Trading can be stressful, not to mention frustrating, when just starting out.
Any business where you’re directly risking hard-earned money is bound to give you some anxiety, or potentially a lot of anxiety in some cases.
But it doesn’t have to be that way.
Apart from the financial risks, trading is stressful because there are a million different ways to go about it. You can scalp, swing trade, use technicals or fundamentals or both; the list goes on for miles.
Being presented with too many options can be stressful in and of itself.
I find swing trading on the higher time frames using simple price action to work the best. It delivers some of the highest probability trades I’ve ever seen in any market, not just currencies.
There’s another factor that has helped me over the years though, and that’s my process.
You see, I like to keep things simple, and the process I follow each week is no exception. Maintaining a minimalist approach to trading helps keep my head out of the clouds and my emotions at bay.
In today’s post, I’m going to share with you a simple 5-step routine that will help ease your stress levels and deliver higher probability setups.
Before we begin I have just one request—don’t underestimate the simplicity of these steps. When implemented and followed with discipline, this routine is all you need to uncover high probability setups month after month.
Read on to learn how to reduce stress and increase your trading profits.
1. Identify Key Support and Resistance
The first thing you should do when opening a new chart is draw your key levels. These can be horizontal areas, trend lines or a technical pattern such as a channel or wedge.
Doing this will provide you with a blueprint of what to do next. Without them, you’ll quickly find yourself chasing the market, which is the opposite of what you want to do.
You always want to wait for the market to come to you. So once you have these levels marked, it’s just a matter of sitting back and watching to see how the market reacts when it gets there.
Here are a few key points to keep in mind while performing this exercise.
Start with the daily and weekly time frames
Whenever you’re marking support and resistance levels, it’s a good idea to begin with the higher time frames. A top-down approach will allow you to identify the most important areas and disregard the rest.
The problem with using an intraday time frame such as the 30 minute or 1 hour is that you get bogged down by insignificant levels. There are too many price spikes caused by the news and other volatility-inducing events that can distract you from what’s important.
Once you have an accurate “big picture” view from the daily and weekly time frames, you can move down to a 4-hour chart to fine tune as necessary.
Adopt a minimalist approach
If you have 30 or 40 viewable levels on a chart, you won’t be able to place a trade.
I’m a huge advocate for maintaining a favorable risk to reward ratio where the profit is at least twice the reward. In fact, every setup I take these days must have a three to one profit to loss ratio or better.
You can’t do that if there are only 20 pips between each level on your chart.
Of course, there’s no way I can tell you a correct distance between key levels, as every currency pair is different. However, if there’s less than 100 pips between the horizontal levels you’re drawing, chances are you are overdoing it.
Remember, we want to identify the “key” support and resistance levels so we can use them to identify favorable setups and set profit targets.
Never force a level to fit
If an area of support or resistance isn’t obvious, it probably isn’t worth having on your chart. This goes hand-in-hand with my previous point about adopting a minimalist approach.
Also, by only paying attention to the most obvious levels you stand a greater chance of finding quality setups. It’s no secret that the reliability of a candlestick pattern starts with the support or resistance level at which it forms.
2. Maintain Your Watch List
One of the best ways to reduce stress levels and find more profitable trades is to maintain a watch list.
Think of it as your playbook for the week ahead. It’s where you will create your plan of attack for each week including the currency pairs you’re watching, levels of interest, and even your bias toward a particular market.
Without a watch list, you have no compass to guide your efforts. A new trading week begins and you’re free to trade whatever catches your eye first.
That’s what most Forex traders do and it’s a huge mistake.
You’re the only one responsible for your trading. No boss is going to tell you when and where to trade or how much to risk; it’s all on your shoulders.
Because of this, it’s imperative that you have a plan before the start of each week. Personally, I like to update my watch list on the weekends at the same time I’m writing the weekly forecast for the new week.
Once you have a watch list in place, the next goal is to actually follow it.
How many times have you strategized for hours over the weekend only to do the complete opposite on Monday?
I know I have. That used to be a terrible habit of mine many years ago.
