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How to Increase Confidence as a Forex Trader (3 Key Factors)

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Happy Friday!

This week’s question comes from Tshepo, who asks:

What are the factors that you look into or take into consideration before entering a trade?

Listing each and every factor wouldn’t do this question justice. Every setup is different and therefore has a unique set of factors that can make or break it.

So listing out each one would lead to more confusion than anything else.

Instead, I decided to take a different angle. I’ve included three factors that I consider on each and every setup, regardless of market conditions. These considerations will lead to more confidence and greater profits.

At the heart of the question above is that of how to increase confidence as a Forex trader. Do that, and you’ll begin to let profits run, cut losses short and control unwanted emotions.

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An increase in confidence will also allow you to be more patient between trades.

How can it do that, you ask?

If you’re confident in your abilities, you won’t feel pressured to trade every day. Your average profit per trade will increase, and your average loss will decrease, allowing you to trade less frequently.

You’ll also be less inclined to revenge trade. After all, if you have the confidence necessary to be successful, you’ll know that the next winner is just around the corner.

Let’s begin.

1. Find a Confluence (of Support or Resistance)

Want to make one change to your trading that will equal greater confidence and more profits?

Silly question, right?

Find areas that offer a confluence of support or resistance.

That’s it. Do this one simple thing, and I can all but guarantee your trading will improve.

But let’s not get ahead of ourselves. You may be wondering, what is an area of confluence? Or perhaps you’re curious what the term even means.

Put simply, a confluence is an area where two or more things intersect.

In the world of trading, it typically means the intersection of two or more key levels. These can be trend lines, horizontal support or resistance, and even Fibonacci retracement levels.

The idea here is to trade from areas that offer more reasons to do so.

Think of it like this…

Consider the following two responses from the question below.

Why did you sell the AUDUSD from the 0.7700 area?

  1. Because there is a horizontal level in the area
  2. Because there is a horizontal level in the area plus two trend lines, one that began ten months ago and another that dates back nearly two years

Which response makes you feel more confident about selling the AUDUSD from 0.7700?

Of course, the second response is much more reassuring. Instead of having just one level in the region, we have three key levels that intersect near 0.7700.

These two additional reasons help justify the decision to sell and in return give you more confidence in the setup.

That increase in confidence means you’re more likely to let profits run and less likely to fall victim to emotional decision making.

2. Sentiment and Momentum Are Synonymous

Everyone wants to identify the sentiment of a market. This is the feeling or tone of a market and is often found in conversations about market psychology.

Numerous indices have been developed to help traders do just that. It seems every financial news outlet from CNN to Bloomberg has one of their own.

Most call it a “fear and greed index” or similar. Essentially, a high level of greed means participants favor riskier assets while a reading of fear signals a flight to safety.

But here’s the deal…

All of those terms and concepts boil down to one simple realization – sentiment and momentum are synonymous. Said differently, the trend will tell you whether a market is bullish or bearish.

Everything you need is already on the chart.

Now, the tricky part is making sense of the various trend durations. For that, be sure to check out the post on conflicting market trends.

If you want to increase your confidence as a Forex trader (I assume you do otherwise you wouldn’t be here), trade with the momentum.

And I’m not talking about whether a few retail traders are bullish or bearish the EURUSD. Because let’s face it, most retail traders get it wrong more often than not.

You need to do an independent analysis and come to your own conclusion. Use the higher time frames and focus on the major swing highs and lows. But above all, keep it simple.

The truth is that all you need to figure out the sentiment of a market is on the chart. Everything else is redundant.

3. When in Doubt, Wait for Confirming Price Action

I sometimes get emails asking if I only trade pin bars. Perhaps this is because I started with pin bars years ago, so that was my focus when I created this site.

The answer is no; I don’t only trade pin bars. In fact, I don’t always wait for confirming price action either.

What is confirming price action?

It could be a pin bar that forms at key support. Or maybe it’s an engulfing pattern that develops at key resistance after an extended rally.

Whatever the case, it’s a candlestick pattern that helps to confirm the validity of a given level.

After I describe this, the next question usually goes something like this:

How do you know when to wait for confirming price action versus just buying or selling at support or resistance respectively?

My first response is always the same – it’s a personal decision and one that you have to discover for yourself.

It’s also not that clear cut. No two setups are the same. Market conditions will vary as will risk to reward ratios, among other things.

However, my rule of thumb is that unless I have momentum and confluence on my side, I wait for confirming price action.

The same can be said for a range bound market. If the EURUSD has been bouncing back and forth in a 300 pip range, I’ll wait for confirming price action before considering an entry.

Using the AUDUSD example above, if the pair had retested a confluence of resistance at 0.7700 within a broad downtrend, I’d be more inclined to forgo a price action sell signal.

I use a candlestick pattern like the pin bar to validate the significance of a level. So if I have two or more key levels that intersect in a given area, I don’t necessarily need to wait for confirmation.

In essence, the combination of confluence and momentum is enough to justify an entry, or at least trigger that decision-making process.

It all boils down to the factors surrounding your decisions. Find more (valid) reasons to buy or sell a market and your confidence will skyrocket.

Once that happens, you can begin to put unwanted emotions to bed.

Final Words

As a Forex trader, an increase in confidence is what will allow you to stick to your game plan. It enables you to hold profitable trades longer and cut losses quickly.

One of the most important things you can do to increase confidence and take better trades is to focus on finding areas that offer a confluence. By trading from stronger support and resistance areas, you’ll inevitably develop a higher sense of confidence.

