you stay true to the concepts you mastered in your trading strategy.

The other main tool of maintaining the proper Forex trading mindset is the trading journal. It’s necessary to track all of your trades so that you develop a track record that reflects your ability to remain disciplined and also to create something that gives you accountability. By creating a track record that reflects all of your trading activity, you will have a tangible piece of evidence that will directly reflect your ability to trade properly. If you diligently update and use your forex trading journal, you will see for yourself whether or not you are maintaining your discipline, and if you are trading in a disciplined manner you will not want to “mess up” your track record of disciplined trading reflected in your journal by trading emotionally. Most traders simply do not feel they need to create a trading track record or a trading plan, most traders also lose money in the markets, again, I don’t think this is a coincidence.

Part two: Master your Forex trading strategy

The next thing you must do to stop losing your money in the Forex markets is to truly master your Forex trading strategy. I find that a lot of traders are simply “running and gunning” and don’t really know what they are looking for in the markets, this induces emotional trading because you end up “shooting” at anything that moves instead of “sniping”, in essence, if you haven’t truly mastered your trading strategy, you are likely going to over-trade.

• Master one strategy at a time

The first step to truly mastering any trading strategy is to master one aspect of it at a time. I teach traders who learn my price action trading strategies to master one price action setup at a time before moving on to another, this way they become fully proficient in each setup before they attempt to load their brain with more information, this “specialization” allows for a deeper understanding of each price action trading strategy I teach. When you think about a specialist in any field, they are usually the people making the most money in life. Thus, I highly recommend you master one Forex trading strategy at a time in order to become a “specialist” of each.

• Trade Forex like a sniper

Next, after you have fully mastered an effective trading strategy like price action, it’s time to implement it. Unfortunately, many traders fail at this aspect even after mastering their strategy because they don’t have the patience to trade like a sniper. You must learn to pick and choose your entries wisely and not trade too frequently; this is what I call trading Forex like a sniper and not a machine gunner. Most traders trade like machine gunners and very quickly run out of “ammo” (money). If you want to make your bullets count and achieve your goal of making money over the long-term, you will need to conserve your ammo and only fire at the high-probability trade setups that you have mastered and subsequently detailed in your Forex trading plan.

• Focus your trading efforts on the daily charts

Finally, the last tip I have for you to stop losing your money is that less is more in Forex. In every regard, trading less is almost always better than trading more. The market is not going away, don’t freak out if you miss a good setup, it’s a marathon, not a sprint. You need to learn to trade the daily charts first and truly accept the fact that lower time frames are inherently lower probability and contain more random price movement “noise” than their clearer higher time-frame counter-parts. Most traders erroneously believe early on in their trading careers that they will find more opportunities on the lower time frames, while they may “think” they are finding more opportunities, all they are really doing is trading lower-probability trade setups and inducing over-trading by looking at the charts too often.

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• Are you over-trading?

If you don’t know if you are over-trading you probably are. In fact, most traders who are not making money consistently in the markets are over-trading, whether they realize it or not. The problem with over-trading is that it can be difficult for the trader to know if they are doing it or not because it has many different ways of “sneaking” up on you without you realizing it.

For example, if you have committed to learning and mastering the daily charts first, do you still find yourself going and looking at the lower time frames more than you are looking at the daily charts? This is a very easy way to start over-trading. Traders who have not yet mastered price action trading on the daily charts are very likely to over-trade if they focus on the lower time frames instead. This is because lower time frames tend to be riddled with lower-probability trade setups that often tempt traders to take positions that they would not have otherwise taken had they been focused on the daily charts.

Another example; do you enter into additional trades just because your current trade is in profit and you’ve moved to breakeven? Was the additional trade setup REALLY valid or did you jump the gun because you were feeling excited about your first profitable position?

There are many other situations in addition to the two discussed above that constitute over-trading. The main problem is that many traders are simply unaware that they are over-trading when they are in the moment. It is very easy to become fixated on a less-than-perfect trade setup and forget about your trading plan and not be consciously aware of whether or not you are over-trading.

Due to the fact that the emotion-inducing situations that occur in the market can sometimes be hard to detect and sometimes even over-whelming, we have to combat this enemy by planning out our trading plan and trading strategies while we are away from the market and not in any trades…

• The best way to stop over-trading is before you start…

As we just discussed above; because it can be difficult to realize you are over-trading when you are “in the moment” of trading, it is best to simply go on the offensive against over-trading by planning your trading strategy and trading plan in advance.

We can think of trading as a sort of war. The war basically boils down to your logical or objective brain mechanisms vs. your “fight or flight” or emotional brain mechanisms. It is extremely difficult to over-ride thousands of years of human-brain evolution…especially “in the moment”. The best way to win this war is to make a comprehensive forex trading plan, and stick to it…passionately.

I would bet money on the fact that if you are reading this right now, and you do not have a tangible and practical Forex trading plan, you are probably over-trading. It is absolutely essential to create a Forex trading plan and follow it if you want to get on and stay on the right trading path. All traders must do this in the beginning to develop the proper trading habits of logical and objective trading rather than emotional trading. Trading the markets naturally induces emotion and emotional trading…so if you don’t purposely make a plan to counter this reality, you are almost certain to over-trade.

• Trading like a sniper…

In a recent article I discussed the importance of learning to trade like a sniper. This concept is very important to overcoming your problem with over-trading. If you are over-trading you are definitely not trading like a sniper, instead you are trading like a machine gunner by “shooting” at many more trades than you should…or by simply shooting at anything that you “feel” is a trade setup.

Not having mastered a proven and effective trading strategy like price action will also induce over-trading. Simply put…we want to trade like a sniper and not a machine gunner, and if you don’t know what your trading strategy is…and / or have not fully mastered it…there is no way you can trade with a high enough rate of skill to pick your trades like sniper. Basically, if you don’t know exactly what you are looking for in the market you will end up over-trading / shooting at every little thing that looks like a trade.

