Blog - HEIKIN ASHI TRADER

HOW TO BECOME A
PROFITABLE TRADER

How Can I Get 50 pips per day? (and is it even possible?)

7/15/2022

Some forex traders want to get 50 or more pips per day out of the market.
I think that targeting a certain number of pips per trading day is unrealistic.
As a professional trader, I don't trade with X number of pips in mind.

Why?

Because I know that the markets do not move predictably. So, I can't bet on a specific number of pips per trading day.

The number of pips you can make in a day depends on your individual goals and strategy. Some traders aim for big profits by taking opportunities with position trades. Others scalp and try to make frequent small profits.

As we know, not all trades yield positive results. Therefore, if you try to meet unrealistic expectations by setting daily pip targets, you are doomed to fail.

It is better to trade more when your strategy works well and trade less when it fails.

Focus on what's more important: creating a winning strategy!

The more pips you try to achieve per trade, the lower the win rate will be. Conversely, if you bet on fewer pips per trade, your win rate will usually increase.

If you scalp, you can make significant profits even with 3-6 pips on average.
But you will succeed only if you know how to scalp the market with a profitable strategy.

So, you need to have a plan.

The biggest mistake that the majority of traders make (unknowingly) is “revenge trading”. Because they have set a certain target, after a few losing trades, they try to reach their pip quota with a "revenge trade". This is one big trade that is intended to fix the losses and save the day.

You can predict the outcome....

All this is of course the result of fixed goals.

And of negating the market situation.

Some days you can get 200 pips. But there are also days when you can't get anything.

So, the real work is to recognize what type of day it is.

Can you make money today (because the market is perfectly in line with your strategy), or are you better off walking the dog?

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Is scalping good for beginners?

7/15/2022

Most beginner traders think that the forex market is a quick money-making scheme and simple scalping is the only way to take an instant benefit from the market, but that is not correct.

Scalping is a process used to make money from the short-term price movement of a trading instrument. Scalpers usually wait for a specific market condition to appear and jump into the trade as soon as the market condition favors.

All beginner and expert traders see the same chart, and they probably even use the same strategy, but beginner traders usually lose money from scalping.

Why?

Let me explain the biggest mistake of beginner traders regarding scalping: Scalpers usually take trades on 5-minute or 1-minute charts and look for quick moves of 5-50 pips. But behind the story, professional traders spend a lot of time finding the market direction from a higher timeframe analysis.

For example, before taking a buy trade on EURUSD based on scalping, a good trader should find the price direction from daily to H1 and wait for an active session. Here the active session means the London and New York session when banks and other institutes remain open, which provides liquidity to the market.

On the other hand, if a new trader opens a position on EURUSD by looking at the 5 min chart only at a random time, he has a higher probability of failing.

What should a Beginner trader do?

The core part of scalping is understanding the market structure. If the overall market context based on technical analysis, fundamental analysis or market sentiment shows a buying possibility, only then should traders scalp on the bullish direction; otherwise, skip it and wait for another setup.

Besides, while taking trades, beginner traders should follow a profitable trading strategy. The strategy might be based on technical indicators or price action. But traders should confirm that the strategy has a good track record of providing profitable trades for at least three quarters.

Overall, scalping is the quickest way to earn money from forex, and many professional traders use it. However, beginner traders should do extensive research regarding how to get the price direction and match it with the right scalping strategy to get the maximum benefit.

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Praise of the trailing stop

7/15/2022

There are many arguments against the use of a trailing stop. This instrument does not have many friends.

I am thinking, for example, of the difficulty in assessing change in volatility, or momentum, once you are in the trade.

This makes setting the trailing stop correctly (or ideally) almost impossible.

But there is another aspect of the trailing stop that is often overlooked: The defensive power of this instrument.

Beginners in particular tend to give away accumulated profits.

Instead of realizing the gains...

Which is worse.

Accumulated profits still turn into losses if the trader is not careful.
In the long run, this behavior has a negative impact on trading results.
It is also difficult for a beginner to understand that trading is first and foremost a defensive game (the analogy to modern soccer or other similar sports is deliberate).

