Best Method to Increase Equity Curve

What is the best method to increase the equity curve?

This answer does not have one universal truth. Various Forex traders will without doubt answer this question differently. However, with that cautionary statement behind us, we do want to explain one concept that has the potential to accelerate a trader’s equity curve.  Before we get started you might want to check out our Double Trend Trap Strategy or our momentum custom indicator, because a proven strategy with our indicator can improve your accuracy and that will help increase your equity curve.

Choosing a Forex Broker

MAKING SUBSTANTIAL GAINS

An equity curve of a Forex trader will never ever be without its ups and downs. The levels of drawdown and accompanied volatility in relationship to the return vary greatly from trader to trader, which depends on the risk appetite, trading style, strategies, etc. Obviously the main goal of each Forex trader is to improve and optimize the profitability vis-à-vis the risk involved.

Improving one’s edge is a long-term process, and usually does not come overnight. That is why each Friday we post an article which tries to provide a valuable nugget of vital information for Forex success. If you agree with this let us know down below in the comments section. :) With each article, Forex traders can work on improving their edge.

First of all, making substantial gains is a product of a successful business model. Trading is a business and needs to be treated as a business before consistent profits can be made. A trading plan, risk management, money management, balanced trading psychology, trade management etc. are all key ingredients of such a model. These elements are prerequisites.

However in today’s article I wanted to emphasize a couple of elements that will enhance the route to success and profits. Here is the “Golden Triangle”:

1)      Use the TOFTEM model for assessing potential trades  

2)      Enhance win rate % and R:R ratios by understanding where the wide open spaces are 

3)      Implementation of trades with trade management and trading psychology (patience, lack of fear, discipline and without emotional imbalance)

These concepts lay the ground works for providing Forex traders with a substantial edge. All of the three elements of the golden triangle have been discussed in previous and recent articles – especially the TOFTEM model and the wide open spaces concept. But what links these two together? The answer is market structure.

Key to Confirmin Trade Entries

MARKET STRUCTURE

The market structure is a method which allows retail Forex traders to interpret the charts the same way as a big institutions. The best way to grasp this concept is by joining our live trading room. Here we analyze and break down the market structure session by session.

In general though the market structure is a method which analyzes price action (momentum / correction), chart patterns, key levels, support and resistance, and Fibonacci to understand and identify the TOFTEM model and wide open spaces concept.

Understanding and trading market structure allows Forex traders to identify higher reward versus lower risk opportunities. And it is exactly the success rate of finding those high reward to low risk opportunities which provides Forex traders with an enhanced edge and a substantial boost of their equity curve.

The TOFTEM model and the wide open space concepts are tools and processes that allow traders to understand and grasp the market structure and identify areas which have a higher probability of boosting the equity curve.

BEST PIECES OF THE PIE

How can a Forex trader best capitalize on the wide open spaces? The answer is simple: by actually trading them. :) The answer might sound redundant but actually allowing the trade to capitalize on the space requires a sturdy trade plan and balanced execution of the plan.

Let us take a look at a practical example on the GBPUSD.

Step 1) is there a trend and if so, which direction?

Yes in this example the trend is up. Price is making higher highs and higher lows and is in an established uptrend due to the presence of trend channel with 3 hits on the bottom of that channel.

7- 3- 2014 gu d

Step 2) is there an opportunity?

Yes price has bounced made a retracement back to the bottom of the uptrend channel and the 50% Fibonacci retracement (blue). This provides a major discount within this uptrend.

Step 3) are there any filters present?

There was a key resistance level (orange) and weekly trend line (purple) but those have actually become support after the break. There is another layer of resistance (red), however those levels are a substantial distance away from current price.

7- 3- 2014 gu 4

Step 4) Is there a trigger?

Yes there are multiple triggers. First of all, a break of the resistance line (magenta) indicated a potential breakout trade setup earlier. At the moment a break of the resistance line (purple) indicates the end of the downside correction. A break of that line signals the change of market psychology and is an important line in the sand for bulls and bears. The downside break of the support line (green) would be counter trend reversal setup.

Step 5) what is the entry method?

The entry could be at the immediate break of the trend line. Other options are zooming in to lower time frames to trade the break of a smaller consolidation, the pullback, bounce or continuation. Read more on entry methods. 

7- 3- 2014 gu 2

Step 6) what is the trade plan?

Considering the fact the upside has a tremendous wide open space ahead of it, capitalizing on that space is how a trader can boost the equity curve.

Obviously one winning trade on its own would be good. But what happens if a trader does not recognize the wide open space (green boxes) and cuts the winner early and short (blue line)? The answer is simple: a lot of profit potential is left on the table.

Compare that scenario with a trader that actively capitalizes on this widen open space via a trailing stop, trade management and/or scaling in and out. The profit potential becomes enormous.

