Money is an idea backed with confidence. Trading Forex currency pairs is the idea. The confidence part is the standard following of the conditions and combinations in actually trading. All the knowingness you will ever have is already there, and it is summed up in be. (BE a highly successful trader. That’s unfortunately the entire secret to trading successfully.)

The Foundation: The Trading Rules, and Risk and Money Management

While following the four trading rules and proper money management techniques, we cannot ever lose money in the long run. The foundation of everything we do is tied to the four trading rules, and risk and money management. Everything else is built around that super strong foundation that is on super strong land. Everything else adds certainty or much higher probabilities on market movement direction.

Strength or Weakness Divergeneces are There or Not There

Signals are either there or not there. It’s not ever “close”. It’s not ever “almost there”. It’s not ever “forming”. There is no such thing as “maybe”. It is either there, or it is not there. If it is not clearly there, you’re on the wrong chart. There are no shades of grey. It’s yes, or it’s no. (I’m not always all “Aristotelian” in my logic, but it’s necessary here.)

We find that by locating specific patterns of discrepancies in waves in time, starting with future strength on a bigger chart, combined with agreement in past weakness on charts below the future strength, all agreeing on which way the market will move, we can accurately predict market direction, at least for a while.

We continually combine conditions and patterns of strength and weakness in temporal agreement on direction. In other words, for example, if we have strength to move up, we want to see weakness in downward motion on smaller charts. Strength on bigger charts combined with counter-directional weakness on smaller charts is what we want. We trade strength. We trade “Strengthenings”.

Every signal, every motion on the indicators and market, every wave have their respective aspects of strength and weakness. Combining these aspects in real time to get agreement on direction is what we do in predicting market action. It’s all about discrepancies in comparable waves in time.

Higher probabilities are still less certain than certainties. Thus, if we are trading the higher probabilities, we must be tighter on our stops. When we are trading our certainties, we can be looser on our stops. The certainties are the line-ups from a next chart in time that can push the market farther in a direction. The higher probability trades are given to us solely in the form of weakness with no larger chart future strength.

The answer to the question, “Is the market done moving in the direction it is currently moving (at least for now)?” is the exact same answer as the question, “Do we have a line-up from a next chart that can push the market right now?” Line-ups show our future strength(s) and our past weakness(es) to give us certainty that the market will move in the direction we say it will move.

We only ever work from the last larger line-up (and determine where we are in that line-up, as given by time) and now. We project into the future by determining what must happen to give us the conditions we must have to have a trade, or to continue in a trade.

When to ignore signals and/or line-ups is equally as important as when to heed them. The answer of when to ignore is found in TIME.

Time is nothing more than advanced wave theory (not ever to be covered on this blog, but in the coming membership site here (with a free option, too), and properly read, time has no more meaning than waves.

There is no such thing as the market behaving improperly. There is only reading the charts properly or improperly. The market is never wrong in what it is doing because it is doing it and you agree to it.

If you have any comments or questions, please ask or leave them. I’ll get to you as soon as I possibly can. Stay great and trade your favorite currency pair well!

Since I don’t have a forex training video for you tonight, I’ll write about chart reading.

The Purpose of Chart Reading in Trading

The markets are constantly changing. The markets have fundamental dynamic changes lasting various lengths of time, then those fundamental dynamics change again to another pattern.

It seems that as more and more automated trading programs enter the trading arena, the more crazy the markets are becoming. Big counter-directional moves occur at strange points, where the market seems like it should be moving up or down, the market just moves sideways. The basic principles in this training site, what has been written and more to come, however, still hold solid just as they have for a long time.

The basic purpose of reading charts for entry and exit is to increase the probabilities in your risk and money management rules. Understand that very, very well: The main purpose of the chart reading is to improve the probabilities in your risk and money management rules.

When undertaking any endeavor that requires an outlay of capital, the trained individual or group weighs the risks, the potential rewards, and the probabilities of those rewards. What the chart reading aspects of trading do is to give you a fairly quick method of market analysis so that you can more accurately predict what the market should do when certain conditions are met.

So the essence of what chart reading does is to analyze the three main questions any truly successful people ask themselves on some level:

1.What is the worst that can possibly happen, and can I handle that?
2.What is the most likely thing that will happen?
3.What is the best thing that can happen?

And then the successful people act according to the answers they come up with. If the worst thing that can happen is unacceptable, then there’s absolutely no reason to do it, and the rest of the questions don’t really matter.

A great example of this in the trading rules is, “What is the worst that can happen if I don’t set a stop-loss immediately upon entering the market?” The worst that can happen is that your entire account can be depleted and you can owe your broker a lot of money in addition to that.

