Finding consistent profits in the Forex market is nothing short of a journey, and a long one at that. It’s filled with challenges that will have you questioning whether you have what it takes to become successful. Every trader, successful or not, has experienced these self-defeating thoughts.
The market has a funny way of testing our resilience. And it doesn’t stop once you become consistently profitable. But I suppose trading Forex wouldn’t be nearly as much fun without the constant challenge.
Although these tests of resilience continue long after you find consistent profits, they are always worse during the early stages of the journey. This is partly due to the fact that you’re still learning, and partly due to the fact that you lack any concrete evidence that consistent Forex profits are even possible.
In an effort to help you reach the profitable stage of your journey, I’ve created a list of 10 reasons why you still aren’t profitable. All of the reasons below may not apply to you, but I’m willing to bet that you will find a few that sound all too familiar.
Here’s to your success:
This one is first and foremost because it truly is the best way to start profiting consistently in the Forex market.
The use of price action is the most raw form of analyzing market movements and will give you the best chance of finding probable setups. This is because it doesn’t rely on lagging indicators in order for you to make informed trading decisions.
What is a lagging indicator, you ask? Put simply, a lagging indicator is any indicator that uses past performance to generate ideas of a possible future direction.
Truth be told, price action could be considered a lagging indicator. This is because even price action strategies and patterns are based on past performance. But in all fairness to price action, there is no such thing as a non-lagging indicator when it comes to trading the financial markets. That would be the equivalent of an indicator that could tell the future, which we all know doesn’t exist.
So then we can call price action the “least lagging” indicator, which is as good as it gets. It’s also easy to learn price action as it doesn’t require any confusing indicator combinations.
Simply put, price action is as close as you can get to reading true market sentiment. And if you can read the overall attitude of participants within a specific market, then you are that much closer to becoming consistently profitable.
This one may seem counterintuitive at first. A common thread in the world of Forex is that you’re better off focusing on a small group of currency pairs at first. Or my all time favorite, is the advice to focus on just one pair until you master it, and then expand your focus.
This focused approach may work for those trading the lower time frames, such as the 5 minute or even 15 minute charts. But for all of us trading the higher time frames, focusing on just a few markets to trade can be deadly.
If you have traded the four hour and daily time frames for any length of time, you know that quality setups don’t come around often. On average you may get 5 to 10 tradable setups per month. And that’s assuming you are watching at least twenty currency pairs.
So what happens when you only watch 5 pairs for setups on the 4 hour and daily time frames? Even worse, what if you focus on just one pair?
See what I’m getting at? If you’re only focused on a handful of markets in search for setups on the higher time frames, you’re going to need a ton of patience. More patience than can be expected from anyone who has a desire to make money, which I’m going to assume describes everyone reading this article.
What happens when your patience runs dry? You begin to take subpar setups, which becomes a major setback in your journey to find consistent profits.
If you made your living as a fisherman, would you rather cast a net to catch fish or use a single line? Clearly a net is going to give you more fish to sell, thus increasing your income.
As traders, the more markets we have to watch for setups, the more opportunities we will have to trade only the most favorable setups. This too will increase our profits.
Just as a pilot doesn’t take off without a flight plan, you shouldn’t trade without a trading plan.
A trading plan is more than just a piece of paper with some rules written on it. It literally defines the way you trade. Everything from your morning routine to your short and long term goals. It’s what helps you to stay on track during your career as a Forex trader.
Make no mistake about it, if you have any desire to become consistently profitable, you need to treat your trading as a career.
One thing that separates the successful Forex traders and those who are not, is the way trading decisions are made. For the unsuccessful trader, a decision to buy or sell, take profit or not, is simply a decision. For the successful trader, those same decisions are business decisions that require no small degree of scrutiny.
These decisions need to be examined to ensure that they are in the best interest of your trading account, and ultimately your career as a trader.
You need to ask yourself, – does this setup give me the best opportunity to grow my account? If the answer is no, or if you feel indecisive, you’re better off keeping your money in your account.