If you’ve been following the recent Forex market activity you are surely aware that the EURUSD has been consolidating recently, actually for about 2 months now it’s been in a trading range. I find that traders often over-trade in these types of consolidating markets because they lose patience or they simply do not know how to filter out the lower-probability trades in favor of the best price action trade setups.

Let’s take a look at the recent daily chart of the EURUSD and analyze the difference between over-trading and trading like a sniper…

(See the explanations corresponding to each number below the chart)

1. At point one we can see two inside bars formed off support through 1.4050-1.4000. This setup was valid because the support level had already been tested recently on two previous occasions, and the setup thus provided us with an obvious inside bar strategy from a confluent level and a good risk reward scenario.

2. At point two we can see a bullish pin bar setup that formed off the 1.4050-1.4000 support area mentioned above. This setup was valid because we knew the level was significant, the pin bar was well-defined and obvious, and once again provided a good risk reward.

3. At point three we can see a bearish pin bar strategy that had good formation / definition and appeared to be in-line with the recent downward thrust. Now, the difference here is that the risk reward scenario was very poor since you would have been shorting right into the previously established significant support level near 1.4050-1.4000. A trader who is patient and skilled, and with a trading plan, very likely would have not traded this setup due to the fact that it required them to sell into a significant core support level.

4. At point four we can see another bullish pin bar setup that formed off the 1.4050-1.4000 support area. This setup was valid because we knew the level was significant, the pin bar was well-defined and obvious, and once again provided a good risk reward.

5. At point five we can see two pin bars that formed. These two pin bars had proper form…but this is a good example of the fact that a price bar formation is not really a price action setup unless it has some factors of confluence behind it. These pin bars were just “hanging” in the middle of nowhere with no supporting factors behind them; they weren’t off any core support level and resistance was pretty close overhead, limiting the risk reward potential. This was a setup that the skilled and patient price action trader very likely would have passed on.

• Over-exposure…

Another way many traders end up over-trading is by over-exposure to correlated Forex currency pairs. For example, trading the EURUSD and the GBPUSD is essentially like taking two nearly identical positions since the pairs are very correlated and move in a similar manner. So, you have to be aware of this and make sure you aren’t doubling-up your position. Even if there are two valid and high-quality setups in both pairs, you would not take both, you would use your discretionary price action trading skills to pick the better of the two setups and stick with that one.

This point of over-trading by trading too many currency pairs at one time also brings up the point that over-trading is basically the same as over-leveraging your trading account. Some traders get lulled into thinking by taking multiple positions they are diversifying or spreading their risk out, but in fact most of the time they are just adding risk by taking a larger position spread out among multiple pairs. You should view over-trading as two emotional trading errors in one; over-trading AND over-leveraging, because by over-trading you are also risking too much money.

• Less IS More…

If you really want to stop over-trading you are going to have to realize that less is more in forex. Unfortunately, many Fx traders come into the market with the opposite attitude; more is better. Aspiring traders tend to think that more trading is better, more indicators are better, more analysis is better, more hours in front of the computer is better, etc. However, this is definitely NOT the case and you need to understand this if you want to stop over-trading…

Spending too much time in front of your charts induces over-trading because you will over-analyze the nearly limitless amount of market-related variables out there and end up “manifesting” signals that aren’t actually there. Learn to “set and forget” and trade end-of-day strategies, if you can do this you will greatly reduce your chances of becoming a chronic over-trader. Remember, over-analyzing leads to over-trading.

Obviously, in the beginning of your trading career you’ll need to spend more time with the markets because you’ll need to learn and master your strategy, but once this is done there really is no point in sitting in front of your computer for hours trying to “figure out” what is going to happen….because you can’t “figure it out”, all you can do is master your forex strategy, develop a plan and routine around it, and follow it with discipline.

Also, many traders try trading 15 different trading patterns or setups or who knows what else. My price action strategies are effective yet concise; my setups condense many redundant candlestick patterns into a handful of powerful price action strategies that are easy to learn and to trade. If you look at any candlestick book you will soon realize many of the patterns are very similar and this tends to confuse traders, I have eliminated this problem with the way I teach price action. It helps to eliminate trade frequency / over-trading by focusing your attention to a more refined set of trading strategies, instead of spreading your focus out over too wide a spectrum.

• You can control yourself, not the market…

Simply put; over-traders are trying to control the market…you need to honestly stop and ask yourself if you think you feel like you are trying to control the market. Once you realize and fully ACCEPT that you really have NO control over the market, you will begin to think differently because you will realize you have to master a trading edge…and then you have to only trade when the market shows you your edge.

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One of the biggest obstacles standing in the way of amateur traders becoming professionals is their lack of recognition and(or) acceptance of the fact that trading less frequently almost always produces more consistent and more profitable long-term market performance than over-trading and interacting with the market too often (ie: Day trader market junkies).

Professional traders view each interaction with the market through a realistic lens that does not filter out the risk involved with every potential setup, whereas amateur traders tend to think less about the risk involved and more about how much money they can make if XYZ happens. This is an important point to take into consideration before you enter your next trade.

• The extremely slippery slope of over-trading

If you have had any experience trading real money in the markets you very likely have experienced first-hand just how slippery the “slope” becomes once you start over-trading. Most traders do not even recognize they are guilty of over-trading until they have lost so much money that they are forced to take a break from the market, it is then that they typically realize what they have done; entered numerous trades with no sound logic or rational behind them.

Professional traders are always aware of the dangers of trading too frequently, they know that it is a very short stretch from entering one too many trades to full-scale addiction to the forex market and to chart watching. In essence, amateur traders that get caught up in a fit of over-trading in the forex market are simply gambling; continually entering the market randomly while hoping for a windfall profit. The professional trader is not a gambler; he or she is a risk manager who simply seeks to flawlessly execute their edge in the market only when it is present.

This typically means that most professional traders are not day trading or scalping, instead they are focused on multi-day positions and look to take a good slice of the action that takes place in the market each week or month. This typically means taking multi-day positions in trending markets, because it is easier to take larger chunks of price action out of a trending market by holding multi-day positions than it is to constantly jump in and out trying to scalp the market each day.

