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What Is Price Action & Why Should You Care?

What Is Price Action & Why Should You Care?

You wouldn’t jet off to another country without learning at least some basic vocabulary. So don’t start trading without learning about some basic price action.

Price action (P.A) is the language of the markets, irrelevant if you trade stocks, forex, crypto’s or futures, you need to be able to read it or at least have a basic understanding. 

Well, that’s my opinion anyway.

What is price action (P.A)?

Very simply, P.A describes the characteristics of a movement in price. Using an understanding of the language of the market will give you an idea of what buyers and sellers are doing & the strength or weaknesses of that particular market. 

P.A literally is the action of price. From studying the movements of the price we can then ask ourselves the most important question. What is price action telling me? For me, this question is absolutely essential before taking any trades.

Naked Charts vs Indicator Combinations

For me, naked price action and naked price action alone is the only way to trade. Again, this is purely my opinion for my own trading. There are many, many ways to make ( and lose) money in the market, but for me, learning & understanding price action was a game-changer in my trading.

Many traders blend in indicators with their price action, but for me after a lot of backtesting and trading in the live market, I follow the KISS principle. I Keep It Simple Stupid. 

Reading price is the major thing I consider before placing a trade (combined with proper risk management of course). Blending in indicators creates the problem of having too many variables and takes my focus away from reading price correctly.

Corrective vs Impulsive Price Action

Price can move up, down or sideways. The important question is, HOW is price moving.

If price is breaking highs with big impulsive full candles & minimal retracements, this is known as impulsive price action. (Same applies for lows). If price breaks a high with little conviction, retraces, then breaks the old high and retraces, this is known as corrective price action.

As P.A traders we only get involved after we see movement, convincing movement, and only after we ask the question: What is P.A telling me?

The chart below shows an example impulsive, corrective & sideways P.A in the AUDUSD.

Highs & Lows

How does price break the most recent high or low? This question is hugely important to answer before placing a trade. How price breaks the most recent highs or lows determines where the price could go. Well, nothing is guaranteed, but it at least gives you a high probability indication of what might happen.

Is price breaking a previous high or low impulsively, is there momentum in the direction the market is moving? Is the market breaking a previous high or low correctively, is there a lack of momentum?

The main thing here is really diving deep into how the price is breaking. Candlesticks charts will help you here & make the market easier to interpret.

The Importance Of Candlesticks.

Candlesticks clearly show the story of price. You don’t even need to know about fancy combinations. Keeping it simple with candlesticks and reading very simple but important signs such as inside bars & wicks, is enough to add to your toolkit to take you on the way to being a consistently successful trader.

P.A Summary

Trading price is not for everyone, nothing is, 10 traders can look at the same chart and give you 10 different views. But, for me, reading the price, eliminating the indicators and asking myself 2 simple questions has greatly increased my profitability.

Before you next place trade, learn about price action & ask yourself the below 2 questions:

  1. What is P.A telling me?
  2. How is price breaking the most recent high or low.

Want To Learn How To Profit Using Price Action?

There are many online resources, but the free info will only get you so far. There guys are by far the most successful price action traders and educators i’ve ever seen.

You can find them trading profitably here !

Also, before you place a trade, be sure to manage your mind before you manage your money, you MUST read THIS.

Trading In The Zone – Mark Douglas (Review 10/10) Read This Book Now!

Trading In The Zone – Mark Douglas (Review 10/10) Read This Book Now!

Trading in the Zone by Mark Douglas is in my opinion, one of the BEST books ever written on trading psychology.

It teaches you how to think.

I believe that this book is the ultimate starting point for your mind before you step into the trading arena.

Please, please, please read this before you start trading, it will help you more than you can imagine.

This is one book I read many, many years after I started trading and upon finishing the first chapter, wished I had read it years earlier.

Who Was Mark Douglas?