What kind of examination is needed? How do you know if that setup will give you the best opportunity?
By weighing the merits of that setup to the criteria you’ve laid out in your trading plan. This will help you keep emotions out of the equation. So instead of making an arbitrary decision about the setup, you now have a way to compare the setup against a previously written rule book, so to speak.
The Forex market has a certain stigma about it – that profits are easy with the right products or services.
Perhaps it was some expert advisor that promised 40% returns per month. Or possibly a proprietary indicator combination that would double your account every month. My personal favorite are the compound interest calculators, where someone shows you how you can make $50,000,000 in 5 years starting with just $100.
Regardless of what initially attracted you to the Forex market, there was a point where you realized that there’s no such thing as easy money. It takes time, effort and no small degree of persistence to become consistently profitable.
But somewhere between there and now you held on to that belief that quick and easy money exists. Perhaps things like the ability to increase your trading account by 20% in just one trade keeps your subconscious believing that easy money is possible.
Whatever it is, your ego has you believing that you are the exception to the rule. That it won’t take you years to build a sizable trading account. That you won’t have to endure the same trials and tribulations as everyone else.
Becoming a consistently profitable Forex trader is a marathon, not a sprint. Making 5% to 10% profit per month with your current account balance may not seem like a lot of money now, but how about 5 years from now when those gains bring you $20,000 to $30,000 per month?
Slow and steady wins the race. And with income prospects like that, it’s well worth the wait.
But wait, isn’t that the great thing about Forex – the ability to open a live account with just $100, sometimes even less?
Great, yes, but not for you.
The brokers love it, because they know that the majority of people will re-fund that $100 account when it’s blown the first time.
This isn’t to say that it isn’t possible to turn $100 into a sizable account, but it certainly isn’t probable. And in trading terms, an outcome that isn’t probable isn’t worth the risk.
So then what’s the solution, you ask?
Starting with a sizable live account, once you’ve put in the time on a demo account of course.
How much is “sizable”? That all depends on you and your circumstances. I often recommend $1,000 as a general rule. If you don’t have that much money, you’re better off saving up over time rather than trying to grow your account from $100 to $1,000.
Why is starting with a sizable account important?
It’s important because your profits from a small account won’t be meaningful enough to keep you disciplined. If you have traded the higher time frames before, you know that it requires an extra dose of patience. This is because it can often take days for a quality setup to emerge or for a profit target to be triggered.
Let’s assume you have a $100 account. After three days of patiently waiting, an A+ setup emerges, so you pull the trigger. You’re in the trade for five days before your take profit is triggered. It was a 3R trade, so you made a healthy 6% profit (2% risked). Not bad considering it took just eight days!
But wait a second – 6% of $100 is only $6. All of a sudden that excitement of making 6% profit falls a bit flat.
In an ideal world you would be perfectly happy with your $6, knowing that the true accomplishment is in what you did, not how much you made.
I 100% agree with that thought. The problem is that we don’t live in an ideal world. We live in the real world, where money is a driving force and human emotion is a factor. There isn’t a trader on earth who can say that the lure of money isn’t what attracted him/her to trading.
The most detrimental part about all of this isn’t the unsatisfied feeling of only making $6. It’s what comes after that feeling that is arguably the #1 destroyer of trading accounts – the idea that more trading equals more profits.
It’s safe to say that most traders start out using some form of a scalping strategy. The reason for this is twofold:
The false sense of security comes from having a stop loss that is much greater than the profit target, giving the strategy a high win rate. This makes our ego feel good about the prospects of being right most of the time.
The idea that more trading equals more profits is one of the greatest misconceptions in the Forex market. This mentality is born by the society we grow up in, which leads us to believe that “more is better”. More money, more cars and more vacations.
Most traders who start out using a scalping strategy eventually move to the higher time frames. Unfortunately, it takes most of those traders years before they realize that a change is necessary.
