When you’re trading Forex, strength and weakness agreements have a tendency to come in handy. One of my favorite indicators for tracking strength and weakness patterns is the ADX. Today, we’ll cover ADX trends and their respective strengths and weaknesses, and an example of ADX weakness in time, on consecutive charts.

That’s some of what’s on today’s video on ADX Trends:

So the first thing you need to have a trend showing on the ADX is for there to be strength showing on a move. If the market moves lower and the ADX increases, that’s a stong move down, and the first step needed to have an ADX trend.

The second component needed is for the market to retrace some of the strong move, and have the ADX decrease, saying that there’s weakness in the counter-strength direction. So if the market moves lower and the ADX increases showing strength, then the market moves higher with the ADX decreasing, that’s the second part of having an ADX trend.

The third and final component is for the market to move farther in the direction of the prior strength.
Then there is an ADX trend on that chart, and that trend is either strong or weak.

In a strong trend, the ADX moves higher than it was at the end of the strong move in the same direction. In a weak trend, the ADX does not move higher than it was at the end of the strong move in the same direction.

Example: The market moves down, the ADX increases - shows strength in moving lower.
The market then moves higher, and the ADX decreases - shows weakness in moving higher.
The market then moves farther down than it was before the retracement up began.

That’s an ADX trend, and it is either strong (if the ADX is also higher than it was as the market moved farther), or weak (if the ADX does not move higher than it was as the market moved farther).

That’s it on the ADX trends. If you have any questions or comments, please leave them and I will get back to you as soon as I can. Have a tremendously successful trading day!

When you’re trading Forex markets, depending on your trading system, you might have to be able to track strength and weakness situations. The ADX, Average Directional Index, is a great indicator for tracking that strength and weakness on one chart.

Here is a video on ADX Moves in a forex market…

When the market you’re watching is moving higher, and the ADX is rising to the upward motion, that upward motion is strong. If the ADX is falling, then that upward motion is weak.

When the market you’re watching is moving lower, and the ADX is rising to the downward motion, that downward motion is strong. If the ADX is falling, then that downward motion is weak.

You’ll see on the next video how to use the ADX to track trend direction on a chart.

If you have any questions or comments, please leave them. I’ll answer or respond as quickly as I can.

Have a fantastic trading day!

Things are crazy here, so I won’t be making a forex training video tonight. Instead, here’s some great, useful information for if you use the ADX (Average Directional Index).

ADX Basics: Definitions of move and trend, and the 4 Main ADX Principles

In the ADX we can see that we have varying degrees of strength and weakness. Those varying degrees are given below, and are important later on because when certain conditions are not met, we KNOW what has to happen. Every single time, but not always to a new extreme.

Definition of move on the ADX:

When the market makes a move and the ADX changes direction. (i.e. from moving up to now moving down, or from moving down to now moving up. A flat ADX is not a change in direction.)

1. When the market makes a move and the ADX increases, that move is a strong move on that chart at that time.

2. When the market makes a move and the ADX decreases, that move is a weak move on that chart at that time.

Definition of trend on the ADX:

After a strong move (as above, or trend of any kind) the market moves in the other direction and the ADX decreases, THEN the market moves farther in the direction of the previously strong move (or trend of any kind), we now have a trend on that chart at that time.

3. In a trend, when the ADX moves higher than it was at its previous high peak, we have a strong trend on that chart at that time.

4. In a trend, when the ADX is not now higher than it was at its previous high peak, we have a weak trend on that chart at that time.

The idea behind the definition of trend…

Is that we have strength in any form (a weak trend is still stronger than a weak move), then the ADX decreases, and after that decrease, the market then moves farther than it did before in the previous direction of strength. [Please note in the above that we have moves and trends. Also note that we have strong move, weak move, strong trend, weak trend.]

Definition: End of a Trend

A trend is over on that chart when the ADX tracks strength in the direction opposite the trend. Once the ADX says a trend is over on that chart, more strength on that chart in the same direction is now a move until the conditions are again met for it to be a trend on that chart at that time.

If the ADX does not fall between moves in the market, and still tracks strength in a direction then keeps moving in that direction, it is still a move.

The ADX must fall, even just a little bit, before again moving up as the market moves farther that it previously did in order to have a trend. Once the market moves farther, we have either a strong trend or a weak trend.

