TABLE OF CONTENTS

INTRODUCTION ............................................................................................. 3

MARKET STRUCTURE ..................................................................................... 6

.......................................................................................................................................................................... 10
BREAK OF STRUCTURE: BOS ............................................................................................................................ 11
WHAT IS A VALID BOS? ..................................................................................................................................... 11
CHANGE OF CHARACTER: CHOCH .................................................................................................................... 13
INVALID AND VALID CHOCH ............................................................................................................................. 16

INTERNAL AND EXTERNAL STRUCTURE ........................................................ 19

FRACTAL NATURE OF MARKETS ........................................................................................................................ 20

LIQUIDITY AND INDUCEMENT ...................................................................... 21

HOW DO YOU SPOT LIQUIDITY? ....................................................................................................................... 22
Types of Liquidity .............................................................................................................................................. 24
INTERNAL AND EXTERNAL LIQUIDITY ............................................................................................................... 25

INDUCEMENT: IDM ...................................................................................... 27

FAIR VALUE GAPS: FVG ................................................................................. 30

Buy-Sell Imbalance: .......................................................................................................................................... 30
How to mark FVG?............................................................................................................................................ 31

SUPPLY AND DEMAND ................................................................................. 33

Order Flow ........................................................................................................................................................ 33
Bearish Order Flow ........................................................................................................................................... 33
Bullish Order Flow ............................................................................................................................................ 33

ORDER BLOCKS (OB): ................................................................................... 34

CRITERIA FOR MARKING ORDER BLOCKS: ........................................................................................................ 35

PREMIUM AND DISCOUNT ........................................................................... 39

ENTRY MODELS ............................................................................................ 41

CONTINUATION ENTRY MODEL ........................................................................................................................ 41
SWEEP ENTRY MODEL ...................................................................................................................................... 43
ASIAN SESSION LIQUIDITY ................................................................................................................................ 45

1
TIME FRAMES AND TOPDOWN ANALYSIS ..................................................... 51
STEP BY STEP PROCESS ON HOW YOU ANALYSE AND PLACE A TRADE ............................................................. 53

COUNTER-TREND TRADING .......................................................................... 54

TRADE MANAGEMENT ..................................................................................................................................... 56

RISK MANAGEMENT .................................................................................... 57

FUNDAMENTALS .......................................................................................... 60

PSYCHOLOGY ............................................................................................... 63

BONUS CHAPTER ......................................................................................... 65

DISCLAIMER
This ebook is for educational purposes only and not financial advice. The
author, not a registered financial advisor, shares insights based on personal
experience, and market conditions may change. Readers should conduct their
own research, as the author does not guarantee the accuracy or completeness
of the information. Trading involves risk, and past performance is not indicative
of future results. The author disclaims any liability for losses and recommends
consulting a qualified financial professional before doing any investing. Readers
accept full responsibility for their investment decisions by using the
information in this ebook.

2
INTRODUCTION

Welcome to the world of Smart Money Trading. If you're reading this, it means
you're on a mission to master a simplified and effective approach to trading
without the unnecessary complexities. This eBook has been made with the
singular goal of equipping you with a reliable strategy, avoiding elusive
promises of a "HOLY GRAIL" that guarantees immunity from losses.

Trading is not a profession for the faint-hearted, and this book acknowledges
that reality. While the SMC Strategy is powerful, it's not a magic wand that
eliminates losses. If the idea of occasional setbacks shakes your confidence,
perhaps trading isn't your true calling. Professional traders, even with years of
experience, encounter losses. It's part of the game.

Here, I'll not only show the intricacies of the SMC Strategy but also share
insights gained from personal experiences, helping you sidestep the pitfalls I
encountered during my own journey with this strategy. I urge you to read this
book more than once and practice consistently, mastery comes with repetition.

So, what is SMC, exactly? SMC stands for Smart Money Concepts, a strategy
that gained prominence through the teachings of a renowned trader
responsible for Inner Circle Trading (ICT). At its core, SMC hinges on tracking
the moves of Large Institutions, including central banks, commercial banks, and
hedge funds (We call them Smart Money). These institutional giants have the
power to significantly sway market prices, trading millions daily. As smaller
players, our advantage lies in following their lead.

Throughout this eBook, you'll uncover the secrets of profiting by following

these market giants. You will learn how to read market structures, recognize
when your edge is at play, execute trades with confidence, break free from
reliance on signals gurus, and stop blowing your accounts.

3
After reading this ebook, you'll have the skills to analyse markets, find good
opportunities, trade confidently, and avoid common mistakes made by traders.
Get ready for a journey to master markets with the SMC trading. Let's dive in
and uncover the insights waiting for you.

4
5
MARKET STRUCTURE

Market structure is simply how prices move. In the market, prices can only
move up, down, or sideways. In forex technical terms, this is called a bullish
market, a bearish market and a ranging market. Let's break them down.

