Lesson five has taken edge and trade like the house at a casino Welcome to Lesson five. My name is Sam ADA. I'm a global macro Currency Trader in the owner of FX renew calm. This is the advanced forex course for smart traders. Market wizard Scott Ramsay said it does not matter if you win or lose on any given trade as long as you get the process correct. Imagine you own a casino every day thousands of bits are made, some of which you will naturally lose.

But at the end of the day, you're always in profit, and sometimes spectacularly so this is because you have a built in each each game that is played by the punter that walks in the door has been carefully designed so that over a long enough time frame the house will always win. In today's lesson we will look at how you can become the house when you're trading forex by developing an edge over the markets. This requires two things, one an understanding of basic concepts around probability To some specific ages that you can choose to have the true role of entries and exits to continue with the gambling analogy. Each trade is like a draw from a lucky dip or a spin on the wheel of fortune. The better your entries and exits. The more winners in the draw in, the easier it will be for your trading strategy to meet your objectives.

Your goal for your entries and exits is to add as many winning tickets into the drawer as possible, or to add in tickets, that when you do pull them ensure you win the jackpot. This is what the house does at the casino. They stack the draw in your favor so that over the long term they're guaranteed to win. When you internalize this concept, you can start to see how entries and exits fit into the bigger picture of your trading strategy. They lose the mystical appeal. You don't need to have a strategy that is perfect, just one that produces enough winners over time with which you can be enough on each trade to one not experience a drawdown over 25% because it's hard to recover.

From a drawdown this Lodge and to achieve your objectives, a high probability entries better. Building a trading strategy is a little like building a house. When you construct the house you decide how many rooms it will have the layout, how many floors and so on. These decisions are based on your needs, objectives, budgets, trading capital and what suits your personality. determinate. When you develop entry and exit strategies for your forex trading, you get to choose things like Target risk, reward ratio, win rate and the number of trades over a period of time.

Your choices here will be a reflection of your needs, budget and goals. Let's take a look at three examples of trading strategies. Trading Strategy one generates 10 trades a month with a 90% win rate winning trades make $100 in a losing trade to lose 1000 strategy to generate 80 trades a month with a 60% win rate winning trades make $60 and losing trades lose $50 trading strategy three generates 10 trades a month with a 15% win rate winning trades make 80 hundred dollars and losing trades lose $150 what trading strategy would you prefer? Well, here are the results strategy one with a 90% win rate has $100 loss 32 with a 60% win rate has a 1200 and $80 profit strategy three with a 15% win rate is a 1400 and $25 profit. The strategy that made the most profit had the lowest winning rate in the strategy that lost money the greatest one rate when you are developing your entry and exit strategy, the one with the most wins is not always the best Be careful not to fall into this trap.

What you are after is one that gives you the biggest edge or in statistical terms a positive expectancy. What is expectancy Vance says the expectancy is really the amount you make on average per dollar wrist. If you have a methodology that makes you 50 cents or better per dollar risk. That's superb. Most people don't you calculate your expectancy on your entire trading strategy by adding your average risk reward over a series of trades. But before we get to that equation that helps to understand what Ben Tharp calls are multiples.

Multiples are way of defining the initial risk you take on the trade by thinking in terms of risk reward. If you place a trade with a stop loss 50 pips away from the market and you're buying a standard lot, then your loss would be roughly $500. If the trade went against you, this initial loss of $500 is your one or your one risk, the hour of course stands for risk. You can then start to express your trades in terms of instead of in terms of dollars. For example, if you place a trade that risk $100 and you make 200, then you have made two or IE two times your risk. If you lose the 100 then you would have lost money.

If you talk to a trader, he thinks in terms of our multiples, they may say something like I made 20 For our this week has to calculate the expectancy of your trading strategy. Now that you know what now multiple is we can get back to calculating your expectancy. add up the total value of your trades divide this total by the number of trades you've made. So it's total are divided by number of trades equals expectancy. If you had placed 30 trades and 45 are in the process, your equation would look like this 45 divided by 30 equals 1.5. In this case, your expectancy is 1.5.