Trading less frequently like this also makes you more immune to the slippery slope of over-trading. Even if you are following an effective day-trading or scalping edge, when you trade with the high frequency demanded by day-trading and scalping strategies, you drastically increase the odds that you will give in to the ever-present temptation to jump into the market when your edge is not truly present.

• You can’t get hurt from the sidelines

The value of simply NOT BEING IN THE MARKET cannot be overstated. Many amateur traders don’t even consider that being flat the market can actually be a very lucrative position, not to mention it is the SAFEST position you can take in the market.

To understand why not being in the market is actually a lucrative position you have to look at it from a different perspective. Let’s say point A is being flat the market, and point B is where you trading account stands relative to point A after a losing trade, you obviously had more money at point A than at point B, thus point A (being flat the market) is actually a lucrative (profitable) position compared to point B since you have more money in your trading account at point A than you would have had if you had lost that money in the market and went to point B.

The fact that most amateur traders simply do not even consider the fact that being flat the market is valuable is directly related to the fact that they simply do not believe the market is as risky as it actually is, or they simply ignore this reality. Professional traders are fully aware of the risk involved in the market, therefore they inherently understand the value in being flat the market, and thus they trade less frequently than amateurs.

• How does trade frequency relate to long-term trading performance and a trader’s mindset?

Once you identify exactly what your trading edge is, and the market conditions that are best to trade it in, you can begin to trade with patience and precision because you now know EXACTLY what you are looking for in the market. In essence, you have to master one forex trading strategy at a time, so that you can almost instantly look at any price chart and tell if your edge is present or not. Once you obtain this level of trading mastery and skill, over-trading or entering a position when your edge is not present will seem silly to you and just down- right stupid (because it is!). To put it more succinctly, you are more aware of whether or not you are over-trading when you are completely aware of what your forex trading strategy is.

Due to the fact that professional traders have mastered their forex trading strategy, they trade less frequently than amateur traders because the pros are looking for a very specific event to occur in the market, rather than throwing darts in the dark like so many amateurs do. So, it almost goes without saying that once you totally mastered your trading edge, entering trades when your pre-defined edge is not present will have a negative effective on your long-term profitability. So, trading with precision and patience inherently means trading less often, but it also means greater profits in the long-run, which is the whole point of trading.

Traders who follow their trading strategy to the T actually enjoy the patience and the down time in between trades, it becomes routine and comfortable over time. They do not feel a “need” to trade when there is no setup that fits their criteria. Operating from this confident yet carefree state of mind while interacting with the market is the way you reinforce positive forex trading habits, like patience and discipline, because when you wait patiently for your edge to appear and then execute it with effective risk management, you will see positive results after doing this for a series of trades, these results will reinforce the positive trading habits that produced them.

Amateur traders tend to reinforce negative trading habits like over-trading and over-leveraging by getting lucky a few times while committing one or both of these trading errors, it really only takes one big lucky winner while over-trading or over-leveraging to condition your brain to constantly over-trade and(or) risk too much.

• So, how often DOES a professional trader trade?

There is obviously no set answer for the number of trades that professional traders make each month, as every trader is different. However, if you are currently losing money in the markets you can safely assume that professional traders are trading less frequently than you are. If you are currently stuck in a rut of over-trading, one thing you can do if you are not already, is switch to strictly trading off the daily charts. Higher time frames lead to less trades but more precision and accuracy of the trades that you do take, you can also employ “set and forget forex trading” on the daily charts that requires only minor tweaking and minimal involvement beyond identifying your edge and setting the trade up.

In conclusion, if you take nothing else away from this article, just remember that professional traders are on average trading less frequently than you are simply because they fully accept and understand the risk involved with any one trade, so this tells you that you need to reduce the frequency that you trade or that you interact with the market. Let’s say that price action trading is going to be your trading strategy, once you master this trading strategy and you know exactly what you are looking for, there is no reason to sit at your computer all day staring at your charts. Set up a routine each day that you follow; you check for your edge, and if it isn’t there you come back the next day, or the next 4 hours or whatever your routine is. But, you don’t ever need to sit there and burn your eyes out watching the charts if you know what you are looking for.

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Everything that happens in a market is ultimately reflected via price on a price chart. So, when you learn to interpret and trade price action, you are simultaneously interpreting and making sense out of all the global economic variables that can affect a market. Where many traders go wrong is in assuming that they will be able to read the market more effectively by trying to interpret news, indicators and (or) trading software. This is analogous to believing that you will have an easier time driving down the road on a dark foggy night than you will on a clear sunny day. Allow me to explain…

• Forget About Forex Trading Robots and Trading Software

One of the main problems with all the Forex trading “robots” and other trading software on the internet today is that they do not possess the human traits that can literally make or break you in the market. Robots and trading software are futile because they cannot develop a savvy trading sense and an “eye” for the market. Identifying Forex market bias and picking your trades wisely is a key component to what makes a trader successful over the long-term. Our current level of technology simply cannot produce a trading robot that has the ability that a human being can obtain to analyze and trade the market.

Furthermore, the claim of trading software designers that their products eliminate the problem of human emotion and discipline is entirely false. There is still a human behind any trading program, that human still must be disciplined enough to not over-ride the program or “meddle” with it. If you can’t follow a Forex trading plan that you design, you won’t be able to follow a piece of trading software either. So, it appears as though the main variable in trading success is the particular human doing the trading, not having the “best” and fanciest sounding trading system.

In the question of which is better; the human mind or computers in Forex trading? , the clear winner is the human mind, however, it must be developed and trained properly first. So much of trading success is a result of personal development; you are very unlikely to see some out-of-control unorganized slob become a consistently profitable trader. Very often people who have a knack for discipline and organization are good traders.

• Ditch The Indicators and The Mess

Indicators are derivations of price action, so why not just learn to read the price action? Why would you purposely make trading harder than it already is? By putting messy indicators all over their charts that’s exactly what many traders do; they are simply making the natural price action clues harder to interpret. Indicators give no advantage, and in fact they actually just confuse and frustrate you by making the “real” picture of the market harder to decipher. Each indicator that you put on your chart basically just separates you further from the real story of the market.