The main advantage of a trailing stop is this: it reduces your losses.
Suppose the trader opens a long position in EUR/USD and hedges it with a trailing stop set at 20 pips. His position initially goes into profit briefly (5 pips), but comes back down and is eventually stopped out. The trader has realized a loss.

If he works with a fixed stop, then he would have realized a loss of 20 pips.

If, on the other hand, he uses a trailing stop, his loss is limited to 15 pips.
Why?

The position was in profit for a short time at the beginning (5 pips). So, the trailing stop moved 5 pips with it and stood at 15 pips distance from the entry.

You might think that that is not much.

But if the trader does this systematically, then he can increase his net result substantially.

And this is part of the "real work" of a trader.

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High earners trade better

7/15/2022

According to a study on traders presented by Colin Camerer, Professor of Behavioral Economics at the California Institute of Technology, high earners trade better than low earners.

They had 20 subjects who were taught how markets work.

And then they started to buy and sell.

During the experiment, the brains of 3 subjects were scanned with an FMRI (functional magnetic resonance imaging) machine. This shows blood flow in the brain and shows brain activity.

The subjects were divided into 3 groups: high-earners, medium-earners, and low-earners.

What was interesting was that the high earners were actually the ones who bought low and then when prices began to rise, liquidated their positions at a profit.

The low-earners did the opposite: they bought into the rallies.

They tended to be "momentum players."

There's a brain region called the Nucleus Accumbens (NAcc) that lights up when it's time to buy and sell (the reward region!).

This region becomes active especially with the low earners.

The high earners showed brain activity mostly in what is called the insular cortex, or insula.

This latter region is more associated with uncertainty or risk-averse behavior. You could also call it a kind of early warning system.

Emotionally, high earners have to do something really hard, according to Colin Camerer, they have to sell going into a rising market.

And apparently the Insular Cortex helps them do just that. The early warning system helps them sell even though prices are still rising....

The high earners got out of the market early, which led to the bubble bursting, and made the most money. The rest exhibited what former Federal Reserve Chairman Alan Greenspan called "irrational exuberance" and lost their proverbial shirts.

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Asymmetric profits, are they even possible?

7/15/2022

Most traders think in symmetrical terms. If you lose 5 points in trading, you win 6, 7 or 10 and so on.

By symmetrical I mean there is no option to earn significantly more if you are right.

For example, if a forex trader is trading with a standard lot, 50 pips loss just means -$500. If he wins 50 pips, he "only" earns $500, and not $5000.

A trader with symmetrical results often needs to achieve a hit rate of over 50% to make a profit. In other words, he must make good predictions if he wants to trade profitably.

Asymmetric results are exceptionally high profits compared to the usual results. Although they might be rare, they can dramatically improve your profitability.

The problem is, if the trader tries to align himself on asymmetric results, they seem to miraculously elude him.

In other words, asymmetric profits hardly ever occur in most trading systems. At least not with conventional instruments such as forex or futures (which are inherently symmetric in design).

Options are an exception. These instruments are designed in such a way that asymmetric results are possible. Let us say gains of 500% or over 1000% with just one trade.

If for some reason you do not want to get involved with options, there are still ways to achieve asymmetric results.

Here are some suggestions:
Only enter trades where you have a risk reward ratio of at least 1/10, or better 1/15. You will have to find pivots in the market where you can make a high profit with a very tight stop. Such a strategy requires strong discipline. You must be able to wait for such moments.

A second possibility would be: the trader buys additional contracts when he has a winner.
Although this goes against the "emotions" of most traders, it seems to me to be one of the better methods to achieve asymmetric results.

Let us say a trader is trading the oil market. On average, he has winners of 10, 15 or 20 cents per trade. Every now and then he catches a bigger trend and can make over $1 profit.

Let us say he usually trades five futures contracts. But what would have happened if he had not traded with five contracts on the $1 trade, but with 25 contracts by simply adding to his position?

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Is it possible to make profits with a random entry system?