So the truly successful trader knows that s/he will set a stop-loss immediately upon entering the market because the answer to not doing so is very unacceptable to him or her. Again, the bigger purpose behind chart reading is to more quickly be able to identify higher probability times when the market should move in a known direction so the risk and money management rules can work more efficiently and profitably.

It’s not rocket science (which really can be quite complicated!), but it is the exertion of self-discipline.

You know the market should make a move because the probabilities are strongly in your favor, then you can make the probabilities work more in your favor so your account can multiply more quickly.

This training tool begins with a basic, proven, time-tested and profitable model, then adds to it as the level of your knowledge increases. It’s a gradient approach that has shown itself to be more effective than any other training approach I know of, and it has proven itself workable with multiple students who are now trading more effectively than ever before.

So the basic risk and money management model is nothing more than a foundation to build upon. It’s a strong foundation, and it’s built upon solid ground.

As you are studying more and more, you will want to read this Forex training site, study this site with the intention of successfully applying the information so your account multiplies over time.

Paper Trading Basics

As you are paper trading, do not get sucked into a lack of discipline, into doing things just because you think it might just be profitable and want to find out, into trying to catch every single move that comes about in the market(s) you’re watching. Do your paper trading exactly – exactly – as you would with real funds. That’s the ONLY way you will ever truly, honestly, know what you can do with real funds. Exert the same self-discipline, the same risk and money management rules and sequences, the exact same everything. Before you change any part of the complete system that you are trading, exactly define every aspect of trading, as given throughout this site, and paper trade it EXACTLY as you have defined it.

Unfortunately, precise application in your paper trading over time is the ONLY way you will truly and honestly know what kind of results you can expect in the future with real funds. Discipline in your paper trading, knowing what you really did in a given situation, is the only way to begin to master the contents of this site to come. Please exert strict discipline in your actions, and don’t ever say something like, “I would have known that” or “I would have taken that trade”. That’s a maybe, and “maybes” are not certainties.

Manage Your Trading Well.

I’ve been watching the EUR/USD and thought there might be a real time example of a bigger chart strength plus the (multiple) smaller chart weakness. Luckily I was right. The video below shows the possible trade as it’s setting up. It’s not a trade - yet, but it’s here now.

If you have any questions, please ask and I’ll answer as quickly as I can. Any comments - great! Tell me what you want to learn about here, and if I can immediately fit it in, I will. If not, I’ll let you know when it will be scheduled.

The point here is that I want to teach you a basic model of trading, something that is simple, so you can practice managing the system quickly. Paper trading the forex markets is good if you treat the “paper trading” as THE time to learn how to manage the trading system that you’re using. More on that another day.

So the basic concept here is that when you have the bigger chart strength divergence (to go down in the video example) combined with multiple smaller chart weakness (the weakness is in moving higher, so the market looks like it wants to move down, lower) is a great place to use the previous peak take out basic trading model.

The two combine beautifully. The purpose of indicators is to increase the probabilities of your basic trading model in your favor. The divergences do that very well in forex markets - especially combined with the previous peak takeout model.

Any questions? Ask. I’ll answer. Stay great and have a truly phenomenal trading day!

I’m going to say the same things in the four basic rules of trading in different ways. Repetition is the mother of skill. Action, doing, is the father of skill. Every successful trader who has been around more than a decade follows these rules of trading. Many Forex courses seem to like to ignore at least two of the rules; some only one. But all the forex trading rules here, faithfully followed, will increase your probabilities of success.

Caveat: The trading rules are much easier said and explained than done.

Part of The Almighty “They” says that trading is risky/dangerous. It’s even required by law to tell everyone that in any advertising or material related to trading markets. Trading is risky and dangerous and before you ever trade with real funds, funds that you can afford to lose, you should consider and understand all the risks involved. That said…

1. Trade with future strength / Trade in the direction of future creation / Trade with the trend.
2. Cut your losses short and quick.
3. Let your profits run and multiply as safely as possible.
4. Manage risk, money and profits by managing your trading system.

The four rules of trading are really three rules, and a fourth rule that says to follow the first three rules with control. Pretty interesting, huh?

The Four Basic Rules of Trading Forex Successfully (In their order of execution)

1. Trade with FUTURE STRENGTH, the direction of future creation - also known a “trade with the trend”.

If you have ever realized that “everyone” is “always” wrong, and then looked at the way the classic statement of this rule reads, you’ll realize that everyone is, indeed, too frequently wrong. The classic statement of this rule is “Trade with the trend.” You’ve heard that “the trend is your friend”, but have you ever had a ‘friend’ turn on you? It’s not a good feeling.

Trends end, and by the time everyone realizes that a trend is a trend, it reverses. Friends can be tricky, trends can be tricky. It’s one of those things that “everyone knows”. So don’t do it unless it is the direction of future strength.