In sequence from weakest to strongest: weak move, strong move, weak trend, strong trend. In defining trend, anything other than a weak or very weak move counts as previous strength.

Only compare ADX peaks that are tracking the same direction of movement or trend strength.

ADX Principles Shown on a Chart

Let us take a look at the ADX (black line indicator below) regarding strong and weak moves:

It is possible to have a move be weak, then turn strong. It is possible to have a move be strong then turn weak. It is possible to have a weak trend turn to a strong trend. It is possible to have a strong trend turn to a weak trend, or even a weak move. See the coming video(s) on the ADX for more explanation.

If you have any questions or comments, please leave them. I’ll get back to answer them asap. Since part of my goal here is for you to understand what I’m teaching here, if there is anything you don’t “get”, just ask.

Have a truly phenomenal trading day (and weekend!) P)

No pics or video today. Just the rules. Keep in mind that you have to be using an oscillating indicator to use divergences. Examples of oscillating indicators are MACD, Smoothed RSI, Smoothed ROC (Rate of Change), Slow Stochastic… And you must have the ability to look at multiple time frames. We won’t be using add-ons in this basic model. Those are for another time.

The purpose of this is to give you a simple, basic trading system that you can practice managing on paper.

I won’t here get into the risk management or money management aspects, but will on another post. Just pretend it’s one lot and your account is big enough to take the loss from peak to valley, or valley to peak of the trade. (I use 2/3% account as unit size - yeah, I’m a chicken, but I never risk more than 2% on any position, so…)

0. Peaks and valleys are found on the largest weakness chart in the sequence, just below the smallest future strength chart. If you’re on the 60 minute chart, the next smaller chart is the 20-minute or 15 minute. The next bigger chart is the 3 or 4 hour chart, where one bar represents the price action of a 3 or 4 hour period.

1. See if there exists larger chart future strength divergence, combined with at least 2 smaller chart past weakness divergences that say the market looks like it wants to reverse recent price direction. On the larger chart, the trend direction must be the same direction as the trade. (If you don’t know what I said for this rule, go back to an earlier video in this series.)

2. If not, there is no order placed.

3. If so, choose the closest peak (if future strength direction is up) or valley (if future strength direction is lower), and set a stop just beyond the peak or valley. If long, be sure to add in the spread for the currency pair, too. The stop for the trade is the opposing directions last peak or valley.

4. When you’re in the trade, and the market moves beyond the next peak, move your stop to just beyond the last opposing peak or valley.

5. Once the market moves farther in your direction, moving past 2 peaks (or valleys, if you’re short) which were made while you have been in the trade, tighten the heck out of your stop, or exit. (Only choice you get.)

And that’s it.

Practice well, and have a phenomenal trading day.

Risk is basically exposure to the chance of loss. When you enter a trade, you are immediately exposing yourself to the chance of loss. So you want to balance the risk somewhat commensurate with the potential reward but with the odds in well in your favor, and do so as safely as possible given the current market volatility.

Money is an idea backed with confidence. The idea is trading the markets. The confidence is seeing what is there now, knowing that what you see is right, understanding why it’s right, and the proper execution of trades within the framework of following the line-ups, conditions and the rules.

Management is basically controlling the things in your sphere of influence. In other words, in managing your trading affairs, you control those things that you are able to control.

You are able to control the orders you place, the strategy you employ, your continued development as a chart reader and trader, and anything else in the playing of the trading game that you decide you can control and do control and know you are controlling and take responsibility for controlling, like your contribution to the creation of the move or trend in the direction you want.

The principle three things that you can control in your trading are when you place an order, what type of order you place, and the condition of each order. Oddly enough, it all boils down to your ability to do each of those three things, and to control just those three things.

Basic Order Types and Their Purpose

There are three main types of orders: Market orders, stop orders, and limit orders. Each has its time to use and purpose.

A “Market Order” says to buy or sell at the current market price. In other words, “just get me into this market now!” and in the direction of your prediction. If you say the market should move up, you buy at the market with a market buy order. If you say the market should move down, you sell at the market with a market sell order. A market order is placed when you are taking total control of a part of a trade at that moment because it’s time to do so. The conditions of that order are buy or sell, and “do it now”.