1. Bullish Market: In a bullish market, prices are rising, indicating optimism and
confidence among traders. Buyers outnumber sellers, leading to an upward
trend.

Characteristics: Rising prices, higher highs and higher lows on price charts.
Price is breaking structure to the upside.

BOS - Break Of Structure: This is a term we use whenever the price surpasses
the prior high/low, it results in a break of the market structure. In this case, the
price is breaking highs, hence it's a bullish structure. It indicates trend
continuation.

6
2. Bearish Market: In a bearish market, prices are falling, reflecting pessimism
and a lack of confidence. Sellers outnumber buyers, leading to a downward
trend.

Characteristics: Falling prices, lower highs and lower lows on price charts.
Price breaks structure to the downside.
7
8
3. Ranging Market: In a ranging market (also known as a sideways or
consolidating market), prices move within a horizontal range. There's no clear
dominance of buyers or sellers.

Characteristics: Prices move within a defined range, creating horizontal highs

and lows. The market lacks a strong trend, and price doesn’t break any
structure.

Retracement and Expansion: You may have noticed that prices move through a
process of retracement or pullback, followed by expansion. It’s a basic concept
you should know.

9
 TIP

A pullback is only VALID if it covers at least 50% of the expansion.

10
BREAK OF STRUCTURE: BOS

WHAT IS A VALID BOS?

BOS is only valid if the candlestick closes with a full body above high or low. If it
closes with a wick, we call it a SWEEP(x), labelled with x. A sweep is a liquidity
grab. Traders place their stops behind swing highs and lows, allowing smart
money to take advantage of that and use it to grab orders. You know it's a
sweep because after the price sweeps the high or low, it reverses.

11
 Figure 1 INVALID BOS Figure 2 VALID BOS

I'm emphasizing this: avoid using wick BOS. Stick only to full-body candlestick
BOS. I know some readers are going to ignore my advice, I'm speaking from
experience using wick BOS leads to low-probability setups.

In case you decided to read this book without any basic trading knowledge
Body: The rectangular area between the open and close prices during the time
period represented by the candlestick. It is typically filled or coloured.
Wick (or Shadow or Tail): The thin lines extending from the top and bottom of
the body, indicating the highest and lowest prices reached during the time
period.

12
CHANGE OF CHARACTER: CHOCH

WHAT IS CHANGE OF CHARACTER?

Change of Character, abbreviated as CHOCH, signifies a shift in the market's

trend or bias. For instance, a market that has consistently established higher
highs and higher lows (indicating an uptrend) might undergo a change of
character when it starts forming lower highs and lower lows, essentially
signaling a reversal. What was once a buying scenario transforms into a selling
one, and vice versa.

This shift is also known as MMS (Market Structure Shift), representing the
same concept. There's no need to panic, many terms in the trading space
denote identical concepts, often rebranded by gurus for resale.

In simple terms, the market was bullish now, it's shifting to bearish.

CH- Change of character

1. BULLISH SHIFTING TO BEARISH

13
14
2.BEARISH SHIFTING TO BULLISH

15
INVALID AND VALID CHOCH

16
KEY NOTES

1. CHOCH:
• CHOCH doesn't occur randomly on the chart. It happens strategically at key
zones like SUPPLY, DEMAND, AND FVG. If it occurs in a random area, it's
likely an inducement to trap traders.

2. Liquidity Grab (SWEEP):

• If CHOCH occurs and the price reverses to resume the existing trend,
understand that it's a liquidity grab, also known as a SWEEP or STOP
HUNT. As we know, stops are commonly placed behind swing lows/highs.

17
COMMON MISTAKE TRADERS WHEN MARKING CHOCH

In the illustration above A-B is one single move that broke structure. The small
pullback inside it is internal structure. A valid CHOCH will always be at where
the leg that broke structure originated.

18
INTERNAL AND EXTERNAL STRUCTURE

This marks a crucial segment of market structure. Upon mastering it, you can
rightfully dub yourself the Price Action King or Queen. In every trend, a smaller
one exists within it. Whether you trade SMC or not, understanding this concept
is essential.

The ranges I marked in the above illustration show bullish structure occurring
within an overall bearish structure. Imagine a trend in the forex market like a
big river flowing in one direction. Now, within that river, there are smaller
currents moving in the same direction or opposing it. These smaller currents
are what we call the "internal structure" of the trend.
In simpler terms, when we talk about internal structure of a trend, we're
looking at the smaller movements or patterns that happen within the overall
trend. It's like zooming in on the details to understand how the price is moving
in the short term while still considering the larger direction of the overall trend.
Paying attention to both the big picture (external structure) and the smaller
movements (internal structure) helps in making more informed decisions about

19
when to enter or exit trades. It's like understanding not just where the river is
flowing but also noticing the smaller ripples and waves within it.