Mark Douglas was an award-winning author, trader & trading coach to many highly successful traders. He coached forex, stocks, commodities & options traders for over 25 years all over the world.

Sadly, Mark passed away on 9/10/15. I hope his trading wisdom impacts you as positively as it has me. 

Mark’s psychology principles co-creator Paula T. Webb works with traders all around the world sharing their knowledge & helps them to apply field-tested research. More info can be found here.

Trading In The Zone – What Does It Mean?

“The Zone” is a great place to be, the best place to be,  especially when you’re trading. Mark was one of the first to talk about it in relation to trading in the markets.

 The Zone is a term often used in relation to elite athletes, actors & musicians. Being at an elite level at anything really requires you to get into a flow state aka ”The Zone”

What Does It Feel Like To Be Trading In The Zone? 

Bliss. When you start Trading in The Zone, you will get it. Being in The Zone of any activity is similarly the same feeling. 

I’ve felt it in trading, meditation, tennis & competitive water polo. It is a state that cannot be forced, especially when it comes to trading.

For me there are 5 key attributes of Trading In The Zone:

  • You have an intense focus, without even trying.
  • Buying, selling and your analysis becomes effortless.
  • There is no ego, you are not better than anyone, you are comfortable with yourself.
  • Your sense of time is nonexistent, there is no time, just now.
  • Trading in The Zone Feels great!

How Can You Start Trading In The Zone?

I’m hoping this article inspires you to read Trading in The Zone and also get’s you passionately underlining and bookmarking as I did 🙂 (see below).

Trading In The Zone Mark Douglas Book Reivew
Yes, I love to underline and dog ear my books!

But, for those of you time-poor traders, apart from meditating, keep on reading and I will share with you some of my favorite parts of the book.

Now, let’s break down some key lessons throughout the book to get you Trading In The Zone before you know it!

Chapter 1: The Road to Success: Fundamental, Technical or Mental Analysis?

The challenge with this book is trying to limit my key takeaways for each chapter. I think I could write more than ten! Anyway, here we go.

My key takeaways:

  1. Winners have attained a mind-set, a unique set of attitudes that allows them to remain disciplined, focused, and above all, confident in spite of the adverse conditions. 
  1. The best traders not only take the risk, they have also learned to accept and embrace it. There is a huge psychological gap between assuming you are a risk-taker because you put on trades and fully accepting the risks of each & every trade.
  1. The hard, cold reality of trading is that every single trade has an uncertain outcome. Unless you learn to completely accept the possibility of an uncertain outcome, you will find yourself trying to avoid it, consciously or unconsciously.

Chapter 2: The Lure (And The Dangers) Of Trading

My key takeaways:

  1. Trading offers you a gift and a curse at the same time. The gift is that we are, for the first time in our lives, completely in control of everything we do. The curse is that there is no external rules or boundaries to help guide or structure our behavior.

The structure you need to guide your behavior needs to originate in your mind.

  1. The harsh reality of trading is that, if you want to create consistency, you have to start from the premise that no matter what the outcome, YOU are completely responsible. (sit on this for a while).
  1. One of the main reasons, that so many successful people (in other fields) fail at trading is generally due to their prior ability to manipulate and control. The market does not respond to manipulation or control (unless you’re a central bank, and even then it isn’t guaranteed). 

You are a drop of water in a huge and expensive ocean.

Chapter 3: Taking Responsibility

It sounds so simple, but it isn’t.

  1. Truly successful traders have learned how to think. They’ve created a mindset that allows them to eliminate fear and recklessness. They have accepted that there is no possible way to avoid losses, they are part of trading.
  1. Attitude, mindset produces better overall results than analysis or technique. If you start with a winning trade you will briefly experience the feeling the care-free state of mind of a winning trader.
  1. Taking complete responsibility for your results means that you accept that you and only you are responsible for the outcomes based on your interpretation of the market. 

Ok, I am adding another point for this chapter!