A “Stop Order” says to buy above the current market price, or sell below the market. So when the price gets to the level of your stop order, then the order immediately becomes a market order. If you say the price is going up, but you aren’t certain of timing and you want the market to prove it really does want to move that way by taking out a certain price level, then you place your “buy stop” at a price higher than the current market price. If you say the price is going down, but you aren’t certain of the timing and you want the market to prove to you that it is going down, then you place a “sell stop” below the current market price. A stop order is placed when you are handing over the timing portion of the order to the market. The condition of the stop order is price level at which you want to buy or sell, and you do that manually.

A “Limit Order” says that you want to enter the market, but the price you put in is the worst price you’re willing to pay for it. You would place a “limit buy” below the current market price. You would place a “limit sell” above the current market price. For an example, if you know the market is going to move up, but has moved a little too far for your risk management rules, then you place a “limit buy” below the market, which says that you want to buy, but you aren’t willing to pay any more than whatever price point you put into your order. If you know the market is going to move down, but it has moved a little too far and you say a pullback is going to happen, then you place a “limit sell” order above the current market price. A limit order is placed when entry now is too high a risk for your risk and money management rules, you’re certain which direction the market should move, but you want the market to come back to a more safe price before you enter the market. The condition of the limit order is the price level at which you want to buy or sell.

Be sure that you understand the difference between the limit orders and the stop orders. If you place a limit order to buy, for example, above the market, your order will get filled immediately because the current price is better than the price point you put into your order. If you were to place a sell stop above the market, your order would be filled immediately, too. If you do make the mistake of placing the wrong type of order, then you will quickly figure it out. It certainly doesn’t take too many mistakes to get the order types strongly embedded into your thinking. That’s also a good reason to paper trade, or paper manage your system, before you ever use real funds.

Control What You Can in Your Trading

Moving back to the control aspects of your trading, following the cycle of creation, on the start of trading we have entering a trade with a strengthening move or trend. As long as we have our line-up, or Time Synch, and the rest of the established conditions and rules are being followed or met, it’s okay. We have two consistently viable options to enter the market: Market Order or Stop Order.

We use the Market Order when we are in direct control of getting in or getting out, when we have total certainty that the market will move in the direction we want, and total certainty on the timing. Money is an idea backed with confidence, so the total certainty is the confidence part. That confidence is from proper time synchs: future strength combined with past weakness, and in proper sequence.

We use the Stop Order when we have certainty that the market is going to make a move in the direction we say, but not absolute certainty on the timing; the line-up is not exactly right or is in an advanced line-up, but good enough so that if the market moves beyond a defined peak, the market should continue moving in that direction. This is where we make the market prove to us that it does indeed want to move in that direction. The certainty is not total on the timing, and the risk level is higher than when trading with total certainty because now it’s probabilities that we’re trading rather than certainty. We always must have a certainty that the market will move in the direction we say, but sometimes timing may be an issue. If timing is the issue, then use stop orders for entry.

On the change of trading we have the period from when we entered the trade to when we exit the trade. That entire time is change. Change is most applicable where we have direct control, which is when we let our profits run and when we make them multiply.

We let our profits run by moving our stop once we have a profit so that we can’t reasonably lose money on the trade. Then as the trade gets more and more profitable for us, we continue to move our stop each time the market moves further in the direction we want, and then cancel our old stop order. That’s the trailing stop in practice. Each time we create another stop order, we then cancel our old stop order.

On the stop of trading we have the close of the position we earlier entered. Upon entry, we always place a stop-loss, or Stop Order, at a predetermined price level where we want to stop taking a loss, or retain so much profit. It is a following of the rule, Cut your losses quick and short. As our positions become profitable, so we move our Stop Order, lessen our risk, and now we’re saying, “This is the least profit I will take on this trade now.”

The stop order is handing control over your trade to the market (which is not bad).

Exiting on a Market Order is saying, “I want out NOW”. We use that tactic for exiting a trade when we are totally certain that the market is done moving in our direction. Since the definition of money is an idea backed with confidence, when we lose confidence in a trade, we exit immediately. Lack of confidence means don’t trade, means exit now, or at the very least, tighten your stop. Money is NOT an idea backed with hope, or fear, or prayer, or anything other than confidence. If you’re profitable when you lose confidence, it doesn’t matter, just plain exit, or tighten your stop. If you have an un-triggered Stop Order in place, cancel it immediately after you exit.

