Addressing a Common Trading Problem

Hello traders! As long-time readers know, I’ve been teaching with Online Trading Academy for ten years now and have been actively trading the forex market since 2002. Having taught several thousand individual traders around the country, and writing this newsletter for a few years, I’ve received dozens (hundreds?) of emails from new traders with many of them asking a very similar question: why are my trades not working out the way they used to?

A very common email thread between various students and me sounds something like:

Student: I took your class in (month)/(year) and things started out going great. After a while, my profitability dwindled and now my entry levels don’t seem to hold and I’m taking numerous losses in a row.

Me: Send me your last five trades with chart pictures and commentary on WHY you chose those specific levels to trade.

A few days later the email shows up and then the conversation diverges depending on what their charts show me. The common issue I’ve encountered is that many new traders seem to fall into a “rut” of staring at the same few currency pairs and they continue to trade these pairs as if their markets don’t change. For example, take a look at a daily chart on the EURUSD. Go ahead, I’ll wait. See back in mid-2014 when this pair started a dramatic downtrend? If you took class in that summer and learned to take easy trades with the trend you were very happy! However, as the EURUSD started to consolidate/trade sideways in mid-2015, the longer term trend trader was starting to get a bit frustrated as prices kept bouncing back and forth in a range. Now, if you took class in late 2012, the (wide) range-bound EURUSD was easy to trade, but this student may have become frustrated as the chart started to trend for weeks/months at a time not giving them the easy range-trading entries. Sometimes one gets used to making a lot of pips with one style of trading in one type of market, but as the markets change very often this one style becomes much more difficult to trade! You would probably be surprised at how often I see new traders trying to trend trade a channeling market, hoping for a 100 pip move, when the sideways channeling market really is only offering up 20 pips; or a new trader taking 20 pip profits on a clearly trending market that would have offered 100 pips!

So, here are a couple of solutions. Number one: If you are used to trading a certain type of market and your preferred pair(s) aren’t making you pips, find other pairs to trade! (This should be obvious to the experienced traders out there, but newer traders often prefer to stay in their comfort zone.) Look at some of the cross pairs, commodity pairs or whatever it is that you haven’t been focusing on.

Notice the range bound market on the EURUSD on this four hour chart. Several weeks of sideways action might cause a set-in-his-ways trend trader to become very frustrated! But notice the strong, continuous downtrend in the GBPJPY. By merely flipping to another pair this trend trader should have been able to easily squeeze out dozens, if not hundreds, of pips on the GBPJPY. This also works in the opposite fashion. If you prefer to trade the sideways channels, find a pair that is going sideways instead of trending. Pretty easy, right?

The second suggestion I’ll make this week is to add the other type of trading to your toolbox. If you are good at sideways markets, take a few trades (with extra small position size!) in trending markets. And obviously, if you are good at trending markets, take a few trades in sideways markets. This is actually my preferred recommendation. I would always recommend becoming a more-rounded trader vs. sticking with just one technique, but to each his/her own. Trading is a very personal business and some like to stick with what they know.

So, there you have it traders! Two (relatively) easy fixes to an extremely common new trader problem. Recognize the type of market you are good at trading and find a pair that is trading in that fashion, or expand your skillset. The choice is yours. As always, use quality supply zones for your sell orders and quality demand zones for your buy orders; this Online Trading Academy rule doesn’t change.

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