  1. If you want to start sensing the flow of the market, you need to be free of fear, anger, regret, betrayal, despair, and any type of disappointment. 

There is no need for you to feel these negative emotions when you’ve truly accepted responsibilities for your outcome.

Chapter 4: Consistency – A State Of Mind

My key takeaways:

  1. What separates the best traders from the rest always comes back to how they think. Winning & consistency are ways of thinking, they are mindsets.
  1. Truly accepting the risk means accepting the consequences of your trades without emotional discomfort or fear.
  1. The traders who make it to becoming consistent and Trading In The Zone are the ones that learn to stop avoiding, and start embracing risk and the factual truth that nobody actually knows the outcome of a trade.

This song by Raul Midon sums it up well 🙂

Chapter 5: The Dynamics of Perception

My key takeaways:

  1. People see what they’ve learned to see and everything else is invisible until they learn how to counteract the energy that blocks their awareness of the unlearned.
  1. It’s your own mental framework that determines how you perceive the information on the chart, how you feel, and whether you are able to enter the “flow” and take advantage of the market.
  1. We have two types of mental energy, positive & negative. Learning how to become consciously aware of our energy states is essential to success. 

Creating and maintaining a state of mind that perceives the flow of the mark without the threat of pain, requires you to take conscious control of your thoughts.

Chapter 6: The Market’s Perspective

My key takeaways:

  1. The best traders in the world have reached a state where they fundamentally believe that anything can happen. They wholeheartedly believe that each individual trade, each now moment is completely unique. They are Trading In The Zone.
  1. When you minimize association and know that each trade is totally unique, you limit negative association and put yourself in the best state to trade successfully.
  1. Only the best traders completely pre-define their risk, cut their losses, are organized and systematic in their management. These trades believe in uncertainty.

Chapter 7: The Trader’s Edge – Thinking In Probabilities

This chapter was an absolute game-changer for me.:

  1. Events that have probable outcomes can produce consistent results….. If you get the odds in your favor and have a large enough sample size. Trading should be treated as a numbers game, an edge over a period of time will produce results. Exactly like a casino.
  1. You need to believe in the unpredictability of trading at a micro-level and at the same time believe in your edge at a macro level.
  1. When you’ve trained your mind to think in probabilities, it means you have truly accepted all the possibilities, win, loss, or breakeven. Each moment is completely unique, thinking otherwise is a recipe for disaster.

Chapter 8: Working With Your Beliefs

This chapter offers five core beliefs essential to Trading In The Zone. These are referred to as “The Fundamental Truths”. These are the backbone of the Trading In The Zone teachings.

  1. Anything can happen.
  2. You don’t need to know what is going to happen next to make money.
  3. There is a random distribution between wins and losses for any given set of variables that define an edge.
  4. An edge is nothing more than an indication of a higher probability of one thing happening over another.
  5. Every moment is unique.

I highly suggest buying the book and reading into these points further, they are brilliant.

Chapter 9: The Nature Of Beliefs

Again, this is an intense chapter and the below points only scrape the surface of the knowledge Mark shares.

  1. Do not take for granted the effort needed to internally believe these beliefs. Understanding a concept is only the first step of integrating a belief at a functional level.
  1. A belief is a concept about the nature of the way the external environment expresses itself. Beliefs shape the way we experience our lives and the markets we trade.
  1. If beliefs shape our environment, what is the truth?… The truth is a function of whatever works in relation to what we are trying to do in any given moment.

Chapter 10: The Impact Of Beliefs On Trading

There are three basic characteristics you need to understand in order to effectively understand & mentally use the fundament truths of Trading In The Zone:

  1. Beliefs seem to take on a life of their own and resist any force that would alter their present.
  1. All active beliefs demand expression.
  1. Beliefs keep on working regardless of whether or not we are consciously aware of their existence in our mental environment.