You don’t want to purposely create a mess all over you charts by over-laying a bunch of indicators that are simply telling you what the raw price action is telling you but in a more confusing format. Just like having a clean work-space is important to success in any field, having a clean chart (and a clean office) is critical to Forex trading success. (Don’t end up like this guy…..)

Traders have a tendency to get excited about new indicators; they think that an indicator will somehow show them the market from a more advantageous perspective or that it will somehow give them “perfect” entry and exit strategies that will take the guess-work out of trading. I am here to tell you that successful trading is about developing your ability to analyze price, maintain discipline, and generally just control yourself in the market. Nothing else. Don’t let fancy sounding and looking indicator-based systems fool you. I was fooled by them early-on in my career, they did not help me achieve success in the markets, learning to read price action did. Trading with indicators will destroy Forex trading success.

• News Trading Is Unnecessary

There is nothing inherently wrong with getting yourself up to speed on current Forex market news and other global economic events. However, many traders take it too far and end up trying to trade off THEIR interpretation of what MIGHT happen based on some news event that has either just happened or is about to be released.

The problem with this line of thinking is that price movement is fueled largely on human emotion or feeling about what is most likely to happen, not necessarily on logic. In other words, traders trade their beliefs about a market, and when an economic news release is pending, traders tend to trade based on their expectations of how the news will affect the market. So, once the news ACTUALLY comes out, the expectations have changed, and traders now have nothing to “bet on” in the near term. This is why price will often move the opposite direction from what is implied by a particular economic news release.

Good news! The good news is that price action strategies form as a result of people trading their expectations and beliefs about a market. So, by simply learning to trade these price action strategies we can forget about over-analyzing and interpreting the vast amount of news events that occur each day in the market. Think of price action as the final result of a catalyst that causes a market to move. Whatever the catalyst (news event) is, it will eventually be filtered through either a human brain or a computer trading program, and both of these will make their mark on a plain-vanilla price chart. By learning to read these “marks”, we are getting the most accurate and relevant “picture” of the aggregate belief structure of all market participants. Meaning, learning to trade based off simple price action trading setups is the most efficient, effective, and easiest way to trade.

• Learning Price Action Is Key

If you truly want to clean up your trading and turn it around, you need to clean up your charts. Every other system is just a derivative of price anyways; robots / indicator systems, they are all built from price. Learning price action is the key to your Forex trading success.

Price action aids you in developing the best mindset for trading. We need a clear and confident mindset, learning to trade off price action does not cause the amount of confusion that other trading systems or strategies can. When you trade off an unencumbered price chart you are seeing the clearest and most accurate picture of the market possible. Once you learn to interpret and identify a handful of high-probability price action setups you can effectively trade without indicators or other messy distractions on your charts. Doing this is the easiest thing you can do right now to greatly increase your chances of success as a Forex trader.

Over the last two weeks I have conducted a trading experiment in order to prove a point to anyone out there who might be in doubt of the power of risk reward combined with price action trading strategies. This article will take you on a journey into my mind and will hopefully prove to you that if you simply implement proper risk reward and have a willingness to learn a high probability trading strategy like price action, you have all the ingredients to become a consistently profitable forex trader. This article will open your eyes, I suggest you read it, start to learn about the concepts discussed.

The experiment:

In order to first demonstrate and prove the power of risk reward, I decided to randomly enter 20 trades over the last 2 weeks in the EURUSD, GBPUSD, and AUDUSD on a demo account. No price action setups were used, nor was there any method or strategy of any kind implemented when entering the market. The parameters were simply to enter one of the above three currency pairs a total of 20 times within 10 trading days using a stop loss of 50 pips and a target of 100 pips for each trade, making a risk reward of 1 to 2 on every setup. I did not “mess” with any trade once it was entered, I employed pure set and forget forex trading in this experiment; I simply entered and then let the market do its thing, in order to prove the power of risk reward. (Note, the 20th trade was at breakeven at the time of this writing and I did not have time to wait for it to close out, I counted it as a winner, I will update this article if it ends up becoming a loser when it closes, although this will not change any of the implications or insights of this article.)

While this experiment was meant to prove the power of risk reward, it was also meant to prove the power of price action trading strategies combined with risk reward. My results showed a small profit after entering randomly 20 times with a risk reward of 1 to 2 on every trade, this after having lost 12 out of 20 trades. This means my winning percentage for this series of trades was 40%, so I lost on 60% of the trades and won on only 40% as you can see by the trade history below , this random entry model combined with a 1 to 2 risk reward still profited about $200, this with no edge applied at all.

What is the lesson to learn here?

While the trade history above certainly proves the true power of risk reward, we have to ask ourselves how much better we could do by applying a true edge in the market, like the edge we get from trading price action setups. When combined with experience and education, price action trading strategies can certainly provide you with trade setups that give you a better than 50% probability in the market, assuming you apply discretion and do not over-trade. So, if we assume we can attain at least a 50% win rate by using simple price action strategies like the ones that I teach, and we use a risk reward of at least 1 to 2 on every trade, over a series of 20 trades where we risk $50 per trade, we would make a profit of $500 ($1000 in winnings – $500 in losses).

So, we know that risk reward strategies work, there is no doubt about that at all; you randomly enter the market and if you make at least 2 times your risk on your winning trades, you will likely breakeven or turn a small profit over a series of trades. When we combine this knowledge of the power of risk to reward with a high-probability edge like price action, what we have is a professional money management and trading strategy, which when combined with the proper education and discretion will make money over a series of at least 20 trades or more.

Professional traders know that their winners have to out-pace their losers to make money, because most professional traders only win about 50% of the time. If you have no edge in the market that can get you to the point of winning at least around 50% of your trades, you are probably going to only breakeven over any series of trades, assuming you still implement a risk reward of at least 1 to 2. Most traders do not implement risk reward properly; they take profits of less than 2 times risk which inherently forces them to have a very high overall winning percentage to make money. By taking a profit of less than 2 times risk, you are basically PURPOSESLY putting the odds against you, because you then will have to win over 50% of your trades to make money, and most trading strategies do not give you an edge that will allow you to consistently win over 50% of your trades.

