How To Increase The Probability Of Your Forex Trades

Price action trading strategies can be very potent ‘weapons’ to trade the markets with. We just have to learn to use them correctly and accurately. Most of us have a limited supply of bullets (money), so we have to make each bullet count and not waste them on low-probability targets (stupid trades). So, how can we ‘fine tune’ our price action trading to make it into a high-probability trading ‘weapon’ so that we very rarely waste our bullets? This is your main mission as a price action trader; this mission is not an easy one and it’s going to take discipline, fortitude and the ability to pull the trigger only when your target is present. But, if you dig-deep and really want to be a profitable trader, you can make it happen. So, without further delay, let’s get down to the business of getting your trading strategy ready to go to ‘war’ in the Forex markets: Stop voluntarily decreasing the probability of your trading edge Unlike lifting weights, where doing more typically makes you bigger and stronger, trading more will not make your trading account bigger or stronger. In fact, it will probably make your trading account a tiny little floundering wuss. If you haven’t read any of my other articles on trading Forex with patience, go back and do that later. For now, I will briefly explain to you why trading less frequently will make you a better and stronger trader. The reasons are pretty simple. First off, your trading edge is not always going to be present in the market, so you have to have the patience to wait to trade until it is. This typically means you will be out of the market more than you are in it, which is of course totally contrary to what most traders do. Most traders can’t stand to be out of the market, they feel an ‘itch’ to enter a trade that will not go away until they hit that buy or sell button. So they enter a trade not based on their edge, but based on emotion instead. The point is this, most of the trades a losing trader makes are ones born out of emotion, or because they just feel like they want to trade. If we really stick to our predefined edge, price action trading in my case, we will naturally be waiting for our edge to form more than we will actually be trading. Any high-probability edge in the market is not going to be present all the time, we have to wait for a market to ‘show us its cards’ first, and it may only do that one or two or three times per week. So, the first and perhaps easiest thing you can do to increase the probability of your trades is to stop decreasing their probability by trading when your edge is not actually present! You can do this by employing the disciplined to ONLY trade when your edge is present…in other words, stop trading just because you ‘want’ to! Confluence is like ‘steroids’ for a price action setup Everyone knows I teach and trade price action. However, I know from emails that I get that a lot of people who follow me think that ‘price action trading’ means trading any old price action setup; they seem to totally ignore the market context that the setups occur in, which is actually just as important, if not more than the individual setup itself. Essentially, I am talking about confluence here, and trading price action setups at confluent points in the market is really the ‘core’ of my trading philosophy. I talk a lot about trading Forex like a sniper and not a machine gunner; well, waiting for price action setups to form at confluent points in the market is HOW you trade like a sniper. Traders who just enter any PA setup they see, without considering the context it’s occurring within, are machine gunners, not snipers. There are many different ‘factors of confluence’ that I teach to my members, but for today’s lesson we will just stick with horizontal and dynamic support and resistance levels in order to illustrate the point. I use the 8 and 21 daily EMAs for dynamic support / resistance, and horizontal support / resistance levels are simply your classic technical analysis support and resistance levels that connect highs to highs and lows to lows. To trade with confluence, we want to first scan the markets for an obvious, or well-defined, price action setup. If we find a setup that meets our criteria, we then look to see if it has any supporting factors of confluence. In the chart below, we can see 3 price action setups that each has three supporting factors of confluence. All three of these setups had confluence with the near-term bullish momentum / trend, dynamic support from the 8 and 21 day EMA layer, and support from a horizontal (static) price level. This is one example of trading price action setups from confluent levels in the market.