Last week, I wrote about one of the most painful problems many traders just can’t seem to solve.
I call it the “boom-bust” cycle. And I’ve seen it happen to hundreds, if not thousands, of traders.
It happens when a trader goes on a losing streak, giving up all of their previous hard-earned gains in the process. Because they can never seem to hold onto profits very long, most give up.
The Importance of a Detailed Trading Plan
This painful cycle boils down to one reason… lack of preparation. Many traders simply jump in with both feet and no plan.
When things are going well, they invest more and more. They start to believe they’ve unlocked the perfect strategy… Until it blows up in their face.
But it’s often when things go sideways that you need a plan the most. So, today I’ll share my “top-down” approach to creating a winning strategy.
To start, a good trading plan will cover every part of the decision-making process.
Things like identifying a potential opportunity, what it will take to get into the trade, position sizing, and how to exit the trade for either a profit or a controlled loss.
All those things are important, but there’s one that stands above the rest. And it’s what we’re going to focus on today…
How To Identify a Great Trading Opportunity
Before you can make money on a trade, you must first decide what you want to trade.
I use what I call a “top-down” approach to make this crucial decision.
The top-down approach means identifying which market or asset class is likely to offer the most reward with the least amount of risk.
For traders, that means finding a market with lots of volatility. A volatile market is one that has big moves almost every day, both up and down.
Volatility is the fuel that gives traders their advantage over long-term buy-and-hold investors.
For long-term investors, volatility is undesirable as it usually means seeing losses in their portfolios. For us traders, however, volatility is our lifeblood. Without volatility, it’s much harder to outperform the market.
A volatile market lets us buy low and sell high… and then sell high and buy low on the very next trade. While volatility is risky for long-term investors, for traders it’s the opposite.
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Where To Find the Biggest Moves Today
While bull markets in cryptocurrencies and stocks have stolen the show the last couple of years, there’s an even hotter market that’s just getting started…
Between inflation, geopolitical conflict, and persistent shortages in everything from labor to raw materials – the volatility in the foreign exchange (forex) market has been incredible to see.
Forex is used to make bets on which currencies will rise or fall in value. It’s the most widely-traded market in the world.
And it’s on fire right now.
Many countries are trapped with inflationary pressures, forcing them to raise interest rates… Which can create extreme volatility in currencies.
As a result, multiple major currencies are trading at levels that haven’t been seen in decades!
This is the beginning of the biggest shift in monetary policy that the world has seen in over 14 years. These shifts tend to create long-lasting trends, making forex an attractive market for years to come.
Imre Gams
Analyst, Market Minute
P.S. I’ve been testing a new forex strategy for the past few months. Right now, the track record is a perfect 10-for-10. Just last week alone, you could’ve made $2,440 with one trade if you’d followed my instructions on when to get in and out.
I’ll be sharing more details in the weeks to come… So, stay tuned.
Reader Mailbag
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