A high quality price action setup allows you to set and forget your trading while still giving you a higher than 50% chance of winning any given setup. What this means is that with price action and risk reward you have a nearly stress-free way to trade the market; you can wait patiently for obvious price action setups that develop from confluent areas and/or in trending markets, enter a risk reward of 1 to 2, and walk away until the trade is closed. If you actually do this with discipline, by only taking obvious price action setups and rigidly implementing a risk reward of at last 1 to 2, you will become profitable over a series of trades.

The key is to not get discouraged if you hit a few losers or become over-confident if you hit a few winners. What if you lose on the first 8 trades out of 20? Look at the results of my trading experiment above; did you notice that I lost on 9 trades in a row before hitting a series of winners? This is called trading, and sometimes you will hit a string of losers or a string of winners, but you can’t let this influence your forex trading plan, you have to have a longer-term outlook and remind yourself that your edge, combined with risk reward, needs time to play out.

Obtaining the proper training is the key.

Other than being able to control your emotions and remaining disciplined enough on a consistent basis to not over-leverage or over-trade and implement proper risk reward on every trade, the biggest variable that can influence your trading success is whether or not you know what your edge is and when you should trade it. This is where proper forex trading education on a high-probability trading strategy like price action comes in. I have been successfully using simple yet effective price action setups to trade the markets now for years, and I teach other traders exactly how I trade in my forex trading course. My course and it’s teachings not only give you a trading strategy, but it shows you when to use the strategy and what the market should look like before you enter.

When you combine my price action setups with a thorough knowledge of risk reward implementation and a mastery of trading plain vanilla price charts, you will begin to think like a professional trader. Pro traders see the market in a completely different way than amateurs do; they do not over complicate anything. First they check the market to see if their trading edge is present; if it is not present then they leave the computer or not look at the charts for a period of time, typically at least 4 hours. If their trading edge is present, they will then move on to the next factor to check; whether or not a risk reward of at least 1 to 2 is logically attainable. If a risk reward of 1 to 2 is attainable then they enter the trade and walk away, that’s it. The reason a professional trader thinks and trades like this is because they don’t get attached to any one trade; they know that each trade is just one out of a series of many that they must take in order to see their edge play out. Amateur traders get caught up on each trade; they react to the emotion of each loser or winner because they simply cannot see the forest for the trees, typically due to a lack of experience and insight.

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• The “music” of the markets – Just like painting a beautiful picture or writing a hair-raising song, if you want to succeed at Forex trading you must implement a refined sense of human discretion. Art allows for unbounded expression and freedom, similarly, chart reading has infinite boundaries since the markets are always in motion. There are many different ways to trade and invest in many different markets, but price action trading gives us a means to read the “music” of the price charts, no matter what market we choose to trade.

• Price action transcends all – Just as other forms of art like music and painting transcend language barriers, race, and gender, price action trading transcends all time frames and markets, giving traders the ability to read the ebb and flow of any market they choose.

• Develop your own trading style – The beauty of art is that there is no “set” style…similarly, with price action you can develop your own style and flexibility after you understand the basic concepts behind the price action trading strategies that I teach. After you learn to read the raw price action of the chart you can apply it anywhere…you are not tied down to one market or one time frame or one market condition. Price action trading is truly the only trading method that transcends all markets and market scenarios and provides you with a way to trade them all.
Why rigid trading systems can’t compete with the art of price action trading

As we discussed in the first part of this article series, the markets are constantly ebbing and flowing, and therefore we cannot use a mechanical trading system to make money consistently. Each day’s price action is different, and it takes a trading strategy that allows you to take advantage of this to truly succeed long-term.

Unlike rigid computer-software trading systems and those based on forex indicators, price action trading provides you with a flexible “framework” to base your trading decisions off of, instead of dictating that you only trade under “exact” circumstances. If you read Jack Schwager’s New Market Wizards books you will see that the greatest traders are not purely mechanical. There simply has to be some amount of human discretion involved in trading the markets if you want to accurately determine when the best trading opportunities arise, in essence, you need to get “in touch” with the market by learning to decipher what price is telling you.
How becoming a master price action “artist” can benefit your trading NOW

No matter what trading strategy or system you are currently using, you probably have an underlying bias or “gut feel” about what the market is going to do next. It’s not surprising either, the movement of the market is the best indicator of what is likely to happen next, and it’s often not very difficult to accurately predict mid to longer-term market direction. Where most traders get tripped up is in timing their entries and effectively navigating the shorter-term movements in the market.

Price action trading allows you to use your natural discretionary trading instinct by providing you with “confirmation” via price action trading setups. For example, if we are trading an up-trending market our bias is naturally going to be bullish, but how do you take advantage of this bias? The best way to use your underlying market bias is to wait for a price action signal that confirms your bias, like a pin bar strategy for example. This way, you are not relying on indicators or trading software, you are simply reading the price action to determine the underlying market bias AND to enter the market. When all of your technical analysis efforts are price-based, you remove the confusion and rigidity of software and indicator-based trading systems.

If you are currently confused or disappointed with your trading system or trading strategy, you need to stop now and start learning to read a ‘naked’ price chart. You simply are not going to develop a refined sense of Forex trading discretion if you do not learn to read the natural ebb and flow of price action. If you are reading this article and find yourself a little overwhelmed and “on the fence” about whether or not to change your current trading system or strategy to price action, consider trying to master one price action strategy at a time on the daily charts. This will allow you to focus your efforts on one price action setup and won’t over-load your brain with too many variables while you transition into a new trading strategy.
Price action leads the news

Have you ever noticed that when big forex news events come out the market often behaves contrary to what that news release implies? Trying to predict where the market will move based on news events is simply not an effective way to trade the markets. Price action actually LEADS news by showing you the movement of price BEFORE the news release. It’s common knowledge that traders and investors act on their expectations of upcoming news, and by the time it is released there is no longer anything to expect, so price will often behave contrary to the implication of the news event.

