The Trading Approach Behind PMTW Trade Signals Is Strategically Designed To Be Profitable Over The Long Term... IF You Simply Keep Placing Trades
If you’ve read any of my training, you know I believe strategic planning is better than skill. Basically, if you strategically design your trading rules to be profitable over time, all you need to do is stick to the rules and keep trading to end up profitable.
To help illustrate this, I’m going to do something I’ve avoided doing in the past. I’m going to talk about Forex trading and gambling. But this really is the best comparison I can make to get my point across.
Detractors and nay-sayers on Forex trading say that trading Forex is gambling. And don’t get me wrong, the way a lot of people try to trade Forex IS gambling. But that is not the way we are going to trade.
Answer me this… Is running a casino gambling?
I mean, we’ve always heard the phrase “the house always wins”.
Why is that?
It is because each and every game in the casino is designed to give the casino a slight statistical edge. This EDGE means as long as the players keep playing, the casino ends up being profitable.
Gamblers are playing against the odds, that is why it is gambling. Casinos are playing with the odds, and that is why it is not gambling.
We are going to trade Forex like the casino… not the gambler.
We put the odds in OUR favor, so that as long as we keep placing trades and sticking to the rules, we’ll end up being profitable over the long term.
And here is the best news…
Trading Forex is better than running a casino.
Just think about it. Casinos can only put the odds slightly in their favor. There needs to be the appearance that the gambler can win… or else no-one would play.
As Forex traders, we don’t have these restraints. Our goal is to stack the odds in our favor as much as possible so we can be as profitable as possible. So, that is exactly what we are going to do.
Here is how our trading approach stacks the odds in our favor and gives us a serious EDGE…
Strategic Planning Is Better Than Skill
Profitable Forex trading is a numbers game… and our way of trading is designed to put the numbers in our favor. Just keep trading according to the rules, and the statistical edge keeps you on the side of profitability over the long term.
We are the casino with the odds in our favor. We are not gamblers relying on “extraordinary skill” to overcome the odds stacked against us.
Success is about the strategy and sticking to the rules… not YOU as a trader. Trust the strategy behind the signals.
Set & Forget Trading On The Daily Time Frame
Since success is about trading the strategy according to the rules, we need to be able to do that. That means trading off the Daily time frame.
Sticking to the rules perfectly and taking every trade simply cannot happen on lower time frames.
Trading the daily time frame means there should never be any missed trades or mismanaged trades. At the same time every day, check your charts to see if there is anything to do… and if yes, do it. Set it and forget it.
Taking every trade means you’ll never miss one of those big winners that makes the strategy work and boosts your account to new levels of profitability.
Focus On Risk To Reward (THE BIG ONE)
Risk to reward ratio is the most important factor for our Forex trading success.
“You should always be able to find something where you can skew the reward risk relationship so greatly in your favor that you can take a variety of small investments with great reward risk opportunities that should give you minimum drawdown pain and maximum upside opportunities.” – Paul Tudor Jones
We place trades with the potential of making 3 TIMES or 5 TIMES the risk. This is a tremendous edge.
And here is an added benefit a lot of traders don’t understand. The higher the risk to reward ratio, the lower the win rate can be while STILL being profitable.
A 1 to 3 risk to reward ratio ONLY needs a 25% win rate to be profitable A 1 to 5 risk to reward ONLY needs a 16% win rate to be profitable
By focusing on high risk to reward ratio trades and “skewing the reward ratio relationship so greatly in our favor”, we not only boost our potential profit per trade… but make it easier to be a successful trader as well.
That’s a win-win situation for any trader.
Currency Pair Selection
Trading with a high risk to reward ratio is essential for our success. But in order to capture these high risk to reward trades we need to focus on currency pairs with historically big moves.
You cannot just widen your profit targets and turn a losing strategy into a winning one.
We need to focus on currency pairs that frequently have large swings in the market. This is what makes using a high risk to reward ratio possible.
While other traders want to trade strategies that “work on all currency pairs and markets” and endlessly scour the charts for trading opportunities, we’ll focus on the currency pairs that work best and produce big swings.
(Unconventional) Money Management
Just like we want to focus on the best currency pairs for high risk to reward trades, we also want to FOCUS our money management approach. Treat each trading account as a separate and independent trading business.
Many traders trade multiple currency pairs on the same account and use low risk for each trade. We will FOCUS our money management by only trading one currency pair per account and placing only one trade at a time.
I recommend placing trades with 5% risk of your account per trade.
Since we are only placing one trade at a time, there will only ever be 5% risk on the account, which is manageable. But this also means full winning trades are extremely profitable and make up for a lot of losing trades.
- 1 losing trade = -5%
- 1 winning 3R trade = 15% profits (making up for 3 losses)
- 1 winning 5R trade = 25% profits (making up for 5 losses)
This approach allows us to lessen the blow of losing trades, or even a losing streak, because we know we are only one good winning trade away from making up the losses and reaching new profit levels.
And when the market is in our favor, these big wins are responsible for EXPLOSIVE account growth.
Our trading approach is simple by design. The entry rules are clear. The trade management rules are clear.
This means the trade instructions you receive as a subscriber are clear as well.
There should be no doubt or confusion about what the instructions want you to do. Your task is not to think about it… just do it.
Remember, your success is about following the strategy… not YOU as a trader.
And here is a big one...
Complicating your trading with the desire to filter out losing trades often leads to filtering out a portion of the winning trades as well. And that would be devastating for our approach.
Imagine filtering out one 1R loser and one 5R winner. You just filtered yourself out of 4R worth of profit. That is why you should keep things simple and take every trade.
The trade signal's performance is achieved by me applying my strategically designed, rules-based strategy… not me as a trader.
This means the results can be duplicated by you… simply by following the trade instructions sent to you.
The rules are in place for two major reasons:
♦ The trading rules put the odds in our favor mathematically. Keep placing trades over the long term, and the numbers add up in your favor as profits.
♦ The trading rules help you trade the strategy consistently over the long term. This is the key to success.
Remember, to be a profitable Forex trader you need three things:
- A trading strategy that makes money over time.
- Consistency in your trading (sticking to the rules).
- Time (trading over the long term).
As you can see, our trading approach has been strategically designed to put the odds in our favor.
♦ We are not only talking about the mathematical odds of using a high risk to reward ratio on specific currency pairs.
♦ We are also talking about keeping the trading simple and with a low time commitment so you can do it consistently over the long term.
This lack of strategic planning is the reason most Forex traders fail. But that is not going to happen to us because we’ve planned to succeed.
As a trade signal follower, you are not responsible for making the trading decisions on your own. I do all the heavy lifting for you.
But rest assured, when you are instructed to take action, it is based on following a strategically designed trading approach that puts the odds in your favor.
You’ll be trading like the casino… not a gambler. Therefore, to be profitable over the long term, simply continue to keep trading according to the instructions.
To Your Wealth, Edward Lomax