You must be aware of the beliefs you have, what are the patterns, what are the common thoughts. I find using a trading diary is essential in tracking your thoughts and looking for positive and negative patterns.

Chapter 11: Thinking Like A Trader

It all sounds so simple, it actually is, but implementing it is not.

  1. What is trading? In its most basic form, trading is a pattern recognition numbers game (I love this description).
  1. We use market analysis to identify the patterns, define the risk, and determine when to take profits. The trade either works or it doesn’t, in any case, we go onto the next trade. Boom! Next!
  1. Follow your trading plan without deviation, distracting thoughts, or hesitation to act. 

Conclusion

Trading In The Zone offers a powerful way to look at yourself, your thoughts & the markets.

At the end of the day, it doesn’t matter how well you know technical analysis or the financial figures of a company,  if you first do not know yourself.

I give this book 10/10 and highly recommend it to everyone that is thinking about getting into trading & to all those currently trading.

I hope you enjoy Trading In The Zone as much as I did.

Until next time….

P.S Interested in becoming a Forex Trader? You must read THIS

How To Become a Forex Trader

How To Become a Forex Trader

What is a Forex Trader?

A forex trader is someone who places orders on the forex (foreign exchange) market. A trader can trade for themself or on behalf of a bank, broker or financial institution. This article is for those that want to be a trader or are just starting out.

Why Become a Forex Trader

Before we get into the details of trading, I’d like you to think about why you want to become a forex trader? What is the real reason? I’ve written more about this here. Finding your “why” is crucial and I suggest you read the article now before continuing.

For those of you very new to this forex trading world, check out this great Investopedia article too. This has all the basics and background of forex trading.

The 3 P’s Of How To Become a Forex Trader

Today I am going to introduce you to the Three P’s of forex trading. Actually, these can be applied to just about any type of trading. 

I developed the Three P’s to help those very new traders get used to the ideas and concepts of becoming a trader without spending a cent.  

Trading is very risky and I have seen way too many traders blow up their account by rushing into the markets with real money. 

Even worse, some traders end up blowing through their account and owing the broker money! Ouch!

I’ve also seen many traders spend thousands of dollars on online courses. There are some great, honest teachers out there, but there’s a lot of rubbish too! Do your homework if you choose to go down this path.

I believe you don’t need courses. There is more than enough free, solid information out there to teach you what you need. I’m hoping this article will lead you to it and start you off down the right path. Enjoy.

Welcome To The Three P’s (3P’s)

The aim of The Three P’s is to give you a basic framework for becoming a forex trader. No fluff, just honest forex advice that will help you on your journey.

1. Prepare To Become a Forex Trader

Educate yourself and absorb facts. Everyone learns differently. I like reading. Many like watching videos. Either way, I am a huge Mark Douglas fan. My favorite book on trading is  “Trading In The Zone” & I believe it’s a must-read before attempting any type of trading. You can find it here.

Another great book is Market Wizards by Jack D.Schwager. This book has so many pearls of wisdom about trading. Jack interviews the most impressive forex traders and many other types of traders from around the globe. It is a very inspiring read and can be found here.

The above books will help you with mindset and inspiration. Now it is time to get the finer technical details. For those of you who are just starting out forex trading, head over to DailyFX. Daily FX offers such great free education. It is simple, straight to the point and will help educate you on how to become a forex trader, without charging you a cent.

Prepare – Action Steps

  1. Buy the books above, take notes, educate yourself.
  2. Immerse yourself in factual education that is not trying to sell you anything.
  3. Really think about your “Why” and make sure you’re mentally prepared to become a forex trader.

2. Practice To Be a Forex Trader

Ok, so you’ve read a few books and spent hours online getting thrown from trading websites to youtube clips and all in between. What’s next? It is time to practice. 

So, when I started forex trading we used to “paper trade”. We actually used to literally write on paper, buy 100k usd/jpy at 104.56, add the date, time and that was it. Then we’d have a friend check our trades and keep us accountable.