Since all market news and other variables are reflected via price movement, the best way to trade ANY news event or other variable is to simply learn to become a price action trading artist. This will allow you to make sense of the movement BEFORE the news event, rather than being one of the masses of traders sitting in front of their computer trying to trade Non-Farm payrolls and seeing their money vanish in an instant because they didn’t read the preceding price action.
How to become a master Forex price action trading “artist”

How do you learn other art forms? Sometimes a few talented individuals can teach themselves to play the piano or paint a beautiful picture, but most of the time people need to learn from mentors who have already mastered the art form they are trying to learn.

To play the piano well you need to learn the mechanics of how to play the instrument, you have to learn where all the notes are, scales, chords, and how it all fits together. This is not the actual “art” part; the art comes later, after you have learned the mechanics of the instrument. Similarly, to properly trade price action it is necessary to learn the framework for which you are to base your price action analysis off of, then once you obtain this knowledge you are free to exercise it in any market and on any time frame, although as you may know I am a huge proponent of trading the daily charts.

In case you haven’t noticed, I am one of the biggest advocates of price action trading. If you really want to get inside of my head and learn everything I know about mastering the art of trading with price action…check out my trading course and members’ area. I can tell you beyond a doubt that it will change the way you think about trading the Forex market.

Now the general who wins a battle makes many calculations in his temple ere the battle is fought. The general who loses a battle makes but few calculations beforehand. Thus do many calculations lead to victory and few calculations to defeat: how much more no calculation at all! It is by attention to this point that I can foresee who is likely to win or lose. – Sun Tzu’s Art of War

The above quote is from the famous Chinese book The Art of War by Sun Tzu, it is one of the oldest and most successful books on military strategy ever written, dating back to the second century B.C. This book on military strategy has many similarities to the world of trading. War and trading both deal with constantly changing variables that cannot be predicted with 100% accuracy. Thus, in both war and trading the best way to put the odds of success in your favor is by being as prepared as you possible can BEFORE you enter the battle, or before you enter the markets.

Trading truly is an art

To be a successful Forex trader means that you have developed the internal ability to control both your mind and actions. It also means you have polished your chart reading skills and market analysis skills to the point of having supreme confidence in your ability to “read” the market. Reading the market is not a technically difficult thing to do, however, there is certain element of discretion and “gut” trading feel that sets the top traders apart from the masses. For some traders, fully developing this discretionary trading sense comes sooner than it does for others.

Trading cannot be approached in a mechanical fashion because the markets are dynamic and changing all the time. The only way to effectively navigate such an environment is to follow a method or a guide that gives you some sort of framework to work off of. The obvious choice here is price action, because it is the price action of the market that displays the underlying sentiment of all participants. So, by becoming a successful Forex trader you are also becoming a successful “artist” of the market by learning to read the ebb and flow of price.

Prepare your mind for the “war” of Forex trading

Preparing your mind for the battle of trading is essential for success. The battle consists of you vs. your own emotional urges and impulses, so essentially you are battling yourself… not other traders like many people seem to think. You need to enter the markets with a clean mind, free from confusing trading systems or over-analysis of news and fundamental data, and be consciously aware of the reality of trading.

You can prepare you mind by accepting the true nature of trading and the reality of what is possible given your individual financial situation. If you have a $1,000 trading account, you aren’t going to earn enough to live on and quit your job, it’s just that simple. You need to focus on the mechanics of proper trading and proper forex money management first, and then the money will come. Most beginning traders do the opposite; they focus on the money first and proper trading and risk control techniques later only after losing more money than they care to admit.

The best traders do not care if they win or lose on any given trade, because they are aware that trading is about proper execution of their trading edge and proper risk management, and they know that losing some trades is just part of the game. Another reason successful traders do not care if they win or lose on any given trade is because they don’t put unnecessary pressure on themselves to make a certain amount of money. Trading is profession where you never know for sure how much you will earn each month, so you have to learn to master your trading strategy and follow it to the T, whatever gains you make on top of that should be seen as success.

When you enter the market with unrealistic expectations about how much money you can make given the amount you have to trade with, you set yourself up for failure right out of the gate, obviously this is not the best way to get started. Also, when you put pressure on yourself to make money on every single trade you are setting yourself up for failure. You need to approach the markets from a realistic attitude about what’s possible with the money you have available and given the fact that you MUST manage risk effectively on every trade, if you can achieve and maintain this attitude, you will develop an effective trading mindset.

Being mentally prepared for trading on an on-going basis

What happens when you fall off the track and your emotions get the better of you in the markets? You know when you spin out of control and lose a bunch of stupid trades in a row? I’m willing to bet this has happened to you but only after it’s all said and done do you realize the mistakes you’ve made.

The way around committing these huge emotional trading errors is to make sure you are mentally prepared not just as you start trading, but every time you trade. You need a Forex trading plan to condense all of your trading strategies and money management ideas into one concise and practical format. This will give you a framework to base your trading off of and will hopefully act as a guide to keep your mind on the right track. You need to include your trading strategies, your money management plans, and any important insights for staying motivated to remain disciplined.

The next thing you need to employ to help you remain mentally prepared on an on-going basis is a Forex trading journal. Keeping a track record of your trading is of paramount importance to your on-going success and to maintaining the proper mindset as you trade the markets. You need to see via hard evidence how your trading is progressing (or not progressing), this will give you some much needed insight into what you are doing wrong or right, and then hopefully you can learn from these insights and become a better trader.

Setting up your trading room

The first step to getting started treating your Forex trading like a business is creating the optimal work environment. Yes, you can work from anywhere when trading, but this doesn’t mean you should trade from your lazy-boy chair while eating potato chips and watching your favorite TV show. Just as with any other business, you need to separate your trading business from your personal life as much as possible. You need a clear mind when trading, and this starts with a clean trading environment and a work atmosphere that allows you to cultivate the proper trading mindset. I wrote a whole article dedicated to setting up your trading room, check it out after reading today’s lesson: Setting Up A Forex Trading Room To Improve Trading Results

What do you need to get started? You can trade from only a laptop, but if you choose to do this I suggest getting a dedicated laptop that you use only for trading. Laptops are relatively cheap now and there’s no harm in investing in a good machine so that you can keep all your trading activities separate from your kids’ computer games or whatever else you have clogging up your computer now. Remember, developing the proper trading mindset begins with creating a clean and clear trading environment. This does not mean that you need to charge up your credit card and buy three new flat-screen monitors and two high-powered desktop computers. You can obviously go all-out if you want, but you can also trade effectively from just a quiet room with a simple desk and a good laptop or iPad.