7/15/2022

A while back I wanted to know if it is possible to make profits by random entries on the Forex market.

This type of experiment has been tried by other traders, but I wanted to know for myself.

I conducted this experiment with the following currency pairs: EUR/USD, GBP/USD, AUD/USD, NZD/USD, EUR/JPY, CHF/JPY, and GBP/CHF.

The premise behind the experiment was that entry is unimportant. Most traders trade under the assumption that they make money based on their analysis (mostly technical analysis only). But is that the case?

It does not occur to them that other factors may determine whether they make money or not.

I was thinking of factors like risk-reward ratio, strict money management and finally exits.

I traded a pure "set and forget system." This means I was not getting involved in current trades or changing anything. I did not look at charts or any other data, so I just traded based on "chance." I also let the trade run over the weekend.

Each trade got a stop loss (50 pips) on the way and a take profit (100 pips). Either the trade ran into the stop or into the take profit.

Due to these rules the RRR for each trade was 1/2 (I do not count the spread, although it plays a role in the long run).

What did my random system look like?

1) I traded two currency pairs at the same time. If a pair were stopped out or ran into profit, a new trade could be started.
2) The choice of the currency pair was done according to the "lottery principle." The names of the pairs were on a slip of paper that I drew from a pot with my eyes closed. (I had some fun with that!)
3) Long or short? The decision was made via the “toss,” just like in soccer. I tossed a coin. On tails I went long, on heads I went short.
4) Time of the trade opening? Purely by chance. I looked in the account 1 to 2 times a day.

I had $10,000 in the account. After four weeks of "trading" there was a small gain of $100. After six weeks, $150 profit.
May I point out that this is 1% per month....
Now what was the reason for the profit?
To be honest, I do not know.

My guess was that it was thanks to the consistent risk-reward ratio (50-100). But I am not sure about that.

Nonetheless, I do not think you will make a profit in the long run with a purely random system. I think that at some point the hit rate will settle at 33.33%, right at the break-even point. This would mean that the profits and the losses will neutralize each other.

Still, I find this random system interesting because with it you first work on the robustness of the system before even thinking about which currency pair to buy or sell.

What does it take to make this system even more profitable?
I think just a little optimization.

And the question is whether this can succeed if you make entries based on technical analysis rather than randomness.

Here are some suggestions:
- Build in a time factor. Close the trade after X number of days. Or start moving the stop towards the entry after X number of days.
- Position size: Increase the position when the system makes money. Reduce the position in drawdown phases.

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Go for it!

7/15/2022

Anyone who analyzes his trading results will notice that profits always occur in clusters. The same is also true for losses. Of course, there are times when profits and losses are in balance. The trader can then be overcome by a feeling of futility in his “labor of love.” Why do profits not occur evenly: Winner - Loser - Winner - Loser - Winner - Loser, etc.?

Many traders make more profit than loss specifically at times when the market action fits well with their strategy. When this happens, it’s as if everything works by itself, and any difficulties from before are forgotten.

This phenomenon can be systematized or even exploited to some extent. Experienced traders start to work this way instinctively. When they get the feeling that the "market is good," they trade more intensively. On the other hand, when they get the opposite feeling, they reduce their number of trades or even do nothing. For a beginner this may sound a bit obscure, but this is how good trading works.

This is also an important argument against fully automated trading. The computer does not know when the market is "good." It happily continues to produce signals or accumulate losses without a second thought.

And now a second aspect comes into play, which is possibly even more important than observing market cycles: Experienced traders increase their bets "when they are good."

When they are not, they drastically reduce their position sizes. The result of this is that they may make most of their money in short periods of time. This might be in the first hour after important economic news, for example, or in very volatile times.
The Corona crash is a good example. In such periods, good traders can make a small fortune.

In such times I often have one winner after another. And not infrequently I have traded with 3 to 5 times the usual position size. Sometimes in just a couple of hours the whole profit of a week, or even a month, comes together.

The person who knows when to make big bets, but who also understands how to "keep the ball flat" at the other, less favorable times, has, in my opinion, a very good chance to succeed on the stock market.