These days all brokers offer demo accounts, the modern day paper trading option. This has 2 major benefits. Firstly, you can access live pricing and test your strategies. Secondly, you can get a feel for the functionality of the software. 

Trading can be challenging enough. So getting used to your software before you trade live is absolutely essential. When you’re tired, busy and distracted with life, it is very easy to press the wrong button! Hitting buy instead of sell can have dire consequences & yes i’ve made this mistake before.

Three Steps To Proper Practice

Warning: This is not a joke. If you want to make it in the markets you need to treat your demo account like real money. Some traders say demo trading is a waste of time and that there are no emotions involved. I beg to differ. Think of demo trading as the practise before you practise. Treat it like real money, respect the platform and get used to its functionality. Why? So when you trade live, you’ve mastered the platform and can focus on trading.

I’m not going into forex strategies in this post, again DailyFx has a nice little overview of some strategies here. Once you’ve found a strategy or developed a strategy I want you to use the following simple formula for your demo trading. It’s a simple three-step process. Commit, Record, Review.

Commit, Record, Review

1 – Commit – stick to the strategy for a set period of time eg.3 months, or 6 months (depending on the timeframe you’re trading). Create a trading plan and stick to it. Don’t chop and change strategies.

2 – Record – Record your trade details & reason for entering and exiting every single trade. I like to record my trades in Google Sheets and then all other details including screenshots of charts in Notion. Record your entries and exits at the time of execution.

3 – Review – Set a time in your diary ( I do this on a Saturday) to review all the trades from the week. Ask yourself, What have I done well? What can I learn from my last trading week? How can I improve my performance? Have I followed my plan?

So many new traders are rushing to trade with live money & they haven’t developed the foundations of a successful forex trader. Successful habits will be your pillars of strength for a profitable forex trading career. 

Once you’ve got into a successful trading routine and your strategy is becoming consistently profitable. It’s time to go live.

Practice – Action Steps

1 – Sign up for Google Sheets and start recording your trades.

2 – Create an account at Notion and start your trading journal.

3 – Create a demo account at a regulated broker. Research brokers further here.

3. Perform to Be a Forex Trader

Now it’s time to put your money where your mouth is. So you’re in a successful demo trading routine, you’ve found your feet in the market and your strategy is performing. You’ve selected a broker that is regulated and trustworthy and you’re ready to make a deposit.

STOP

Before you do another thing, only commit money that you can afford to lose. Nobody expects to lose, but 70-80% of people do, it’s a fact.

Once you’ve made your deposit and you’re ready to trade on your live account, there are 3 rules you must promise me you will abide by:

1 – Always use a stop loss when placing the trade. 

2 – Only ever risk a maximum of 1% risk per trade (or less).

3 – Never break the above two rules!

Three simple rules. That is it. Start with these and they will protect you from blowing up your account. You will have the best chance of survival and the best chance of becoming a successful forex trader.

Disobey these rules and you might be lucky for a while, but there will be the one time that the market doesn’t come back. Then your broker will stop you out and you are back to square one with belted self-confidence.

Many people say all great traders blow up their accounts at least once. I believe you have a choice. 

There are easier, cheaper ways to learn good lessons out there in the markets. Using solid risk management will teach you great lessons and keep you in the game to trade another day.

Perform – Action Steps

1 – Sign up for a real account with a regulated and trustworthy forex broker

2 – Always place a stop in the system at the same time as you open a position.

3 – Risk a maximum of 1% of your account balance per trade. You can use this risk calculator here.

Becoming a consistently profitable forex trader is not easy. You really need to dig deep and find out your “Why” as you have a long road ahead. Starting on a demo account and creating and practicing good habits is crucial to success. Religiously recording all of your trades & performing daily & weekly reviews will greatly increase your chance of success.

We live in a world where everyone is time poor and wants everything yesterday. Forex trading is something you can’t and shouldn’t try to rush. 