When you get to more of the chart reading portions of this system, the statement of trading with future strength, which is the direction of future creation, will make a lot more sense to you. You’ve already seen some of it with the divergences, but there are interesting sequences that will be given in the coming memebers area.

Be sure you study this whole site several times through. New things will be continually added - practically every day for quite a while.

You’ve got to figure that’s what the folks with the most money do, so you should, too.
We further elaborate on this rule by only trading strengthening legs of moves or trends. We almost only trade such future strength trades, with the rare multi-chart weakenss trade exactly according to the line-ups sections (in the coming members area).

We only add positions, if we do, on strengthening ends of legs or trends, never on the weakening end. In trading strengthening moves or trends, we must have future strength in the direction of the move or trend, combined with past weakness.

Smaller chart weakness without larger chart strength above are not trades until the market has proven with smaller chart “line-ups”, or “time synchs”, that the move or new trend has started strengthening. Trading weakness without strength above them is a direct violation of trade with future strength. There is only one exception to that, and you will learn of that exception in the line-ups, time synchs, section of the training.

It is best to enter the market by placing market orders, or by making the market prove it really does want to go that way by placing a stop order beyond the previous market peak in the direction you want to trade. (We will cover strategies for when to do all of the above.)

Limit orders are only used to ensure that you are out of a winning position at a certain price point.

2.Cut your losses short and quick.

Look, if you’re wrong, you’re wrong, admit it fast and look for another trade or another market to trade. To preserve and protect your capital with the least risk, you have to be willing to lose because you will not be perfect in trading the markets. Perfection is an absolute and in this universe, absolutes are not attainable.

So if you’re going to lose, lose just a little bit. If you’re following the chart reading system given herein, then you’ve got more to learn about time. That’s all it means. I don’t have it down perfect in real time, and I continue to get better as I go. The principles just don’t fail. But we all can make mistakes in our reading. We can all make good trades, too. Even with the flip of a coin.

Don’t get too attached to any given trade. Some setups are prettier than others, some moves are better than others. It’s just a fact, like the fact that prices fluctuate. Just a fact.

One observation that I have made in all unsuccessful traders, including myself just a few years ago, is the unwillingness to accept a small loss, combined with the unwillingness to accept a large gain.

The two seem to go hand in hand. If you have to lose big to accept the loss and finally bail on your position, then the odds are very good that you will only be able to accept a win if it is small. I’ve seen it too many times. The corollary also seems to hold: If one is willing to accept a small loss, then one tends to be able to accept larger gains.

I do know of one successful trader who can accept large losses and large gains. He happens to hold the official world record in trading, too. Larry Williams is the man. So he’s the one exception that I am aware of to that. I don’t know exactly why it seems to hold so well in nearly everyone else, but it just seems to work out that way.

Everyone I know who has lost in the markets has lost because of a few very large losses. Everyone I know who is doing well in trading is willing to accept small losses, and does make small gains, but also has the occasional very profitable winning trade. This rule of cutting your losses “short and quick” is huge. You must always know where your bail point (stop loss) is before you place your trade, and you must always stick to it, no matter what.

Money is an idea backed with confidence. Money is not an idea backed with hope. Money is not an idea backed with fear, greed, prayer, grief, terror, paralysis, pain, yelling at the computer monitors or anything else but confidence in its various forms. Money is an idea backed with confidence.

Confidence is knowing direction, taking responsibility, controlling the trade – including taking a relatively small loss if you “knew wrong,” and confidence is being a successful trading system manager before you ever place real funds on the line, then continuing to exactly follow your system and the rules.

As soon as your order to enter the market gets filled, you place a stop loss order. That is how you fill this rule. Where you place your stop is up to you, but a good guideline is either at a fixed amount that is less than 5% of your capital, or just beyond the previous market peak against your position, whatever the situation demands.

3. Let your profits run and multiply as safely as possible.

The old statement of this rule is to let your profits run. Well, with good money and profit management, your profits should also multiply, and do so as safely as possible. I’ve seen too many traders who are over 80% accurate in their predictions lose money, over and over and over. Even if they do what they can to cut their losses short, and even let their profits run, they don’t ever do very well over time.

What’s different in real and effective money management is the multiplication aspect, combined with safety. We will cover that in more detail soon enough (in the coming membership area - you’ll have free access to part of it simply by giving me your name and email address above and to the right), but your risk and money management system must have the benefits of systematic multiplication of profits while maintaining the relative safety aspects.

Too many traders will have a good trade, then lose the profits from that trade when the market channels, then lose more when it breaks out of the channel on the wrong side. There’s more to risk and money management than just the letting your profits run and multiply – you also have to do so in a manner calculated also reduce risk in case you are wrong, and produce superfluous abundance of profits when your are right. And do so in a manner calculated to be as safe as possible in markets.