Free Scalping Workshop

Develop your own trading strategy!

7/15/2022

Many aspiring traders have difficulties developing a suitable strategy with which to make money. The problem is not that there are not enough strategies out there. The Internet and books are full of them. The problem is that making the right choice between strategies is a little more difficult.

That's why many beginners "follow" or "copy" a guru. Some trader claims success with a certain method, and soon there is a whole army of "followers" ready to copy his method.

I'm not suggesting here that you can't learn from coaches. Of course you can. But the reason why the guru is so successful (if he really is) is usually not because of his method in and of itself. The guru’s success is usually because of the confidence he has in his method.

That confidence is the edge the guru has over his followers. The core of the method may be something simple. Often it involves something that has been described or said a hundred times before. But the guru is successful with it because he is a disciplined trader, and disciplined traders have success with all kinds of methods.

From that point of view, it is best to develop a strategy yourself, perhaps based on an observation you have made. And even that observation can be something as simple as "lows in the morning in the S&P 500 are often buying opportunities." If a trader determines that this is true, then he can develop an attractive trading strategy around this idea that produces some nice gains in this index each month.

The point is that it is better for each trader to develop his own strategy based on his own observations, which he should not share with anyone else. After a testing phase, which can take several months, the trader can start trading using this strategy with small positions. Slowly, confidence in his own method will naturally develop. You usually have much more confidence in a method that you have developed yourself than in something that you have taken from someone else.

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The eternal crash on the stock exchange

7/15/2022

I first published this article seven years ago on my old website, but the content of the article is still valid today. The eternal short seller and permabear still exist, of course, as do the crash prophets of yesteryear who predicted the end of the world (of the stock market). But none of it happened...

Blog article from 2014:

Admittedly, times have not been easy for short sellers during the last 3 years. They were consistently overrun by the bulls and time and time again, when you thought the market couldn’t go any higher, the next all-time high came in the S&P 500 and the Dow. And even now (August 12, 2014), when we are experiencing "some" correction and some increased volatility, it is still uncertain if those paradise times (I mean paradise for me) will return. This is pretty typical for people who had their stock market apprenticeship in the early years after 9/11. Those were uncertain, volatile times when any permabull was eventually put out of business.

I first had to "learn" to buy the Dow Jones in weak phases and then earn profits. It was a different game than what I was used to (I like to scalp volatility in all kinds of markets). And my adjustment took too long. So, it was not a surprise that 2011-2014 were not my best stock market years, quite unlike 2008 or 2011, for example, when the markets went down drastically. That was my game.

The eternal short seller (and gold and silver bull) had to learn a new lesson in the stock market once again: adapt your strategies to market conditions. I had never experienced real bull markets like those of the late 1990s, where you just buy and sit on your hands. In theory, of course, I knew that could be done. But... knowing that it can be done doesn’t mean that it is easy to put it into practice. Somewhere in my brain sat a permabear (a permabear is always negative about the future direction of the markets and the economy in general, no matter what). He was never comfortable with the steady rise of the markets, and of course, if you have that tendency you can always find enough arguments to justify that attitude.

The belief in the constant crash can be such a basic conviction that it is hard to get rid of. And it is also an expensive conviction. One look at the long-term charts is enough to see that. As is so often the case, such core beliefs are also ideologically based. I had to work hard on myself to scare away those perpetual gold bulls, Fed haters, inflation mongers and other conspiracy theorists that lived inside of me. All of that clouds your view of reality. And the reality was: the markets were going up!

If things start looking different when smaller corrections happen, and some crash prophet begins to shine, don’t forget that large market turns don’t really take place that fast. Let’s wait and see if a major correction comes at some point. If it does, I will be among the short sellers, as any trader should be. And this time, I swear, my adjustment will happen faster!

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How to become a High Net Worth Individual (HNWI)

5/7/2022

He traded for a hedge fund and then went on his own. He specializes in scalping and fast day trading. His scalping book "Scalping Is Fun!" is an international bestseller and has been sold more than 30.000 times. His books have been translated into 11 languages.

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