#1 Rule of Successful Forex Trading

Yes. It is Possible.
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Every day I receive e-mails from people that want to know if it is really possible to win at this Forex game. The short answer is, YES! It IS possible. Of course it’s also possible to get stuck by lightening if you are standing in the right place at the right time!  So how do you make sure you are positioned in the right place and have your timing correct when it comes to forex? Firstly you HAVE to follow the number one rule of successful Forex trading. That number one rule of course is to buy it for less than you sell it. While it is true that this LAW of trading is a simple one, it most certainly is not an easy one to follow as I am sure you have discovered.

Are you ignoring the #1 rule?

One of the aspects of this way of trading is the fact that in order to be successful, you MUST at least try it to think about whether you are buying low and selling high when you take the trade. I mean…. I know that the main reason you buy is because you think that the market is going to rise. But, why do you think so? Are you looking at the chart instead of listening to the news? If so, then you would essentially be buying only after the price has dropped. (Buying Low) Or… you would be selling only after the price has risen.(Selling High) This basic fundamental rule seems to be mostly ignored by the typical forex trader.

Which Trend is your Friend?

You are being told that the trend is your friend and to enter the trade in the same direction as the trend. However the question that we all have a different answer to is… “The trend on what time frame?”. Hourly? Daily? Weekly? Monthly? M15? Of course if you zoom out enough you will see that there is not a trend at all… Just a big range that it bounces around in.


So… no matter whether you had decided to decided to buy or sell…. eventually you would have been right……Eventually… The question is.. “Can you afford to wait until you are “right”? It may be a long wait. You can see, by looking at the charts above that when the prices are nearing the top or bottom of this huge range. we may need to think about if we are wrong and buy up here… or sell down here.. How long will we have to “wait to be right“? Both gbpusd and eurusd seem to be in the middle of the range.. However gbpusd is making multi year highs at the moment. So which way is the trend favoring? Flip a coin I guess. Obviously, the people that make the most money out of a “trend” are the ones that got in at the beginning before the trend existed, or they wait until a pullback in a trend and enter. In other words, in order to enter at the beginning of an UP trend you have to buy as close as you can to the end of a downtrend or at the bottom of a range or pullback….. Easier said than done. Usually we pick a timeframe that we like to trade, and then look at the trend of a larger time frame. Just choose your entry points wisely is what I am saying. Keeping this in the back of your head will keep you from making some stupid trades. Have you ever looked back at a trade you took and said… Why in the world did I get in there? ..Yea.. Me too.

Indicators, Too Little, Too Late.

The problem of course with using indicators as a trigger for your entries, that are based on the math done on several previous candles, whether it be STOCHASTICS, RSI, MACD or a simple moving average cross is of course that they are a little slow. I’m not saying they tell us nothing. It’s just that they are telling us what we should already know by looking at the actual chart. Again we get back to what length of time we are getting our data from, and how late we get the signal. By the time that these indicators are telling you that you need to take a trade, has the market already been moving in the same direction for a period of time determined by the number of candles that are you are using in your signal? This is the problem with lagging indicators.

“You can’t drive by looking in the rearview mirrors. It’s a good way to crash your account.”

Look at the previous price action to the left .. not at a result of the math done on the previous price action. The chart will show you (to the pip) what the previous price level was when it was considered too high or too low and the market turned. Try that with a 20/80 line on an oscillator. Unfortunately, as anyone that has tried to program a strategy can tell you, it’s easier to get an EA to “see” that level on the Stochastic and make a rule about it, than to get an EA to “see” what the human see’s when he/she looks to the left on the chart. This is the challenge of programming after you learn the language. Trying to turn your idea into math.

Chart Patterns, Use Them Correctly.

Some traders like to use chart patterns which can be a good idea if you keep in mind that what you are trying to do is sell after an up move and buy after a down move. For instance, there are some traders that like to trade head and shoulder patterns. The idea is to wait for the pattern to develop, and then when a neckline is established, to trade a break of that neckline. This means that if the market breaks down through the neck line that you are supposed to go short at the bottom of the pattern! It makes much more sense to sell after the price returns to the neck line from below. Sure, maybe the trend is now down.. so let it pull back and then pull the trigger where you can control your risk/reward easier. When it falls through that neckline a ways.. just put a pending sell limit up there and let it come to you.