In this example the Forex trader is maximizing potential reward by:

  1. Aiming partly for a fixed take profit at a key level of the market (tops)
  2. Allowing a trail stop to capture extra price movements if resistance breaks

With our specific trail stop methodology, this trade closed for a 280 pip gain versus a 60 pip risk, or a 4.7:1reward to risk ratio. A couple of trades like that and the equity curve starts to look very nice.

7- 3- 2014 gu 1

The trader can also reduce the risk somewhat on any one particular entry (breaks and pullbacks) by scaling in as the trader is waiting for more confirmation at multiple spots on the charts.

The Forex trader maximizes the reward and minimizes the risk on a trade.

7- 3- 2014 gu 30

Do you think that the market structure could help boost your profit potential? Let us know down below!

As always thanks for sharing this article and wish you Good Trading!

The following two tabs change content below.
Chris is the head of the mentoring program and trading room at Winner's Edge Trading. He has a passion for technical analysis and helping Forex traders achieve their goals in trading. Chris has been trading for almost 10 years and is most fond of the Double Trend Trap (as a strategy), moving averages (as an indicator) and Fibonacci (as a tool).

Latest posts by Chris Svorcik (see all)

Follow our social media:
1359774937_facebook 1359774984_linkedin 1359774949_twitter 1359774960_google 1359774973_rss 1360027635_youtube

Winner’s Edge Trading, as seen on:

Winner's Edge Trading in the news

  • Chris

    Hello Muyen, thanks for the comment! Great that you are using the same simple trading principle. Happy to hear that. In the trading room we focus on the same trading style, so it might be worth it to check that out. In any case, thanks for the feedback and wish you Good Trading!

  • Chris

    Hey Dave, thanks for the comment! :) Yes indeed, looking forward to catching a couple of these sometime soon :)

  • Fabrice Goeyvaerts

    Tks for compliment and support, Chris :-)

  • Muyen

    Thank you for the nice article I agree totally with your Market structure point the is the kind of strategy i am trying to build up now.
    Thanks again.

  • Dave Hanna

    Hey, Chris, great article. I’m really looking forward to practicing this in the trading room and finding the opportunities with wide open spaces for some big gains!

  • Chris

    Thank you Fabrice! Your feedback is much appreciated!! :) Very happy to read that you have discovered these concepts from us and that understanding the market structure is something that you find interesting and valuable. You are a very dedicated trader of the mentoring program so with practice I am sure that you will be able to implement these techniques better and better!! Thanks again for your feedback, thats great!

  • Chris

    Haha :) Every trader recognizes that one ;)

  • Fabrice Goeyvaerts

    Oh YES, Chris, I very much think that understanding Market Structure is a simple way of playing Markets and therefore can (and will in the future) boost my profit potential.
    Just looking at your charts they show that without any indicator but just some horizontal levels and trend lines you can take some big winners that will make the difference on a period of time.
    Of course like you said you need to apply all the prerequisites elements to make it happen.
    Tks to Nathan and then yourself with the Mentoring Program I discovered what Market Structure is. A big thank you!!!
    Cheers,
    Fabrice

  • http://jbmaverick.wordpress.com/ Jack Maverick

    “capitalize on spaces (article Jan 31st) that can be found between support and resistance (Jan 3rd)”
    That sounds like a much wiser practice than those days where my trading strategy seems to be “buy the top, sell the bottom”. :)

  • Chris

    :) well, as said at the beginning of this article, there are multiple ways of achieving an equity boost, which depends on our psychology and trading style. So whatever works for a trader is great. :) Basically just tried to give a practical guide how traders can capitalize on spaces (article Jan 31st) that can be found between support and resistance (Jan 3rd) :) have a great weekend

  • http://jbmaverick.wordpress.com/ Jack Maverick

    “Better word would have been targets based on the structure of the market ”
    No way – it’d take me forever to figure that out – I’m still trying to grasp this word “logical” – sounds interesting, but totally unfamiliar term to me. Oh, and thanks for that maximizing reward, minimizing risk note – I think I may have been doing that backwards… :)

  • Chris

    For the trading room “logical” is Fibonacci targets, tops, bottoms. Better word would have been targets based on the structure of the market :)

  • http://jbmaverick.wordpress.com/ Jack Maverick

    Jack<—going to look up the word "logical" right now

  • Chris

    Thank you Jack! Your feedback is much appreciated, thanks for that.
    I linked your previous article on how to avoid trading account killers. Very useful for the trading psychology part. Aiming for logical TP’s based on structure and not getting imbalanced after a loss (or streak) are definately key. cheers!

  • Chris

    Thank you Jack! Your feedback is much appreciated, thanks for that.
    I linked your previous article on how to avoid trading account killers. Very useful for the trading psychology part. Aiming for logical TP’s based on structure and not getting imbalanced after a loss (or streak) are definately key.

  • http://jbmaverick.wordpress.com/ Jack Maverick

    Very good article, Chris.
    Thanks for taking the time to write all that out.