Forex Trader Pro Tutorial: This video (and article) will explain the importance of risk and money management in having successful trades. This will also teach you a technique, which is exclusively thought in Top Dog Trading, to turn failed trades into profitable ones.
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Forex Trader Pro Tutorial
Welcome my friend to this FOREX Trader Pro tutorial on how to have field trades that make money. Kind of a strange statement, but yes, you can have failed trade to make money. In fact, I would propose that you better have them. So here he is what I mean. The first thing that you want to really master in trading is not what’s the best moving average, what’s the best indicator, what’s the best time interval, what’s the best market, what are the best support-resistance levels, all that kind of stuff. These are the kinds of questions that I receive most frequently and they’re fine, they’re good questions.
But the more important question that I hardly ever am asked is, Barry, how do you manage risk and what type of money management methodology do you employ? Those are the two most important things in all of trading, whether you’re trading FOREX or stocks, the minis, futures, commodities, options, whatever it is, money management and risk management. That’s what professional traders live and die by, more so than indicators are candlesticks or moving averages or any of that other stuff.
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So I’m not sharing with you any particular tray technique today. The point is whatever trade technique you’re applying this to a trend trade, triangle trade, wedges, any type of trade that you have, moving average crossover, this type of approach is required, very important. So let’s go down here and we’ll use our financial extensions. We’ll go from there to there; actually, what I want to do is go from there to the area. And then we’ll bring it back down here. So what this is showing is the market came down from that high and let’s say that we want to buy this low.
Now, we’re going to go long and we’re going to hope that this trend continues. That’s our plan. That’s our ideal world. That’s why we’re taking the trade. And we would consider it a successful trade if the market broke this high here, right? We want it to make a higher high. Keep going. We want that three to one reward to risk ratio. And the reason I do these Fibonacci extensions on here is because you can see that will be 100% reward. In other words, that’s basically a one to one reward to risk ratio. So if you’re taking the trade down here, it’s actually a little worse depending on exactly where you get in. You got in the very bottom, which would be best case scenario and pretty much impossible; this will be even worse than we think.
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We get up here and we’re looking for it to break that high. Obviously, that’s why we are looking to make big profits. However, what happens, it does not break that high. In fact, it hits that high, this is now resistance. So you get the same resistance over here by the way. So this is the third time it’s coming to that resistance and for my actual students, this is the top dog trading rule of three so you know that those would be a great opportunity to take a short if we get the signal. But since we’re talking about in a long position right now, we have about a one to one reward to risk ratio. So those who say, well, I’m not going to take a one to one reward to risk ratio because I need a bigger, I need my winners bigger than my losses.
And I would say to you this – risk reward ratio and win loss ratio are inversely correlated. This is why there are a lot of people who make money just scalping the market. They’re taking quick little moves, just like a half cycle like that, and they might just have a one to one reward to risk ratio and all their trades, but they still make money. Why? Because it’s easier to determine the future of the market very short-term.
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Again, longer the time goes down, the less likely it is to continue because of all these different things that can happen between now and then that changes market sentiment. Because of that, getting a good reward to risk ratio consistently more than half the time is nearly impossible. Just not really the statistics of how it works. So your win loss ratio will be lower if you insist on getting a great reward to risk ratio because those are inverse.
If you just take a little scalp trade, then your win-loss ratio will be high, but reward to risk ratio will be low. So what I do is I like to do a combination of the two. And I peel positions off. Now, you’ll hear people who add to the position as the market goes on. I don’t do that. The reason that I don’t do that is because they are doing that technique hoping again for a big reward to risk ratio. That is the exception to the rule, therefore, I’d rather play the rule. I go well in at the beginning and then I peel money off because again, I know that first impulse move, that’s my strongest probability. That’s where I want all my money. So what I will do is I will go ahead and lock in some profits up here.
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Not my whole position, but part of my position. So I took a few lots there long. It’s not a lot of money, but here’s what it does. It does two things. Number one, it does put some green in your wallet. Right now, you’ve made money, you have, in that sense, a profitable trade. You’ve made some money. Here’s the other thing, it reduces your risk. Why does it reduce your risk? Let’s say you’re trading four lots and you lock in profits on just two lots there. Now, your risk on the trade is only two lots where at the beginning of your trade, it was for last. So you’ve now cut your risk in half the weight. You cut it by more than half because you’ve already made some money. You’ve got some profits up here.
So you lock in some profits here. If it comes all the way back down here and breaks this low, it’s on half the number of lots, but you’re not losing half as much because you’ve already made some money here. Now, maybe you only lose about an eighth of your original position. This is how we keep our losses small and then we’ll let our winners run. We let our winners run, that’s why we’re not taking off everything here because I personally don’t want to just take little scalp trades like that too often. I have a couple of setups that work that way, but the majority of the time I’m looking for a good mix of definitely high win-loss ratio. Now, professional trend traders are notorious for having a worse than 50-50 win loss ratio, but they’re still successful because again, a trend is a long-term move.
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They’re looking for that great reward to risk ratio. They do get it but less than half the time. But because again, they’re very good at money management, they still make money in the end. Scalpers have a huge win-loss ratio, but a very small risk-reward ratio. There’s many different ways to play the trading business, right, there’s no one right way. I do a combination because I want the high win-loss ratio, but I also want the potential to get the big reward even if it’s on smaller size. And then, of course, what I would do here is I wouldn’t even wait for it to come back down here for my stop. I mean that seriously would be kind of ridiculous. But some people would put their stopped down here and that is where my initial stop would be.
Where it would change it is when, again, we get the top dog trading rule of three, in other words, where it comes up to the same high and it’s a basically kind of like a triple top. You can think of it that way in this particular situation, but not only do we get that, then we also get an engulfing candlestick. Here’s a little extra tip for you, in gulfs four, well three bars before it; so most people talk about engulfing candle sticks being a two bar pattern, it is, that’s true, but this particular one is a four bar pattern. I consider a four bar engulfing pattern stronger than just two, and that’s a very bearish signal. So the reason that I would then take that short, or at least they release, I would get out here instead of getting out here.
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So now if I got in here, then I’m pretty much getting out where I got in and I made a little money up here. And guess what that is? That is a failed trade that made money. A lot of money? Nope, but it’s better than a loss, right? That’s how we do it. Now, this again is a great reversal trade. That’s why I would actually get out to here. I would stop and reverse into it personally as what I would do Top Dog trading rule of three, triple bar engulfing pattern, that’s just a great move. Now, again, my initial risk would be this box and I now, we finally get a really nice reward to risk ratio trade
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And finally I do have a very special trade that I want to show you called the Rubber Band Trade. I’ll give it to you absolutely free. It’s a complete trade strategy, you can use this on FOREX, stocks, E-minis, whatever. It’s very simple. And this one is a scalp trade, by the way. So it has a super high win-loss ratio. This just brings in Nice income consistently and I’ve got a little mini course that teaches you that. So we’ll show you exactly where to get in, place your stops, and take your egg sets. Much more detailed than I can do on these youtube videos. And a little longer, obviously. So if you’d like that free course, just click on the link in the top right corner of this video and I will email that out to you immediately.
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BTW, if you’re interested in the indicator that I use personally for very precise entries and exits, I’m happy to share that with you. Just send me an email at Barry@TopDogTrading.com, and I’ll show you how to get access to that indicator.
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