I found that adopting a low-frequency approach was the key to overcoming habits like this. By “low frequency” I’m referring to the number of trades taken within a given period.
Once you understand that it only takes one good trade each month to make a considerable return, you won’t feel pressured to abandon your plan for the week.
After all, it’s usually the fear of missing out that causes us to take trades we have no business taking.
3. Check in Periodically (And Keep It Brief)
This is where so many traders fall off the wagon. They draw their key levels, update their watch list and then when the market opens, they sit and stare at their screens for hours on end.
There’s a reason why I only check my charts a few times each day—it helps keep me on the sideline when there’s nothing to do.
Moreover, each of those two or three chart sessions is only five or ten minutes long.
I spend no more than 30 seconds on each chart. Any longer than that and it becomes all too easy to begin seeing what my subconscious wants me to see—something to do with my money.
As much as I’d like to believe that my subconscious has my best interests in mind, experience tells me otherwise.
If you’re thinking I’m only able to find setups in five or ten minutes because of my ten plus years trading currencies, you might be surprised. Once you draw your levels in Step 1, it doesn’t take much time to know if you should act or stay on the sideline.
For those of you trading the 4-hour and daily time frames (which I favor), there’s no need to check your charts more than three or four times per day. After all, there are only so many 4-hour candles in a 24-hour session.
So there you have it. Check in a few times each day when the 4-hour candles close and especially each daily close at 5 pm EST.
But above all, keep your analysis sessions as brief as possible. The longer you sit in front of your screen staring at charts, the more likely you are to overtrade and ultimately waste money.
4. Update Your Trade Journal
You can’t expect to improve your trading performance if you aren’t tracking and measuring the results.
This is your chance to not only keep track of your performance but to make note of what you did well and what can be improved. That’s vital information to have, particularly in such a solitary business where you are the only one standing between winning and losing.
The method you choose to keep track of these details is up to you. It could be something as simple as a notepad or as complex as an online application.
Personally, I built myself an online trading journal years ago that has a built-in diary of sorts where I can take notes on market activity. I liked it so well that I decided to give members free access for life.
Whatever you choose, it needs to be something that is convenient and easy to update. If it’s not easily accessible, you aren’t likely to keep it updated.
Last but not least, try to make it a process that takes no more than 15 minutes. Even those with incredibly hectic schedules can carve 15 minutes out of their day to update a trade journal.
5. Wash, Rinse, Repeat
The last step is to take what you’ve just completed and do it all over again next week. Establishing a routine like this is an excellent way to add structure to your trading, which will inevitably help foster profitable habits.
Unless you plan on adding new assets to your list, you won’t have to complete the first step at the start of each week. However, I do recommend that you periodically assess the accuracy of your key levels and modify them as necessary.
You will also need to add new support and resistance levels as the markets on your list progress. The good news is that you won’t need to do this often if you’re utilizing the 4-hour and daily time frames.
One reason trading is such a difficult endeavor is because of the freedom we’re offered as traders. Nobody is around to tell us what to do and we can “work” whenever it pleases us. We can also buy or sell as much as our account will allow.
All of that sounds great until you add greed and fear to the mix. That’s when this limitless environment becomes dangerous.
A simple routine like the one above adds a heavy dose of discipline to an otherwise lawless world. It will help keep those unwanted emotions at bay and allow you to trade what you see, rather than what you want to see.
Trading Forex or any other market doesn’t have to be complicated. The five simple steps above will help to prevent overtrading and allow you to take higher probability setups.
You will also notice an almost immediate drop in your stress levels after implementing this routine. You’ll no longer feel the need to sit in front of your computer searching for setups for hours on end. Instead, you simply sit back and let the trades come to you.
If you want to succeed in this business, you must have a plan of attack. Your watch list should outline precisely what you’re looking for each week including specifics about the setup, key areas, and potential targets.
A great way to prevent overtrading is to limit your screen time by checking in periodically throughout the day. Also, try to keep each session as brief as possible. By limiting the time you spend staring at your charts, you are less likely to pull the trigger on subpar setups.
Do you think this Forex trading routine will help you reduce stress and increase profits?
Let me know what you think in the comments below.