I communicate with a lot of Forex traders on a regular basis and some of their biggest concerns center around their risk/reward ratio and also their ability to earn consistent profits. What if you could find a way to earn consistent profits in the Forex market while at the same being so accurate that the protective stop that you use is more of a formality in the respect that you almost don’t even need one? The protective stop is basically for disaster protection if something horrible happens somewhere in the world. How would you react if I went on further to suggest that most Forex traders that are decent traders only need to make one small adjustment to their trading and they could turn their trading life around almost instantaneously?
Several years ago I realized one of the most obvious things about the Forex market which is that it is largely unpredictable but like most traders I looked at Forex charts regularly trying out a multitude of indicators using them in both conventional and non-conventional ways. My conclusion back then is the same as my conclusion now which is also the biggest reason that I believe that Forex trading robots cannot work over an extended period of time. The reason is very basic it is simply that the way the price action of the pairs moves changes over time so what works today won’t necessarily work in the future at least to the same extent. Like any good risk taking Forex trader I persisted and developed a tremendous number of trading methods. Virtually all of the trading methods that I developed work great “until they didn’t”. After repeating this process many times I finally realized the one true consistency that is innate in the Forex market which was the “until they didn’t” part of the statement above. In a general business setting I have always believed that you can do business with any type of person as long as you understand what type of person it is that you are dealing with. Applying this to the Forex market forced me to believe that I can conduct business in the Forex market I just need to recognize what type of market it is. My conclusion was that the Forex market is the type of market that will stay the same for a period of time and then it will change sometimes quickly and sometimes gradually but it will change. It is how the actual price action of the pair’s moves, changes and morphs, often times making what worked last week not work this week and what works for trading some pairs does not work well at all on others.
That being said more proactive action and a little common sense is obviously necessary. Anytime any trade is entered into in the Forex market we have a 50/50 chance of winning on the trade because eventually there are only two choices of direction which are either up or down. If you add an indicator or two and a few rules to create a trading method you may be able to skew the odds of winning in your favor by X percent. All you really need to do at that point is to determine when applying the trading method does each trade go in the money before they go significantly out of the money and how far in each direction do they go. The better the method is the further the trades will typically go in the money before they go significantly out of the money so at that point all you need to do is to determine by what number of pips do all of the trades go in the money before they turn against you. The number of pips is largely irrelevant because at that point you have discovered how to win on virtually every trade that you participate in.
Place your profit objective comfortably under whatever number of pips it is that you can win on with a high degree of accuracy and you will rarely lose. The fallacy around this strategy is, for example, when traders have a 25 pip profit target and they see a market move of 150 pips they may feel like they have given up a lot of pips. In reality if they won a good amount of the 150 pips on that one trade they will likely give back most of it on the next trade or two so being somewhat conservative and consistently looking for a very achievable number of pips takes away a lot of the uncertainty of trading and largely takes the trader out of the management equation. The big wins and often times bigger losses along with the consecutive losses can create the need to constantly change or adjust the trading method used, all of this will go away for the most part. Consistently winning a smaller number of pips will allow you to confidently trade with a much bigger position size which using this strategy is what really controls the amount of money made on each transaction. Increasing the position size as the account grows will compound the account in a consistent way or it could create the steady income that many traders are looking for.