Knowing when NOT to take a new trade
In this weekly video:
00:25 – Learning to reject a trade
00:53 – Less is more
01:14 – Live 2 hour webinar and examples shown in real time
01:50 – I took 1 trade and rejected others
02:51 – The AUD/NZD H6 trade
04:32 – The trade hit the full profit for a 2:1 reward:risk ratio, or a 1% account gain
As part of being a good Forex trader, it's important to understand when not to take a new trade. Let's talk about that and more right now.
Hi, Forex traders. It's Andrew Mitchem here, The Forex Trading Coach with video and podcast number 261.
Learning to reject a trade
An important part of being a very good Forex trader is having the ability to reject trades, to see good, technical setups, but you may also see a reason why not to take that trade. You see, as a Forex trader, I'm sure that you want to take new trades. It's the excitement, it's the buzz of identifying new setups of taking new trades because that's what we do. We're looking for trade set ups all of the time.
Less is more
Part of being a good Forex trader is also using the less is more philosophy. You don't need to keep taking trades in order to do well. You need to have the higher quality trades in order to do well, not the volume of trades. It is important to understand what to look for when not to take a new trade.
Live 2 hour webinar and examples shown in real time
As an example, just last night I held a live two hour session with my clients, so traders from all over the world on this session for two hours in the European session, and we were looking at trade setups that I'd taken over the previous week, looking at some really good technical setups. Most those trades worked. A few didn't. That's just part of trading, but in real time, I was finding that yesterday, which was Thursday, the 15th of February, the market in the European session was just a little bit quiet and there wasn't a lot there. Then towards the end of the session, there was some very nice technical setups showing.
I took 1 trade and rejected others
But I only took one trade. What I was finding was there were good technical setups, but I was also finding a reason not to take the trade, and it could be, as an example, as a buy trade, it means that we're buying into a round number. We may be just a few pips below a round number, like a 00 or a 50 level. We don't want to be doing that. You don't want to be buying directly into a middle Bollinger band or a pivot point or as a buy trade, you don't want to be buying and knowing that you need to get your profit target through a previous resistance level or previous high. Those type of things. That's what you want to avoid doing.
I was looking at a number of good technical setups, and I was saying to clients, “Look, I really like this. It's got a great candle pattern. It's in the right part of the chart. It's got a trend line break, all the things we're looking for. Oh, but this trade's against today's ideal strength or weakness, or this trade's buying directly into a round number of 00. There's reasons why not to take those trades.”
The AUD/NZD H6 trade
Then towards the end of the session, I found a great technical trade on the Australian dollar, New Zealand dollar on the six hour chart, and I took the trade. Had everything I was looking for. It had the great candle pattern, it was in the right part of the chart. Yesterday, you can go and look on my free analysis for Thursday, the 15th of February. I was suggesting looking for sell trades on the Aussie Kiwi Cross, and that's exactly what I was doing on the six hour charts. I had a round number in the pivot point to protect my trade, as in protecting the stop loss. We'd just broken through some recent lows, and my profit target was before the last major swing low, so it had everything in its favour, so I took that one trade.
Although I identified during that session probably about five trade in total, I only took the one because those other four I could see reasons why, yes, they're okay, but there are also good reasons why not to take the trade. One of them actually had a very low reward to risk, so I said, “Look, I love this trade setup.” It was the New Zealand Yen buy trade, so it's looking really, really good, but the reward to risk was not there because I couldn't justify putting my profit target above a round number, and there was some previous highs. All reason like that, we talk about in real time as the market's happening, and that is why live trading with a mentor in real time every week is so good for you. That's why my clients do so well because they attend live sessions like this. They're listening to me talking about why, yes, I like this trade, but there's a reason why I'm not taking this trade. That's really, really important.
The trade hit the full profit for a 2:1 reward:risk ratio, or a 1% account gain
So, going back to the Aussie Kiwi sell trade six hour chart trade, absolutely beautiful trade. It retraced up to my entry level absolutely perfectly. It went about two pips over, but it didn't matter because I wasn't there at the time. I place the order, I finished the webinar. I woke up this morning. The trade retrace got me filled on the sell trade, and in one candle, within one bar of six hours, it had hit my profit target, and it made me a two to one reward to risk trade. It wasn't two to one just because I picked two to one, it's where the profit target and stop losses needed to be just happened to work out at exactly a two to one reward to risk. I risked half a percent of my account on that one trade, I wake up in the morning and I've made a 1% gain in my account for that one trade, just by being patient, just by rejecting some of those other trades for reasons. It's just a few dents there, even though technically they looked okay. So less is more, take the higher quality trades, high reward to risk. You'll do really well from that.
I hope this helps. This is Andrew Mitchem, the owner of The Forex Trading Coach. Look forward to catching up with some more training tips and information. This time next week.