You don’t need a sophisticated algorithm or indicator to determine a market’s sentiment. All you need to do is follow the momentum (trend).

The most profitable setups often develop at a confluence of support or resistance and in the direction of the overall trend. Combining these two factors alone can drastically improve your trading performance.

Confirming price action is an excellent way to validate the significance of a given area. If I’m trading against the trend or an area without much confluence, I always make sure to confirm an idea to buy or sell with a price action signal.

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I’d love for this new weekly Q&A to be successful and provide an invaluable repository of answers to common Forex questions.

To do that, I need your help.

Here’s what you can do to get involved and have your question answered in next week’s post:

  1. Ask questions. Post them in the comments below or Tweet them to me @JustinBennettFX
  2. Help me answer questions. If I missed something or if you have something to add, don’t hesitate to leave a comment below.

Leave a Comment:

23 comments
Hart Ajaero says

Dear sir
Thank you for these 3 wonderful and helpful advice and strategies. i will try to look for the setups. Please on what time frames can i search for these Confluence setups and if found on current trading tiime frame, is it what you mean as a good decision trade?
Thanks.
Hart.

Reply
    Justin Bennett says

    I do most of my analysis and trading on the daily time frame.

    Reply
    Locan says

    Justin he usually trade on H4 and D1 only

    Reply
sengee enke says

thank you justin. this article is great lesson and i need this words like a water. thank you again.

Reply
    Justin Bennett says

    You’re welcome, Sengee. Cheers.

    Reply
Merry Kroeger says

I am already a subscriber…. I just wanted to say what an excellent article… So well written… so detailed and yet simple to follow… I personally just wanted to thank you… I am reading almost everything you put out to us… and using the ideas… though I don’t comment as much… I use other indicators so I know you prefer we not use them on your site… However, I have to say by using a blank chart and just looking at it… from scratch so to speak like you said, does bring clarity… I need to take the time to do this every time…Again.. Thanks Justin
Merry

Reply
    Justin Bennett says

    Hi Merry, thank you for the kind words, and you’re very welcome. It’s certainly important to find a style that works for you.

    Reply
Akhtar says

Hi, Dear Justin,
useful and meaningful as always. Happy weekend. Thanks

Reply
    Justin Bennett says

    Pleased to hear that, Akhtar. Let me know if you have any questions.

    Reply
Rick says

Most of the experience trader always said news are built in the chart. So don’t focus news . Well if u don’t focus news then how do u know the economy or inside country what’s going on ? So f u pay attention on news what’s the best source for news ? Most of my trade lost because of listening or reading news . I got set up correctly but as soon as watch the news I screwed. Just example audjpy short at 81.30 and after that it got reverse and going up n up.
U got my point.

Thank you

Reply
    Justin Bennett says

    Hi Rick, thanks for the question. I’ve added it to the list of future Q&A posts.

    Reply
michael walker says

I think this subject needed attention to help in deciding whether to enter or not.You often have to decided whether or not to enter when there are no single entry signals but there is momentum at say resistance but there are still 5 hours before the candle closes.You have been told to short at daily close below resistance and the candle is 30 pips below resistance.It is vary tempting to short but I prefer to wait until the daily close of the candle

Reply
    Justin Bennett says

    Michael, absolutely. A lot can happen in the last hour of the session. Cheers!

    Reply
Rahat Ali says

Hi Coach,
All time big fan of yours posts & analysis. Thanks!
I have a question how to determine the turning point of the trend change, is it price action signal daily or weekly chart, or when prices cross 50% Fib level, or when it break the trend line? So that we may follow momentum accordingly.
Please elaborate in detail with example and what minimum time duration should be considered, 6 months or a year.

Thanks in advance!

Well Wisher,

Reply
    Justin Bennett says

    Hi Rahat, thanks for the question. I’ve added it to the list for future Q&A posts. Cheers.

    Reply
Jann Lechelle says

Hey Justin

Thanks again for another insightful post. I found the three guidelines above very helpful, especially the confluence part.

I have a question about price ‘retesting’ a key/channel level of support or resistance on the daily time frame. Are there any rules about how many times price will test that level before it decides to move higher or lower?

You often mention that with channel support or resistance trend lines, price needs to touch the level at least three times before it breaks through… is this the same with price ‘retesting’ a level?

Thanks again Justin!

Reply
Taiwo says

Thanks so much, your write up is always very educative please don’t let it stop

Reply
Shah says

Thank you very much for great knowledge you share with everybody here. I saw a link in your website about how long to keep a position and I wanted to read it later, unfortunately I can’t find the page and I couldn’t find any search bottom in your website. Would you please put that page link here?
Thank a lot..

Reply
    Justin Bennett says

    Hi Shah, perhaps this one? http://bit.ly/2kcBrTr. Outside of that, I’m not sure I would have written about how long to keep a position open as that would depend on several factors.

    Reply
Roy says

Now i understand confluence. Sometimes these confluence signs are on the chart but I cannot see them, now I am going to be looking for other signs to buy or sell.

Thanks Justin, my trading has improved because of your simple teachings

Reply
Aly says

Amazing article ,,, i already scan for my signal in this way ,,, 1)Trend ,, 2) support or resistance level 3)pinbar or inside bar
and risk:reward 1:2 ,, if those are combined I have a great setup … Which is almost like the one in USD/JPY right now on Daily frame

Reply
Al Shuaib says

Thank you for the guidelines. It is very helpful.

Reply
    Justin Bennett says

    You’re welcome.

    Reply
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