Good Forex Trades Need Great Context

On your path to becoming a profitable trader, you will test many different methods for entering and exiting trades. At some point, you may find a method that works pretty well for you and that you feel comfortable using. You may take a lot of great trades using this method, only to find that one day your method just stops working. What happened? Did your system break? Will you have to start all over?

Sometimes, the answer to questions like this is simpler than you might expect. A lot of traders pay attention to entry triggers like moving average crossovers, price action patterns, and other indicators lining up on their charts, but do not pay as much attention to what the market is doing on a given day. The market does slowly transform, and, like any other living system, it will evolve with time. Some things about Forex will never likely change, but others are sure to do so. The “mood” of the market can change considerably as the years go by, and a system that worked great in one context may fail in another — or simply need an adjustment to keep working.

If you are in a situation like this and your system has abruptly “failed,” you may want to ask yourself if this is what has happened to you. Has the economic climate changed substantially since you were last profitable? If so, then perhaps the context around your trades has stopped being quite as optimal as it once was. You may have been placing trades in an excellent context before without even knowing it or attempting it by complete coincidence. And now that the context is not as great, your trades are not working out.

Here are some questions to consider. Ask yourself, “Am I trading against the trend?” This can often work against you. “Am I trading in a choppy market?” Choppiness kills a lot of traders. If there are a lot of fake-outs, sometimes you need to take a break and wait for the market to even out a bit before you come back in. “But I’ll have to wait forever,” you might say. If this is the case, then look at more currency pairs. If you only trade a couple of pairs, and great setups are coming half as often in the current market climate, then think about looking at twice as many pairs each day. This phase of the market, like all others, will pass. It does not mean your system is broken, it just means that right now it is a little harder to make it work than usual. All traders face this sometimes. Once in a while, you may indeed find out that you need to go back to the drawing board, but more often than not it is a waste of time to start all over. If what you have makes sense and it works often enough, then you probably should just adapt to the market conditions and stick with what you have.

Develop a technique to find the best setups in the best locations. Great Forex traders point out that finding excellent setups is like using a rifle, not a shotgun. They are right — good trades do not take good setups, they take great setups.