If you want to rake in the cash as a forex trader, you need to sharpen your trading edge. And no, I’m not saying act like you’re the hottest thing since Muhammed Ali. Having a trade edge requires you to identify conditions in the forex market that enhances the probability of you making a winning trade. And please,forget about using indicators,or any kind of weird gizmo to develop your trading edge – They are not going to help you. You need a deadly combination of knowledge of the market and plain old instincts to develop your trading edge.
We’ll look at what a trading edge really is and then learn how to sharpen our trading edge.
I guess the first question we need to ask is:
What is A Trading Edge?
Well, a trading edge is basically a set of conditions in the forex market that increases the probability of you chalking a winning trade. These conditions must be present in the market in order for your entry trade to be a winnable one. if you are able to recognize these conditions, you have the edge over everybody else especially those traders who have the gamblers mentality rather than the traders mindset. If the conditions aren’t present, DO NOT BOTHER ENTERING A TRADE. Failure to listen to that still small voice could be fatal for your trading account.
Can You Give Us Examples Of A Trading Edge Please?
Sure. For instance could base your trading edge on identifying the when the market is trending. You want to look to look out for the bulls heading for Mount Everest or the Bears heading for the Grand Canyon. For those of you wondering”What is he talking about?” The bulls represent the bullish trend initiating a strong upward surge when price goes up.While the bears represent the bearish trend heading downwards after the price takes a tumble. Just in case some of you have completely forgotten what trending markets look like?Let’s take a look at a graph of the aforementioned.
These,ladies and gentlemen are two illustrations of bullish and bearish trends In the bullish chart, the blue candlesticks surging upward represent the bullish trend. Whenever you get a bullish candlestick engulfing a bearish candlestick(black..But could be any other color depending on platfom).( That’s means a bullish trend is developing or the bulls are heading for the hills. Please make sure you get at least two more bullish candlestick confirmations before you enter your trade. If you jump in straight away, you risk losing some much needed cash
In the bearish chart pattern,the black candlesticks heading downwards represent a bearish trend. This is where the bears take over and force the price to take a tumble. And, the bearish trend kicks off a bearish candlestick engulfs a bullish candlestick. Make sure you get at least 2-3 bearish candlestick confirmations to establish a bearish trend. And please, look to sell on a bearish trend NOT BUY.(You only buy on a bullish trend). You make the mistake of making entering to buy,that will be your own massive headache.
So if your trading edge is bullish and bearish trends,this is what you need to identify when looking for trades.
Another example of a trading edge is support and resistance levels. If you’re the type who gets a huge thrill from trading support and resistance levels, this is for you. . Again,in case some of you have forgotten, the support level catches price as it falls. Meaning that it bounces of this level rather than break through it . So basically it acts as a trampoline of sorts. But in case price breaks through this support level, it continues dropping until it bounces off another support level.
The resistance level is the complete opposite.It rather acts as a barrier against price as it rises.But once price breaches this level, it heads for the hills until it runs into another resistance level. Now let’s take a look at illustrations of both levels
Ladies and gentlemen,this is an illustration of support and resistance levels in action in the USD/JPY session. At the resistance level,the bears are playing trampoline as they try to break through the support level. However, when the bears do break through, don’t forget put in a trade.Will you? But , at the resistance level, the bulls basically tell the bears”Get out of our way” as they breach the resistance barrier and head for the hills.
So if you prefer trading as support and resistance level as your trading edge, these are the conditions that must be present on the market for you to trade these levels. If anybody is seeking information on trading support and resistance levels, get in touch with my Identify Support and Resistance Levels With Price Action Analysis post.
Let’s get one thing straight. The above strategies are just two examples that you could use as your trading edge. You could use any of the other trading strategies that we’ve discussed on this blog as your trading edge.Just make sure the conditions for these strategies are present in the market for you to trade them That is assuming you really care about not blowing trading account to smithereens.
Now that we’ve identified what a trading edge, how do we sharpen our trading edge?
Well, there are a few ways of getting your trading edge sharpened like a knife. Starting With:
Pay Attention To The Price Action
As a price action trader, naturally you need to pay attention to the price action – no ifs,no buts. You need to watch what’s happening on your price action chart like a hawk. Be on the look out for trading opportunities in conditions such as support and resistance levels, trends, and general trade behavior. Let’s take a look at the graphic below.
This is an illustration of what you will be staring at. As you can see, there are so many trading opportunities along the support level that you can take advantage of. You just need to keep your eyes wide open.
Some of you may be wondering “I thought pattern trading was also part of price action trading.?” Sure it is.But you’re only looking at the last two candlestick entries as signals. Besides,these candlesticks are a few of several candlesticks on the charts. Now I’m not saying ditch pattern trading altogether -absolutely not! I’m just saying you need to be more holistic in your analysis.