FRACTAL NATURE OF MARKETS

The internal and external structure help us understand the fractal nature of the
markets. This simply means that what happens in the higher time frame also
happens in the lower time frame. In the illustrations, you can see there is
always a trend within a bigger trend. The fractal nature of markets is the reason
we can apply one strategy across both smaller and larger time frames.

20
LIQUIDITY AND INDUCEMENT

What is liquidity? ($$$)

Liquidity can be simplified as outstanding orders waiting to be filled. There are
roughly three types of orders:
▪ Market orders
▪ Limit orders (also known as pullback orders)
▪ Stop orders (I prefer to call them breakout orders)

WHY IS LIQUIDITY IMPORTANT IN THE MARKETS?

Liquidity plays an important role in ensuring the smooth buying and selling of
assets, engaging various participants like central banks, commercial banks,
hedge funds, corporations and retail traders.

Immediate order execution happens when there's matching liquidity from both
active buyers and sellers. In a perfectly liquid market, if 10 people are buying at
£1, there should be 10 people selling at £1. Zooming out to a larger scale, the
forex market sees an average daily trade volume of $6.6 Trillion. Notably, large
institutions, such as investment banks, wield significant influence, with retail
traders often following their lead.

While liquidity facilitates efficient trade execution for institutions, illiquid

markets can lead to increased costs due to wider bid-ask spreads. Extreme
illiquidity poses challenges for large institutions, underscoring the importance
of comprehending liquidity dynamics.

Large institutions strategically engineer liquidity to execute trades more

efficiently and at better prices. The term "engineered liquidity" encompasses
intentional strategies employed by institutions, including continuously quoting
bid and ask prices, utilizing automated trading algorithms, and strategically
placing limit orders.

21
HOW DO YOU SPOT LIQUIDITY?

Liquidity is commonly concentrated in regions where retail traders typically

position their orders. Traders using double tops/bottoms often place their
orders at equal lows (EQL) and equal highs (EQH). Similarly, support and
resistance zones attract orders around equal highs and lows, while trendline
traders position their orders at swing lows and highs. Institutions are keenly
aware of retail traders' tendencies and manipulate the market to their
advantage by presenting them with favourable setups and then capitalizing on
these patterns.

Now, consider the scenario where you want to execute a substantial order in
the market. Naturally, you require liquidity (buyers if you're selling). If there
isn't enough existing liquidity, you must generate it to secure a better price for
your large order. This is precisely what institutions do.

Institutions rely on liquidity to fulfill price delivery. They tap into high-point
liquidity as prices rise and accumulate liquidity at low points, and vice versa.

It's crucial to understand that the liquidity contributed by retail traders is

insufficient for institutions. However, the strategies used by retail traders often
result in their stop losses coincidentally aligning with the liquidity pool
established by institutions. By leveraging this additional liquidity, institutions
can significantly reduce costs.

LIQUIDITY POOL: A liquidity pool refers to an area where a large number of

pending orders are stacked up, usually outside the high/low points of a large
period.

Below are examples of where liquidity is most likely to be found.

22
EQUAL HIGH & EQUAL LOW LIQUIDITY
(SUPPORT AND RESISTANCE TRADERS)

23
 TRENDLINE LIQUIDITY
(TRENDLINE TRADERS)

Types of Liquidity

• BUY SIDE LIQUIDITY (BSL): This is a level on the chart where buyers place
their orders. When BSL is taken, the market reverses to the downside because
smart money uses BSL to place sell orders in the market.

• SELL SIDE LIQUIDITY (SSL): This represents a point on the chart where sellers
place their orders. When SSL is taken, the market reverses to the upside
because smart money uses SSL to place buy orders in the market.

LIQUIDITY SWEEPS(x) - This occurs when smart money takes orders.

24
INTERNAL AND EXTERNAL LIQUIDITY

External Liquidity (EQL) – Highs and lows of the range.

Internal Liquidity (IQL) – Everything that falls between the low and high of the
range.

25
INTERNAL LIQUIDITY - (trendlines, range liquidity, equal lows and highs).
EXTERNAL LIQUIDITY - (Swing lows and Swing highs)

NOTE- Go back and look at the size of the candles taking liquidity and after
they take it. That shows the footprints of smart money. Large orders were
executed.

APPLY WHAT YOU'VE LEARNED:

Now, take the knowledge you've gained and apply it practically. Head to your
charts and actively identify the different types of liquidity discussed. This
hands-on approach will deepen your understanding.