Breakout Traders

Other traders are breakout traders. They will wait for the price to break out the top or the bottom of a channel in the hopes that it will keep moving in that direction. This means that they are buying at the top of the channel after a move up. And they are selling at the bottom of the channel after a move down. When they do this they will usually place a stop loss on the opposite side of the channel. Over and over they get caught in a fake move and get stopped out. It might be a better idea to wait for the price to descend to the top of the channel after breaking up through it. This will enable you to have a closer stop loss and a better risk reward ratio. Also, if you are correct and the market does keep going then you will end up buying lower or selling higher and at a better price than jumping in immediately and getting filled 15-20 pips above or below the channel. Stop being afraid you are going to miss the trade. Use limit orders and let it come to you. Get in at YOUR price. The saying is..

“It’s better to be OUT of the market wishing you were in than, being IN the market wishing you were out.”

Psych Levels

Some like to trade what are called “Psych” levels. These are prices on the chart that seem to have more than the usual attention paid to them. This can come in the form of a price at an even number, i.e. 1.3200…1.3300. The weekly daily or monthly pivot. Or, a certain Fibonacci level. Due to the fact that so many people pay attention to these things there does seem to be a disruption in price movement as it approaches these areas. The price may turn at these points or it may hesitate for a long time before continuing on. Some traders call them self-fulfilling prophecies. And they are well worth paying attention to. However, do not forget the number one rule. When the price descends to one of these levels especially in a hurry, it is the wrong time to be selling. Or when the price rises to one of these levels it is much easier to place a stop loss in a reasonable location beyond the psychological level when you enter the sell trade. Keep in mind though that many people are aware of all of these orders around the psychological levels and will plan on the stops being triggered. That is why you will see the market pierce these levels by several pips and then turn and go the other way after taking out the stops.

No matter which road we take, we are all trying to reach the same destination.

When it comes to trading Forex there are as many strategies as there are traders. Some like to take trades based on the prevailing trend of a higher timeframe, some like to use a combination of indicators to tell them when to buy or sell. Others used chart patterns or candlestick patterns. Some try to use Elliot waves to figure out where they are in the big picture. And still there are others that rely heavily on pivot points and Fibonacci levels. Just keep in mind that no matter what your strategy is, we are all trying to accomplish the same thing. And that is to buy it for less than we sell it for.

Some differences between manual trading and using a robot.

As far as my manual trading goes I simply use the price action to the left. Anything that an indicator can tell me I can already see on the price before the indicator tells me. However as far as trading with a trading robot is concerned, I have to use something that I can turn into some kind of rule usually involving math. Still though, I have to use something that takes into consideration whether I am buying low or selling high. Such as, waiting for the price to venture way outside of a Bollinger band. Or waiting for a MACD or the stochastic to get extremely over extended. Another difference is that when I do manual trading, I like to enter the market with a pending order. This way I do not enter a trade unless the market has moved into an area that I deemed to be important. However, in my expert advisor strategies I enter the trade right when I receive the signal. Anytime that you can use actual price action in combination with an indicator such as when the price crosses a moving average, you will get in the market sooner than you would if you had two moving averages crossing one another. Of course it’s better to wait until the close of the candle for confirmation before you take the trade. And also… trade on a larger time frame to filter out noise. Too large of a timeframe however, and you will still be getting into the trade much too late if you wait until the close of the candle.

“It’s not an exact science so stop trying to make it one.”

It is possible in Forex to over complicate the issue. Due to the fact that so few succeed in trading, we assume that it must be extremely complicated. We need to stop concentrating on the trees and look at the forest. Use only the indicators that you feel that you absolutely must have. Don’t get your chart so cluttered up that you cannot even see it. And ask yourself before each trade,” Is this trade that I am about to make an example of buying low or selling high?” Remember, it is impossible to be successful without following this #1 rule. The matter how large your account, no matter how much leverage you have, no matter how many trades you make, no matter what time frame you use, the matter what indicator you use, no matter what strategy you use. You can only succeed if you sell it for more than you bought it for…. PipPip..

5 thoughts on “#1 Rule of Successful Forex Trading

  1. ElaineMDG

    An older article; still filled with wisdom! I’m glad I’ve had a few days to do nothing more than read! Spent 2 days “living” in a veterinary hospital, helping out, (MANY moons ago worked as a Vet Tech along with being an RN-Paramedic. I needed a break from people sometimes ;), helping with my lil girl and keeping costs down. I only had my iPad, so I mainly read articles & an FX Book I’d just purchased. I even got the young Vet interested in what I’m doing and passed on your website & youtubes. She’s actually interested in the coding aspects, so…you offer commissions? 😉
    (And couldn’t agree more on your marriage comment. Although I’m thrilled that some friends and my daughter are blissfully happy in marriage; I’m happier and more at peace on my own! I sleep a lot better too! 😉

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