It is a journey and a very fulfilling one if you build the correct foundations. I wish you the best of luck, start small, risk little and focus on learning and refining your skills each week. 

Also, remember there is no Holy Grail in forex trading, so if you see something that looks too good to be true, then it is! Good luck!

What Is  Forex Trading?

What Is Forex Trading?

Forex trading is also known as FX, foreign exchange or currency trading and is simply the trading of one currency for another. For example, a trader buys the Euro & sells the U.S Dollar equivalent. It’s that simple, making money forex trading is another story, we will get to this later.

Forex – The World’s Most Liquid Market

Forex trading transactions take place on the forex market which is also know as the foreign exchange market. The forex market is the most liquid market in the world with trillions of dollars changing hands each and every day. Unlike stocks, there is no exchange or central location, instead forex is traded through an electronic global network of investment banks, brokers and institutions.

Forex Trading Spread

Currencies are quoted against each other, with the U.S dollar being the dominant currency traded. Eg. EUR/USD. After each pair, you will see a price, normally 2 prices, a bid, and an offer. Your forex trading broker will quote it like this EURUSD 1.1740(bid)/1.1741(offer). This means you can sell EURUSD at 1.1740 and buy it at 1.1741. The difference between the two prices is known as the spread. The tighter or closer together the spread, the better. Forex brokers like to play themselves against their competition by promoting their tight spreads.

Forex Trading Lots

Lots In forex trading, currencies are traded in lots. There is a mini, micro and a standard. A micro lot is 1000 worth of a specific currency, a mini lot is 10,000 & a standard is 100,000. For example buying 1 x mini lot of EURUSD means that you are buying 10,000 EUR & selling the USD equivalent.

When you travel overseas, you literally can exchange notes of one currency for another, but when you trade through a broker all this happens online. There is no physical exchange in forex trading, don’t worry you won’t be stuck with a bunch of foreign currency notes!

There are so many forex brokers out there now, check out Investopedia they have clear concise information on a selection of brokers. Always make sure you do your homework on your broker, make sure they are credible and regulated by the local industry regulator. Also, check past and current reviews through an independent firm such as Trustpilot.

Think you want to start trading. Find out why you should here.

Why Do You Want To Trade?

Why Do You Want To Trade?

I’ve worked with many traders that don’t know the answer to this simple question, yet I find once they do, their trading journey comes alive. Trading, like anything new and challenging, needs focus, a lot of it! Now the first step to refine your focus is to really dig deep and find out your why! Why you are starting down this weird and wonderful path of trading, why do you want to trade?

When I first started, my “why” was to be rich (I was young)! Sure, money is great, it gives you options in life, but there has to be more than that. What will the money buy you? and I don’t mean fancy material objects. I mean more meaningful things. Will it help raise your children? Will it help pay your mortgage? Can it help you support a charity or cause? Is there be a deeper meaning?

I’d like to share with you an exercise I find really helpful with new traders. This will help you find your “why”, this is something that I did in my career and it helped me a lot.

Exercise

Grab a piece of paper and a pen & turn your phone on aeroplane mode. (please!) Preferably be seated somewhere quiet. Now, at the top of the page write out “Why do I want to be a trader?” Set your time for 5 minutes and hit the start button! Now write out as many reasons as come to your mind, it can be 1 it can be 50. When the timer has finished I want you to pick the top 3 reasons. Write these reasons down leaving 5 lines between them. Now I want you to drill down a minimum of 3 times! How? By asking “why” each time you have written an answer

Eg.I want to be a trader because I want to make money!

so I can support my family

as I love them

and I want them to be happy.

So really this initial answer of “I want to make money” now becomes something much, much more powerful “I want to trade so I can support my family as I love them and want them to be happy”.

Now this becomes a powerful reason and something to fuel your focus!

I hope this helps you on your trading journey.

Until next time.

Jase