Limit Orders in Trading

Limit Orders have their own special place in trading – in the risk and money management sections as we progress in the levels.

Basically, however, we find that sometimes the market has moved a little too much in the right direction before the trigger to enter was given. We want the market to pull back a little to a certain level. When we begin see that, we place a limit order at the price we want. The use of limit orders will be given in more detail later on.

Using a limit order to exit the market is kind of a lazy way to do things. I wouldn’t recommend doing so because you’re still open to un-called-for risk levels.

Because we always use stops on our orders, exiting without being there to do the required actions (control), we increase our risk using limit orders as exits. As an example, if we say the market is going to go down, we place our order and our relevant stop order, and then place a limit order to take profits at a certain level below the market, our stop order is still in place. If the market backs up before our target price is hit, triggers our stop to take us out of the market, then plunges, our limit order will be filled, and there will be no stop order.

That makes it so that we could incur theoretically unlimited loss, which is not acceptable. In the same example, if our limit order is filled and we have our profits, the stop order is still present. If the market then takes off and our stop order to buy is triggered, then the market plunges, we’re open – again – to unlimited risk because we don’t have a stop order in place.

Hence, I would not recommend using limit orders to exit the market and then not being present to actually control the order.

Now, there are more advanced types of orders where you can give multiple conditions on one trade or part of a position, but unless they are built into your trading platform directly, and you have thoroughly thought it through how to use those more advanced order types, they can result in expensive learning losses. If you stick with the three basic order types, you will have kept things more simple for yourself. Usually, too, the more advanced order types are only combinations of the three simple ones.

I’m not recommending that you not learn the more advanced order types, but that you keep trading as simple as is acceptable to you. If you want the slightly more complexity added, then you are free to do so. It can be more profitable over the long run to learn how to use those more advanced, multiple condition order types, but it can also cause a lot of confusion learning how to use them profitably.

There is already quite a bit of information that should be learned well in this post. It is difficult enough to really gain the full understanding – where you know that you know – of the proper use of, and proper way to think with the information contained herein. When you are ready, however, I don’t think it would be unwise to gain the understanding of the more complicated order types.

In trading, the management of risk is crucial until you have moved a stop so that you “can’t” lose money in the market. Once the market has moved sufficiently and your stop is placed so that you “can’t” lose money on the trade or portion of the trade, then it becomes money management for the trade or for that trade’s portion of the total position.

Trade vs Position

The position in a particular market is the total number of contracts or shares or lots that you are holding, and in what direction. A trade is only a single trade within a position that may be larger than that one trade, or is not larger.

As an example, if a market is trending higher and you have placed three trades, not exited any, and each trade was 2, 2, and 4 contracts, then your position would be 8 contracts long from whatever the average price paid for those contracts was at the price level at which they were filled. So in trade #1, your trade and your position were the same: 2 contracts long at the price you paid. At trade #2, your trade was 2 contracts long at whatever that trade was, but your position was 4 contracts long at the average of the two prices paid. At trade #3, your trade was 4 contracts long at whatever that price was, but your position was 8 contracts long at the average of the three prices.

We are position traders, not trade traders. We add-on to our positions at predetermined points to take advantage of bigger moves, and we simultaneously keep our risk levels acceptably low. Being a position-type of trader gives us the ability to maintain more acceptable levels of risk, and it also gives us the ability to more safely multiply our profits as the market moves farther in the direction we want it to move.

Summary of Risk and Money Management in Trading, Order Placing

IN SUMMARY, a Market Order is used when we have total certainty that the market will move in the direction we say it will, and we have total confidence on the timing. A Stop Order is used when we are handing control over to the market because of less than total certainty on timing, but we still have total certainty on direction. Handing control over to the market is not bad. We use control toward a goal of profitability, and are thereby managing our trades, which is similar to managing our money. Manage your stops and cancel stops once other orders are placed that require doing so. Confidence is key. Emotions are not a part of money management, but your emotions can kick in and try to take control or skew the picture. Follow confidence. Ignore emotions.

There are three things that we can directly control: when we place and order, what type of order we place, and the condition that accompanies our order. Mastering the control of those three things is how we make our profits in the markets.

Now, if you have any questions or comments, please ask. I will answer as soon as I can.

Trade thee well, and prosper.

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!