There's further details in the written version of this lesson. position sizing roles are developed independent of your entries and exits. Part of the value of thinking about your trades in terms of expectancy is that it separates your success into two distinct components, each of which can be worked on independently, an entry and exit strategy that generates an average number of multiples over time and position sizing algorithm that is in applied on top of the entry and exit strategy. The performance of your trading strategy as a whole would depend on the combined performance of each component minus any trading mistakes you make. Now you know when ages let's look at some ways to get one market was at random okay said one very interesting thing I've found is that virtually every successful trader I know ultimately ends up with a trading style that suited his personality. wise to get an edge we can over a casino and rigged the odds in our favor.

But luckily in the Forex market we don't have to. Market behavior is irrational. So often situations arise where the opportunities to place trades at prices that provide you with a significant advantage if you can learn to spot them. In lesson nine damn good setups. We go into detail about how to apply each of these edges in your forex trading plan. Let's look at a brief overview of each one.

Now just to give you some context moving forward. global macro global macro is the big picture of supply and demand factors and geopolitical events that impact financial markets. Global micro, global macro traders look at news events that are released throughout the trading day in week to uncover trading opportunities. Technical Analysis technical analysis uses price patterns in the form of bar candle or line charts to determine future price movements. The basic premise behind technical analysis is that these patterns represent market psychology and people tend to do the same thing over and over again. So when you spot one, it gives you an insight into what's going on next.

Receiving forex trading signals or ideas can be one of the most powerful methods of trading forex. You get to keep control of your position sizing and objectives and you get access to trades that give you a significant edge to your entries and exits. Importantly, you are alerted to ideas that you might not find yourself or that confirm Your own trades, it's much better to trade as part of a team rather than on your own. Other edges, there are hundreds of potential ways to gain an edge over the market. The one you choose needs to suit you specifically, it's hard to borrow someone else's edge exactly, though it is easy to buy one and modify slightly to suit you. So keep an open mind and be on the lookout for methods of forex trading that suit you.

Here are some others you can consider. Correlation studies, flow information trend following counter trend or revision to the main techniques with specialization. I choosing to focus on one specific currency pair. Now be careful your entry and exit are not your only or most important source of edges. It's easy to get sucked into the mysticism of technical analysis and the likes and these methods can provide you with a statistical each glamorous nature of injuries as perpetuated by folks educators and To make a buck means tracking is focused far too much time on when to enter a trade and not enough on other aspects of the trading plan that are of equal, if not greater importance. Each lesson that we go through during this course is designed to provide you with an advantage.

For example, by having clear objectives and developing a compelling model of the market, you have ages over those that don't. Additionally, as a small trader, you have some very clear advantages over your larger institutional breather and let's take a look at some of these now. Not having to trade is a small trader you only answer to yourself, you're never required to place a trade. On the contrary, institutional traders are often forced to take a position. being agile with your position sizing is a small trader you can be very flexible in the sizes you trade compared to institutional money, you can play stop losses, and when you wish to close positions, you won't tend to move the market institutional forex traders don't have these luxuries. The larger positions can move the market and liquidity can dry up leaving them with worse and worse fills.

Often bank traders are forced to work very large positions of hundreds of millions in currency units, as they have a corporate order to fill. Having the freedom to trade any currency you choose. as an individual, you can choose to trade the currency pairs that are going to give you the best chance of achieving your goals. Imagine how big an advantage this gives you over money manager can only trade in one currency for example. Lay down your chips as the house, it's time to turn the tables. Instead of being the champ who comes to the market and is guaranteed to lose you can start to become the house who is guaranteed to win.

Your first step in this process is simply to read about statistical concepts and the solution until you feel you have a handle on them. They are an important part of your departure from the trading matrix. Once you have done that, choose the ages that you would like to focus on developing Such as technical analysis global macro or global micro. Note that there are specific lessons later on in this course on these topics, but it's this as an advanced course it does not cover the basics. If these areas are new to you being you might need to do some beginner courses. Please and I can't stress this enough.

Don't get sidetracked by the excitement of market analysis and neglect the other aspects of your trading plan. So many traders get enamored by this aspect of trading and ignore the more important areas such as psychology, and position sizing. Keep working through this course step by step and you will find you allocate the right amount of time to each area. your coursework for this week is to practice calculating multiples and there's a worksheet available for that. I'll see you in the next lesson.