THE LOST CHAPTERTHE UNSTOPPABLE METHOD

Forex Powerhouse Secrets

In this chapter, I am going to reveal a very powerful method that you can adopt into any trading strategy that will boost profits, minimize your losses even further and will totally change the way you think about your trading.

It will show you a way to look at your trading business in a whole new light, and although it may be a little uncomfortable to get used to the idea, once you get your headaround it, you will never look back and will have a way to trade that will immediately transform any trading strategy into a world class system.

You always hear the question: “is trading a science or an art?” and both sides have perfectly valid arguments, and I believe I have kept more on the side of “science” when you look at the way My PS3 Power Play Strategies book has been written. But this chapter explores more of the “artistic” side of trading, but with a pragmatic, objective method of implementation.

I always cringe thinking about the argument of how trading is an art, not because I disagree, but because I hate the idea that you could rely on “a gut feeling” to make you consistent money in the market. I’m a numbers guy and I hate subjectivity in trading- it’s either a trade or it isn’t.But as I have stuck to my rules, I have had “room to wiggle” so to speak, where I have explored methods that, although are not subjective by any means, introduce the notion of trading being an art. Let’s explore:

So first, before I talk about the actual method, let’s talk about the thinking behind it. It’s so easy to get wrapped up in wins and losses, risk rewards and drawdowns, and this clouds the overall picture.

What are we actually doing here?

Are we just churning numbers?

What business model are we following?

Should the loss we took really be a loss?

Have you ever really looked at the chart and looked at what price did AFTER you exited the market? Many traders just move on and want the next opportunity, but if you look carefully, and look at the big picture, trades that you were stopped out of didn’t necessarily have to be a loss. Price returns to at least your entry level….maybe not the same hour, the same day or even that same week, but it eventually does.

2

TheFXEdge.com

When you have an approach that is sound, that uses an approach built on fundamental drivers of price action, then really how important is entry?

Is entry only important because of where you are placing your stop?

If the market is moving down, and you enter at a point of a tiny rally in price but your stop was further away and you still make money as the market just carries on with the trend, was your entry wrong despite entering at a point where price initially moved against you?

Now what about if you entered at the exact same place but you got stopped out becauseyour stop was tighter… now was your entry really wrong?

Are we so anal about entries because of where we place our stops? What I am trying to get at here, is that sometimes we are so fixated on rules that we forget to look at what isreally going on.

Have you ever considered that we as traders are business owners that trade with each other just like physical shops, market stalls, suppliers, distributers, factories etc…?

Why do we never see ourselves like that? Is it because our world is so “virtual” with just clicks of buttons and no real interaction with people and things? What if your open positions was your warehouse, where you are have your physical goods being stored.

Businesses out there do the exact same thing as us, they hold stock and they move that stock as soon as they can, sometimes at a profit and sometimes at a loss.

What if we thought of our trading business as a physical business where we had our goods (the currency) stored in our warehouse, and we are simply waiting for the right time to move those goods at a profit.

Sometimes businesses have dud stock that they have to lose money on after it sits in their warehouse for ages.

Why can’t we see our trades like that?

What am I really getting at here? How can we use this thinking to bring a different approach to the financial market?

Remove your stops!

Whoa! Did I just say that?

3

Forex Powerhouse Secrets

I would have never considered such a move before, as I had it drilled into me by so manygurus that you must use stops. It was like a cardinal rule. But it felt kind of daring and exciting to think that I may be doing something out of the norm. I have always been one to do something different from the crowd, and I believe every trader that trades for a living has this element of wanting to be, and being, different from the crowd….so this idea intrigued me.

If we remove our stops, then we are more in line with a physical business…..we are buying stock and are trying to turn it around for a profit. If the price of that commodity goes down, then we may need to hold it for a little longer than expected, or may even have to take a hit on it, but removing the stop commits you to those “goods” and changes your approach to trading the markets.

What if you held losing positions until you could at least breakeven in the trade?

What if every time you traded, you were committed to making a profit and never losing in the trade. Of course you would have some contingencies in place which I will go into later, but isn’t that an interesting notion that you may be able to eliminate 95% of your losers by taking a different approach?

If you look back on your trades, you will notice that had you just not executed your stop losses, many of your losing trades would actually be profitable or at least a breakeven trade. Sure you would have some losing trades, which we will talk about in a bit, but takea look at how many losses actually had the market revisit your entry price.

Yes at times it will require guts.

And this method may not be for everyone, but there are parts of this idea that even the most conservative trader can adopt to improve his or her trading results (more on this later).

So let’s explore a pragmatic way to use this in our trading, with contingencies and even away to work ourselves out of trades that just keep moving out of our favor.

4

TheFXEdge.com

METHOD

First of all make sure there are time frames below your trading time frame that you can go to if you ever need it. This will be used in scenarios where you need to work yourself out of a bad trade.

If you are already trading the lowest time frames, then raise up a time frame or two from your current trading time frame.

You will trade as normal, but you will greatly reduce your trade size.