Learn One Price Action Setup At A Time
If you want to maintain your sanity as a price action trader, learn one price action setup at a time. If you think cramming all the price action setups all at once, you’ll suffer mental meltdown. You see the way a nuclear reactor melts down after overheating. That’s exactly how your brain will react when you try to force it to cram every price action setup. Just allow your brain to digest one price action setup at a time,and you’ll eventually ease into the flow of the forex trading process
Once you’ve perfected your chosen setup,you can then look to make your entry. Like I said earlier, As I said earlier look at strong trends,whether price is rejecting support or resistance, and whether there is leg room for price to maneuver,et,c.
Not sure of which price action setup to work with?Let me give you two setups you can work with. We’ve dealt with these setups already on this blog in the not too distant pat.,but this is to refresh your memory.
Pin Bar Reversal
As you already know, the pin bar is characterized by a long stick, popularly known as a wick. Anytime you see this candlestick, think sharp reversal or rejection of price. The bullish trend suggests a continuation after the bulls take a breather from butting heads with the bears.
The same scenario pertains in the bearish trend. and The pin bar in this scenario also represents a sharp reversal or rejection of price by the bears. The same continuation pattern also exists in the bearish pattern with the bears heading down south after taking a breather from butting heads with the bulls.
So if you want to make the pin bar reversal your trading cup of tea,these are the conditions to look out for. For more information on the pin bar, look up Pin Bar Strategy – How To Trade It
As you can see the inside bar is a two bar situation where the smaller bar(inside bar) is within the higher to lower range of the previous bar. The candlesticks encased in the squares in both the bearish and the bullish trends represent the inside bar setup. The bigger candlestick is affectionately called the mother bar.(Almost like mother hen). Whenever you see such a setup,- whether bullish or bearish,it’s time to enter a trade.
If you want to know more about Inside Bar strategy, look up Trading The Inside Bar.
Less Is More
There is a painful reality you need to accept in forex trading. It is basically this:LESS IS MORE. The notion that trading more makes your forex account looks good completely baseless.. If anything, it puts your account in harm’s way especially when you make losing trades. Picture this scenario: You enter an average trade without thinking it through. You then recognize a juicy trade,and you say to yourself”..Hmmmm time to make up for a lost trade.” Luckily for you, you make a decent profit,which excites you to no end.
I have a huge problem with this trading mentality. Why? Because you lost an average trade, you’re then forced to jump back into the market just to break even. I have traded like that in the past. And believe me,it;s not fun at all. You’re stressed out, struggling to look out for what you believe to be the best trade out there to make up for lost money. Not only are you putting your blood pressure in harm’s way trading this way, but you’re also puting your trading account under pressure . Imagine if your forex account could talk. It’ll probably be screaming in your face saying”YOU DONT KNOW WHAT YOU’RE DOING.” Now that will be very humiliating. Wouldn’t it?
The morale of the story is just concentrate on one trade that will bring you maximum profits. All you have to do is develop the sniper mentality where you lie in wait for the best trade to come along. Once the trade shows up on your charts, you pounce like a lion,make your trade and earn some nice profits. Just make sure the trade has a high probability of sucess. If you want to know how to identify high probability trades, refer to How To Spot High Probability Trades.
If you’ve stumbled in here looking to join the forex trade bandwagon, here is what you need to do. First, look up Why Forex Trade Is So popular. Next, you learn the fundamentals of forex trading by reading Forex Trading Basics – Top To Bottom Part I and Forex Trading Basics – Top to Bottom Part II .
To be able to interpret what the candlesticks are telling you, You Need To Know Ten Of These Candlestick Patterns . if you want to give your trading skills an edge by relying on pure price action trading/analysis, instead of fancy forex robots and fancy indicators,, get started with What is Price Action Trading?
However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch of several weeks, consult How to Spot High Probability Trades. Dont let me stop you from reading the other posts as well. But the suggested posts above are the most important posts to get you started.
That’s a wrap for “You Need To Sharpen Your Trading Edge.”. Hopefully, you’ve learnt that you don’tjust jump into the market. You need to identify certain conditions before you trade-depending on your trading strategy of course Till next time take care.
P.S. If you want to know everything there is to know about price action trading Download for free The Ultimate Guide To Price Action Trading by Rayner Teo .This brilliant ebook will change your life as a trader. It sure did mine. And if you want a place to put your price action trading strategies into practice(Including Sharpening Your Trading Edge), and get a simulated feel of live forex trading conditions before trading live, open a free demo trading account with Easymarkets. And if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets and get a free forex trading ebook
If you’d like to subscribe to my mailing list, fill the form below and I’ll gladly add you to the list