One other note about getting started with the proper hardware and software; there’s no need for expensive trading software or news-feed subscriptions. All you need is the free MT4 charting package provided by most reputable brokers and a good working computer. You don’t need to confuse yourself by watching CNBC or reading tons of Forex news every day; this will only cloud up your thinking and cause you to second-guess yourself.

Choosing your trading strategy and developing your Forex trading business plan

After you get your trading room all setup and sorted out, you need to figure out what strategy you are going use to trade the markets. You then need to learn everything about your chosen trading strategy so that you truly become a master of it. You should have no doubt what you are looking for every time you step into your trading room or open up your charting platform.

After you master your trading strategy it’s time to develop your Forex trading business plan. Every business starts with a business plan, so to think you are going to figure out how to trade successfully with no plan in place is just silly, yet most traders ignore Forex trading plans or think they don’t need them…and most traders lose money.

I am not going to go into too much more detail about this topic, but you can check out my article on forex trading plans for more. For now, you need to understand that treating your trading as a business revolves around mastering a trading strategy and developing a comprehensive yet concise trading plan around the strategy you’ve mastered, and then following your plan with unyielding discipline.

Set aside time to analyze and trade the market

After creating the optimal trading environment, mastering an effective trading strategy, and creating your Forex trading business plan, you need to dedicate time each day JUST for market analysis. You should not place any trades at this time, instead you need to dedicate a certain block of time each day to analyze the charts with a clear and calm mind. Spend at least 15 minutes to one hour a day on nothing but analyzing the markets with a calm and clear mind.

I really want to stress that it’s important to take time for market analysis and separate yourself from your life’s daily distractions. This might mean you have to lock yourself in your trading room with your favorite music on to mute whatever is going on around you. You’ll have plenty of time to spend with your family and for your other hobbies after you launch your Forex trading business, but for now you’ll need to set aside a certain amount of time each day to get your trading business up and running.

Now, AFTER your dedicated daily market analysis time, you can place your trades if there are any setups that meet the pre-defined conditions in your Forex business trading plan. Keep in mind, placing a trade is a BUSINESS transaction, not a random gamble at the casino. So, just like any business transaction you should be sure any trade you take is worth the money you have at risk, and realize that if you enter too many stupid trades (trades that don’t meet the conditions in your trading plan), you will eventually go out of business, meaning you’ll blow out your trading account. So, if after your market analysis you find no obvious trade setups that meet your trading plan conditions, you simply don’t trade that day; don’t force a trade if there isn’t one there.

Emotion management is an on-going part of your Forex trading business

Just as you do not want to be emotional when participating in a business meeting or discussing a business deal, you do not want to be emotional when analyzing or trading the market. Essentially, emotion is the number 1 enemy of forex trading success, and the more impulsive and emotional you are the worse you are going to do in the markets.

Remember, you are running a trading business here, so you’ve taken risk to make a reward, just like any other business. There is no reason to mess around with your trades all day or over-analyze the market. Part of trading successfully involves giving the market room to breathe, you are going to be the LEAST emotional BEFORE you enter the market, and so it only makes sense to do all your “thinking” and analysis BEFORE you risk your money, not WHILE your money is on the line. Once you decide to enter into a business deal you usually cannot back out of it unless you want to pay a hefty fine or break the law, in Forex trading it’s usually better to just let the pre-defined decisions you’ve made play out instead of breaking your trading rules by interfering with your trades.

Manage your trading money like a business

I personally don’t know many people who compound their trading accounts by never taking any profits out. You don’t want to just leave your money in your account; you need to take your profits out periodically so that you “earn” the money. You’ll have to pay taxes on your profits when you withdrawal them, just like any other business, this is something you’ll have to explore more on your own time and according to the laws in the country you live in. In Australia…

Of course, you can’t take any money out of your Forex trading business if you are not making any money. If you want to make money you will have to do everything we’ve already discussed in this article as well as practice effective forex money management on EVERY single trade you take. Most traders mess up big time here because they say to themselves, “I’ll just risk a little more on this trade…”, and then it kicks off a wave emotional trading that is very difficult to stop. Just like any other habit in life, it’s best to develop positive habits early on and then stick with them, rather than trying to “fix” years of negative habits. Get in the habit right now of managing your risk effectively on every trade if you want to seriously run a profitable Forex trading business.

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• Forex Trading a business or just a Game

While this is not an easy goal to achieve, it can be done if you are willing to be disciplined and change the way you think about trading the markets. In today’s Forex trading lesson, I am going to share with you my honest and practical insight on how to successfully trade with a small trading account. So, if you’ve been lying awake at night, unable to sleep because you just can’t seem to make any consistent progress on your small trading account, this article is for you.

Before we dive into the details of today’s lesson, it’s worth noting that you are not experiencing difficulty in your trading because you have a small trading account. To be honest with you, the size of your trading account has no bearing on whether or not you are a successful Forex trader. A successful Forex trader is not necessarily a full-time professional trader, this is a myth you need to forget about right now.

You need to view success in the markets as a function of what is possible given the size of your trading account. So, if you have a $2,000 trading account and you are consistently making $200 a month, you should consider yourself a successful Forex trader, even though you obviously cannot live on $200 a month, more on this later.

Some people come into the markets with a $50,000 or $100,000 account and lose all their money in a short period of time. While other traders start with $1,000 and parlay that small amount into a substantial trading account over time. The determining factor of success lies not in the size of the trader’s account but in their beliefs about what successful trading consists of and what they need to do to achieve it.