By this time those trader have developed bad habits from their scalping days. These bad habits persist even when they begin trading the higher time frames.
When it comes to the number of trades you take, less is more. This is because the number of quality setups available on the higher time frames is considerably less than that of the lower time frames.
But don’t mistake a lower number of quality setups to mean that the profit potential is any less. In fact, the potential for profits increases exponentially as soon as you reduce your trading frequency.
A lower number of setups means that your trading for quality and not quantity, which is what will ultimately lead you to consistent Forex profits.
Speaking of scalping strategies, the unfavorable risk to reward ratio is what makes them so dangerous.
The concept of risking less than the potential reward is arguably the most logical, yet most overlooked concept in the Forex market. After all, who doesn’t want a reward that’s greater than the risk. In fact this is exactly what super-successful investors such as Warren Buffett look for when evaluating a potential investment.
The idea behind a proper risk to reward ratio is to risk no more than half the potential reward. So if a setup requires a 100 pip stop loss, the profit target must be at least 200 pips away. It’s okay if the potential reward is more than twice the risk, but it can never be less.
Trading this way takes the pressure off of feeling like you need a high win rate to be consistently profitable. That just isn’t true.
Here’s a table showing the true power of a proper risk to reward ratio.
|Trader A (50% win rate)||Trader B (70% win rate)|
|Trade 1: $200 (W)||Trade 1: $100 (W)|
|Trade 2: -$100 (L)||Trade 2: $100 (W)|
|Trade 3: $200 (W)||Trade 3: -$100 (L)|
|Trade 4: $200 (W)||Trade 4: $100 (W)|
|Trade 5: -$100 (L)||Trade 5: -$100 (L)|
|Trade 6: $200 (W)||Trade 6: $100 (W)|
|Trade 7: -$100 (L)||Trade 7: $100 (W)|
|Trade 8: -$100 (L)||Trade 8: $100 (W)|
|Trade 9: $200 (W)||Trade 9: -$100 (L)|
|Trade 10: -$100 (L)||Trade 10: $100 (W)|
|Total: $500||Total: $400|
So even though Trader B won 70% of the time and Trader A won just 50% of the time, Trader A still made more money. Extrapolate that out to 100 trades, and Trader A would make $1,000 more than Trader B. That’s the power of using a proper risk to reward ratio where the risk is never more than half the potential reward.
But to really put things in perspective, let’s take a look at a trader who achieves a 60% win rate. After all, if you’re using price action the way I teach it, your win rate should be greater than 50%.
Here’s what a 60% win rate would look like over the course of 100 trades when using a proper risk to reward ratio.
100 trades in a $10,000 account
40 losing trades X $200 risked = $8,000
60 winning trades X $400 reward = $24,000
Profit after 100 trades = $16,000 (160%)
Not bad, huh?
Do you remember when you first began trading? I mean the very first time you opened up a trading platform and placed your first trade in a demo account.
If you were anything like me, you couldn’t pull yourself away from the screen. Tick by tick, I sat and watched as though my mere presence would magically persuade the market to move in the direction.
This behavior may seem harmless at first and you may even convince yourself that it’s beneficial. After all, you need to put in the “screen time” in order to become consistently profitable, right?
Yes, but not like that. Putting in the screen time means taking notes of various patterns that develop. It’s watching how price action reacts to certain levels and patterns.
But it does not involve watching your trades incessantly, hoping and praying that the Forex gods will favor you. Doing this will only cause you to make decisions based on emotion rather than sound judgement.
The very best approach to trading price action is to let the market do the heavy lifting.
What does this mean, exactly? It simply means to do your due diligence as a trader, place the trade with your stop loss and take profit orders, and then sit back and let the market do the rest.
This is easier said than done. But a great way to avoid hovering over your trade is to find something else to do. Spend time with family, go to the gym, wash your car. Anything to take your mind off of it.
Be sure to include set times in your trading plan of when you will check in on your trades. Do this for twenty one consecutive days and it will become habit.