Instead of placing a stop, you will mark off a place far out that works out to max 1 to 2 % max loss. (so make sure your trade size is low enough that you will only lose 1 -2 % if price reached this place)

You may wish to keep your trade size constant at this level for all your trades so you adopt a fixed lot position size model rather than a “% per trade” model so you can comfortably trade this approach.

You trade as normal and let the market do its thing.

If price reaches the place you mentally marked off as your cut off point (a large way off your entry price), then the most you would lose is a small percentage and you should manually exit the trade.

The winning trades are easy and you would exit as per the strategy rules.

You would save some losing trades that “stop you out but usually continue your way” with this method.

But the power of this method is in working your way out of losing trades.

5

Forex Powerhouse Secrets

WORKING YOUR WAY OUT OF LOSING TRADES

So your worst case exit is far away, much further than you ever have any of your previous stops in your trading.

As price starts going more negative, you want to reduce this max loss to as small as possible (which may even eventually turn into profit).

You do this by dropping a few time frames (enough that the chart moves are not the same moves as the trading time frame)

On this lower time frame, you trade the strategy, so you open new positions as per the strategy, and the idea is that you make some quick profits on the lower time frame to offset part of the bigger time frame losing trade.

So as you make profits on the lower time frame, you close out a little portion of the big losing trade, thus making a net profit between the 2 exits, and in turn reducing your losing trade open size.

E.g. you make $100 on the lower time frame when you exit, and you then close out a part of your big losing trade where you bank a loss of $80 let’s say. So you are $20 in profit overall from exited positions, and you have reduced your bigger time frame losing trade position.

So worst case is that price still heads to your worst case price, but at this point, some profit from the lower time trades would have reduced your max loss to a smaller number. On the other hand, you could be banking some small profits, and then price eventually turns and your big time frame position comes up to your entry or even a profitable price.

Keep rinsing and repeating the lower time frame trades until you either exit the big time frame position at the worst case price or you turn the big time frame trade into a profitable trade.

You can approach the lower time frame trades in 2 ways: keep the stop loss rules in place on the lower time frame, and if you lose in any trades, make sure the max you loseon both the big and small time frame trades is still the max 1 – 2% (so you will exit at a smaller loss from your big time frame trade than you initially expected to because of the addition of the smaller time frame losses)….or you still keep the stop losses out of the smaller time frame trades as well, and keep a watch on your overall loss from both time frames, and make sure you close out all positions at your max loss number.

Let’s take a look at a couple of examples:

6

TheFXEdge.com

How removing stops eliminates unnecessary stop outs:

7

Forex Powerhouse Secrets

How you can work your way out of a negative trade when you remove stops:

8

TheFXEdge.com

Let’s dig down into a lower time frame to see what we could do with this bigger time frame negative trade (had we removed our stop in that trade):

9

Forex Powerhouse Secrets

10

TheFXEdge.com

11

Forex Powerhouse Secrets

12

TheFXEdge.com

13

Forex Powerhouse Secrets

14

TheFXEdge.com

So that was all the trades on the lower time frame, now let’s go back to the higher time frame where we can map out all these trades to see exactly what happened with this higher time frame trade and where we took the lower time frame trades:

So as you close the lower time frame profitable trades, you would remove a small portion of the bigger time frame trade (a small enough portion which still results in a netprofit amount with both closed trades).

The big time frame trade ends up being a breakeven trade, which means this whole scenario ended up in a net profit result.

15

Forex Powerhouse Secrets

Now I understand that this approach may not be for everyone, and that’s ok. But nevertheless I still feel that as traders, we are all experimentalists, and this is definitely an approach that should be given some attention.

You don’t have to use it in an aggressive form, even if it’s just eliminating those annoyingunnecessary stop outs (where you enter the market again a few bars later anyway), it is still a very beneficial approach to use.

Being able to work your way out of bad trades (that in the end may only lose a small percentage anyway) gives you more control and power in your trading, and changes yourpsychological approach to the market. That anxious feeling when you get stopped out can cloud your judgement when looking at the next opportunity that day, and this could be a way to eliminate those nitty gritty trades that stop you out even though the market moves in your direction eventually.

I still teach placing a stop for every trade, and only recommend this approach once you are experienced in trading. You don’t have to adopt this method now, but instead can pay attention to your trades and see what would happen if you did take this method up. What if you stretched out your stops and gave less attention to risk reward?

What if you kept your position size constant while doing this approach?

I have seen merit to this approach and recommend that you test it out (never do it in a live account until you have enough experience)

A good trader is always challenging him or herself, and I don’t mean that you should always be looking to improve your trading system, we are not really doing that here…what we are doing here is trying to improve the way you feel about your trades and yourpsychological approach to the market.

That is the true gauge of finding YOUR holy grail.

I wanted to present this approach to you as it is a great idea to experiment with in your trading, and is quite a creative way to approach the market. I have many successful trader buddies that never use a stop and I always wondered how they felt comfortable doing so, but I’m sure now that you can see through this chapter, that there may be a way for such a method to find its way into your trading plan as well. Trade this with caution and massively reduce your trading size to begin with. I hope this provokes your trading mind and I look forward to hearing the way in which you have explored or implemented this type of approach.

16