No matter how good the chart reading system, there are different levels of application based on each individual trader of that chart reading system. What if you’re wrong? What if you read the charts right except for one thing, and that one thing is what matters the most for that particular trade’s timing? That one more move because, for example, you overlooked the weakening end of a trend (as given later in the membership area) can be the difference between profit for the week or month, and loss.

So you want to let your profits run, you want to let your profits multiply, and you want to do so in as safe a manner as you possibly can to accomplish the goals of trading.

As you become profitable in a position, move your stop just beyond the opposing peak of the market realignment periods (corrections, retracements…) Make sure that as you raise your stops, you also cancel your previous stop orders.

The major component in this is the definition of money, “an idea backed with confidence.” When you lose confidence in a trade, immediately bail on the trade, or at the very least move your stop tighter. When you see a move is about to end, bail then or move your stop tighter. When you have certainty that the move is done, then you close your position.

Always keep in mind that once you are profitable, especially when you can’t lose money on a trade, if you close out on your position you have made money in the market.

4. Manage risk, money and profits by managing your trading system

The funny thing about managing risk is that it is basically saying follow the three rules, in sequence, for any trade, for any add-on to your position. In other words, follow the first three rules of trading!

So we have Rule 4 saying to follow the first three rules: Trade in the direction of future strength, or trade in the direction of future creation; cut your losses short and quick; and let your profits run and multiply as safely as possible.

It’s a sequence. FIRST you enter your trade in the direction you know that the market is going to move or trend. THEN you place your predetermined stop-loss, or you do so in the entry order if your trading platform will allow it. THEN, when you can’t lose money (except in the case of a disaster), you let those profits run. You repeat that cycle with add-ons to your position, too.

So you enter, place your stop, let it run.

Enter with an add-on, place your stop on that part of the position, let it run.

Enter with another add-on, place your stop on that part of the position, let it run.

Move all your stops when your system says to do so.

Exit portions of your position at predetermined points if/when your system says to do so.

Tighten your stops on all open portions of your position if/when your system says to do so.

Yes, there may be more considerations in real time, and we will cover some of that later, but for now, REALLY understand that managing your risk and money and trading system is following the first three rules, in sequence, over and over, combined with your ability to manage, to control your own actions.

By following the above rules, you are managing risk as much as possible in this “risky” tool of trading. (This rule also includes Money Management, which is another section with another handout.) So, basically, Manage risk is saying to follow the previous three rules. So it boils down to the first three rules, and is reinforced by another rule saying to follow the first three rules.

Summary of the 4 Basic Rules of Forex Trading

The goal of playing any game is to accomplish what you want to accomplish, to do what you really want to do, to have what you really want to have. If you are really playing the game of trading to win, to profit in a big way, to live the life you really want, then you absolutely must follow the four rules of trading.

When your chart reading system tells you the direction of future creation, future strength, then you only enter in that direction. You place your predetermined stop-loss so you definitely know when you are wrong and cut those losses short and quick. Then, when you are right, you add more safety to the overall trade as the market moves in your direction, and add trades to your overall position. Each add-on to your position is in the same direction as your initial entry, and contributes to the further creation of the trend or move that you saw coming.

So your risk and money management system must follow the four rules of trading.

Above all, it is the disciplined application of a complete system that makes traders successful. Discipline encompasses patience. Discipline encompasses every other so-called trait of successful traders, like total responsibility for your own actions and mistakes, like sticking to the system despite your own opinions, like not listening to what the almighty “they” has to say.

Part of the almighty “they” includes experts and gurus. Be your own guru. Be your own expert. Don’t ever blame the almighty “they” who “control the markets” because “they” really don’t. The Almighty “They” is the complete group of traders who are actively trading and creating market direction. A few of the bigger traders are assigned as “they” by the other group called “we”. Further distinction is made later on.

Disciplined application of a proven profitable system is the hard part. What you will have access to here is a proven profitable complete system. The “disciplined application” part, well, that’s on your shoulders.

The principles are timeless. Only the market dynamics change, and the market dynamics consist only of the various characteristics of any given trend or move. And yet the principles can be seen to work over and over despite the dynamic changes in markets.

It then becomes a question of knowing how to think with the principles. That is where the work comes in, where doing what nobody else will do comes in. That is where you handwrite your “book” every day on the charts with that day’s action for ONE market. Front and back you should write, and do so every trading day for at least 6 months. Every chart you use in your trading system. The system can’t be outsmarted. The system can only be standardly applied or not applied.

Note: There will be no forex training videos this weekend. We’ve got our quarterly “fun weekend near home” planned.

If you have any questions, please ask your trading questions. I love answering questions about trading currency. Have a great weekend!