Focus on trading the markets, not on making the money

It is not a profound statement to say that making money in the markets is a result of successfully trading them, but it’s worth examining this statement further to see just where most traders with small accounts go wrong.

The problem that plagues most traders with small accounts is that they are probably coming into the markets feeling a “need” to make money because they have put all the disposable income they have into their trading account and they really want to quit their jobs / get rich quick / buy a yacht, etc. The point is that trading the markets with a feeling of “need” results in you focusing most of your brain power on money and profits and much less of it on managing risk and mastering an effective Forex trading strategy like price action trading.

A trader needs to be good at trading a small account before they can move on to a larger account. I would even say that even if you do have a large sum of money to trade with, you should not fund your account with all of it until you have proved to yourself that you can make money on a smaller sum of money. Your focus should not be on turning a small account into lots and lots of money extremely quickly, this is simply not possible if you are managing your risk properly.

Instead, your focus should be on becoming a good trader, not on making money super fast. If you learn to trade the market successfully, the money will follow and attract itself to you in increasing amounts as time goes on. You truly need to focus on the trading not on the money if you want to have a chance at keeping your emotions at bay and obtaining consistent trading success as a result.

I can’t even tell you how many emails I get each week from people asking me questions like ‘Nial, how much money do I need in my account to make $1,000 a month’, or any number of other similar questions that just totally miss the point of what successful trading is all about. I am not criticizing anyone for asking such questions, as most beginners simply do not know what it takes to succeed in the markets and have probably been fed lies and rumors by other Forex websites that promise them the world but deliver little in the way of practical trading strategies and insight.

But, traders need to understand that in order to make consistent money in the markets they must first master a trading strategy like price action, build a trading plan around it, manage risk effectively and with discipline, and not stray from these primary tenants of successful trading, if you can do these things you will see your trading account will grow slow but consistently. If you don’t do these things you will be another member of the large pool of losing Forex traders who refuse to stop thinking about getting rich overnight.

Treat a small trading account as if it were 1 million dollars

If you had a 1 million dollar trading account and had one or two big winners per month, you would be making substantial money, and you would have an impressively consistent track record.

You need to think about your current trading account as if it is a 1 million dollar account, because the principles that lead to consistently successful trading are the same. You are only feeling the emotion and urgency to trade now because your account is small and you want to make a lot of money really fast. But, unfortunately the path to make money in the markets is not paved by risking a lot and trading too much, but rather by taking a slow and calculated approach to your trading and never becoming emotional.

If you had a 1 million trading account, you would have no problem waiting for a pin bar strategy or fakey setup that sticks out like sore thumb on the charts, because you know you only need a few good trades a month to make your money. Granted, it’s easier to not care about the money when you have 1 million dollars, but the point of this article is that in order to make money on your small trading account you need to THINK like you have a big trading account now, because this will deliver you from feeling the urgency and “need” to trade that you probably feel now which is causing you to over-trade, over-leverage, and lose money consistently.

The very reason why most traders lose money is because they simply cannot see the forest for the trees, meaning they get caught up in the temptation to trade every day and over-leverage their accounts because they forget about or are unaware of the bigger picture of trading, which is that slow and steady wins the race, not fast and haphazard. Many traders also get caught up in trying to analyze every piece of news data and all the forex indicators they can get their hands on. Adding such unnecessary variables to your trading analysis only works to keep you deeper in the realm of emotional trading and further away from understanding the bigger picture of what Forex trading success is all about.

A consistent track record can take you places

If your trading account is somewhere in the range of $2,000 or less, we are going to consider this a “very small” trading account and this means your focus absolutely has to be on building a consistent track record and building your confidence as a trader. Then, as you grow and progress as a trader and your track record becomes consistently profitable each month, you can proceed to trade larger sums of money. If you do not have access to more money you can look to an investor, friend, bank or prop firm for trading funds, I even fund some of my successful students from time to time if they have proven themselves to me.

So, if you have a small trading account right now, your primary goals to trade it successfully are to do the following things:

• Forget about the money and instead become “engrossed” in mastering an effective yet simple trading strategy like price action. The more focus you put into the process of trading instead of making money and getting rich, the sooner the money that you desire will find its way into your trading account.

• Build a trading plan off of the price action trading strategies you have mastered. A forex trading plan is essential for succeeding long-term in the markets because it gives you an objective daily guide to follow and will lay out all your entry, exit, and money management strategies, so that you are not just trading on a whim every time you open up your charts.

• Once you build your trading plan you are going to need to track your progress in a forex trading journal so that you can stay disciplined and accountable. If you don’t maintain a trading journal you are probably going to lose your discipline and focus because you will not have a tangible piece of evidence that reflects all your trades.

If you are looking for a backer to fund your trading, they are going to want to see hard evidence that you can trade consistently. This evidence will need to at least contain a legitimate track record that reflects your account history and a comprehensive yet concise Forex trading plan that matches the trades you’ve executed in your trading account history. They are not going to care that much about how much money you have in your account, if you are trading a real-money account and you can provide documents that show your discipline and consistency over a period of 3 months or more, you will not have trouble finding investors or institutions to fund you. So, if nothing else, let this be the motivating force that you need to stop trading haphazardly and get disciplined.

Managing your money on a small trading account

Finally, a few words on managing your money in a small account: it’s no different from how you would manage your money on a larger account, except that you will obviously be trading smaller position sizes per trade. Whatever you do, do not get greedy and trade too large or over-leverage on a smaller account, this is a common emotional trading mistake and it will kill your trading account faster than you think and greatly inhibit your chances of becoming a successful trader.

If you will just slow down and focus on trading like a sniper and not a machine gunner by learning to trade only the most obvious and confluent price action setups, you will be able to trade much more relaxed and care-free, this will help you greatly in your money management. I will not go into my personal Forex money management theory to deeply right now, because I have written about it in other articles, one of which I suggest you read when you finish this one: Don’t measure your profits in percentages or pips. But, basically, you should never risk more money per trade than you are TRULY OK with losing, because you COULD lose on ANY trade, let the be your guiding principle before you enter any trade, because if you really accept this statement you will not ever risk more than you are comfortable with losing.

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