Soon you’ll be as cool as a cucumber when managing your trades. And that’s the makings of a consistently profitable Forex trader.
One of the most significant and beneficial changes I made on the journey to consistent profits was moving to the higher time frames.
Which time frames exactly? The four hour and daily time frames are my specialty, and for good reason. There are far too many benefits to these two time frames to list here, but here are some of the most beneficial.
Acts as a natural news filter
The lower time frames are more susceptible to large spikes in price due to news events. This is easily explained by comparing the range (distance between the high and low) of a 5 minute candle to that of a 4 hour candle. Clearly the 4 hour candle is going to have a much greater range than the 5 minute candle.
This greater distance allows price to “normalize” throughout the day. So instead of your stop loss getting taken out by a sudden spike in price, only to watch the market reverse and move in the intended direction, you get to stay in the trade and enjoy the profits.
Easier to develop a directional bias
The ability to see a greater period of time on the higher time frames makes it much easier to develop a directional bias. In other words, it becomes much easier to read market sentiment when viewing a four hour or daily chart.
In addition to it being easier to read market sentiment, it’s also easier to identify key levels. This is because more time is required to form each level. An example would be a key level that goes back 3 years on the daily time frame versus a level that goes 48 hours on the 5 minute chart.
Reduces trade frequency
Because there are fewer setups, you’ll be forced to trade less often. This may sound like a bad thing (I used to think so too), but it’s not. The less you trade, the more you open yourself up to opportunities. In order to see valid trade setups, your mind has to be in a neutral place. If you’re constantly taking trades and biting your nails with anxiety, you’re preventing the open mindset necessary to identify these setups when they occur. This open and neutral mindset can only come with trading less frequently.
The saying, “less is more” has never been more true than it is in the Forex market. You don’t need 30 or 40 trades per month to make good money in Forex. All you need is 5 to 10 favorable trades per month to make a considerable amount of money, even on the daily chart. This is especially true if you’re using a proper risk to reward ratio.
Provides quality over quantity
The higher time frames generally provide better quality setups than the lower time frames. This is due to the fact that there are fewer setups on the higher time frames. A pin bar for example may only occur once or twice a month on a given currency pair, whereas you can probably find a handful of pin bars in 1 day on a 5 minute chart.
Fewer trade setups means more weight is placed on each one. This is because it stands out and becomes more obvious to traders around the world, thus increasing the likelihood of the setup reaching the profit target.
Lemming: (noun) a member of any large group following an unthinking course towards mass destruction
Let me be clear, I’m in no way insulting the masses when it comes to the Forex market. Everyone has to start somewhere. I did and so did you.
The problem arises when beginners start following beginners (the masses). This is most often the case with forums. Some are better than others, and a few might produce some valuable tips here and there.
But here’s where the problem comes to surface. Be honest with yourself when answering the following question.
When was the last time you entered and exited a trade without first checking another website for advice?
If you’re like most, the answer is never. At the very least it’s probably been a while.
In business, if you want to become successful you have to associate yourself with successful people. In other words, find people who are living the life you want or doing the things you want to do and then follow their lead.
The same principle holds true when it comes to trading. Find a trader who trades the way you want to trade and then follow their lead.
Reach out to them and ask questions. Become “teachable”. Allow yourself to open up and learn what they’ve learned. That’s the best way to become the trader you want to be.
Following the lemmings will get you what you’ve already got. If you want to become a consistently profitable Forex trader you have to emulate traders who have already found consistent profits.
My hope with this article was to give you a checklist of sorts to help you figure out where you might be going wrong. Above all else, just remember that becoming consistently profitable is a journey. It takes no small amount of time, effort and above all, persistence. But if you truly commit yourself and never give up, you will find the consistent profits you’re searching for.
Here are some of the key points from the article to keep in mind as you progress along your journey.
Did you find this article helpful? How many of the reasons above did you find applicable to your current circumstances?
In order to grow you have to first admit to your shortcomings, so please share your experiences below.
I look forward to hearing from you.