And if you find yourself still CONFUSED with the concept, don't hesitate to
check out my Instagram page. There, you can see how I've marked liquidity on
the trades I've taken, providing you with visual reinforcement and additional
clarity. Remember, mastering the recognition of liquidity is a key step towards
enhancing your trading skills.

https://www.instagram.com/bsby_capital/#

26
INDUCEMENT: IDM

Understanding Inducement:

Inducement is a sneaky move smart money uses to make more people buy or
sell early. SMC traders often fall for this trick. Whether you're a new or
experienced trader, it's easy to get caught in the inducement trap, especially
when you see a Change of Character (CHOCH) happening.

Here's the deal: when you spot a Change of Character before the price
mitigates SUPPLY or DEMAND zones, that's a sign smart money is up to
something. Impatient traders often end up placing orders without realizing it's
a trap. Sometimes, the price misses the entry point by a few pips and traders
are afraid of missing out, so they jump in too soon.

Why does this work so well? because most traders struggle with discipline.

EXAMPLES

27
28
29
FAIR VALUE GAPS: FVG

Understanding Imbalances in the Market

Throughout this book, you'll often hear me refer to them as FVG, the
abbreviated version. These can also be referred to as imbalances or
inefficiencies in the market—different terms, but they all point to the same
concept.

What is FVG?
FVG, or imbalance, represents where there is a significant disparity between
the number of buyers and sellers or between the supply and demand for a
particular asset.

Buy-Sell Imbalance:
• If there are more buyers than sellers, it creates a buy-side imbalance. This
excess demand may drive prices higher.

• If there are more sellers than buyers, it creates a sell-side imbalance. This
excess supply may lead to lower prices.

Knowing FVG is important because it helps you understand how supply and
demand work, making it easier to predict market movements. In the next parts,
we'll explore how to spot and use these imbalances for smarter trading
choices.

30
How to mark FVG?

Gap between the first candle low and third candle high.
Gap between the first candle high and third candle low

31
Price will always come back to rebalance or fill the gaps, and if it doesn’t
mitigate the FVG all the way, it mitigates it at least 50%.
Mitigate- means tap into the zone

EFFICIENT PRICE ACTION – When price moves without leaving any FVG we call
efficient price action. There’s balance between buyers and sellers.

APPLY WHAT YOU'VE LEARNED:

Now that you've grasped the concept of FVG’S and understand how to mark it
on your charts, it's time to put your knowledge into action. The real magic
happens when you can recognize these imbalances as they unfold in real-time
market conditions.

32
SUPPLY AND DEMAND

To understand supply and demand in trading, you first need to know about
ORDER FLOW.

Order Flow: This term simply means the actual buy and sell orders placed in the
market by traders.

Bearish Order Flow: This happens when there are more sell orders. It creates
extra selling pressure, causing prices to go down.

Bullish Order Flow: This occurs when there are more buy orders. It creates
additional buying pressure, leading to prices going up.

How to Identify Order Flow:

Look at the last move in the opposite direction. For example, if the market is
selling, find the last instance of buying just before a bunch of selling starts. This
reveals bearish order flow.

Now that you see what order flow is let’s talk about Order Blocks. I know you
been waiting for this part.

33
ORDER BLOCKS (OB):

Order Blocks are like refined order flow. It's the last candlestick moving in the
opposite direction just before a change in market structure (BOS/CHOCH).
In our strategy (SMC), we use Order Blocks to pinpoint SUPPLY and DEMAND
zones.
This is where a bunch of orders flood in, causing a significant price move.
Typically, these are institutions placing trades. I hope now it makes sense why
we say SMC strategy follows the footsteps of the big players.

Bullish Order Blocks: These represent supply zones, showing where buying
pressure started before the market structure changed.

Bearish Order Blocks: These represent demand zones, indicating where selling
pressure started before the market structure changed.

34
CRITERIA FOR MARKING ORDER BLOCKS:

For an area to be considered an Order Block, it needs to have:

• FVG: OB should have a fair value gap.

• Strong Momentum: There should be a powerful push in either buying or

selling.

• Break Structure: There should be a change in market structure

(CHOCH/BOS).

• Take Liquidity/Have Some Liquidity to Take: Check if there are enough

buy or sell orders in that area that could be targeted by smart money.

• Discounted Area (if Buying) or Premium Area (if Selling): This involves
understanding premium and discount, which you'll learn about in the
next chapter.

HOW TO MARK ORDER BLOCKS:

• Identify an Order Block by looking at the high and low points of
candlesticks.
• Some OB’S you need to mark the high of the previous candlestick and
low of the candle that brought in momentum.
• Some Order blocks are hidden inside unmitigated WICKS.

35
36
✓ FVG
✓ MOMENTUM
✓ Broke structure
✓ Took out the Swing high
✓ It’s in Premium zone

✓ FVG
✓ MOMENTUM
✓ Broke structure
✓ There’s liquidity below it
✓ It’s in Premium zone

37
KEY NOTE:
In forex, price reacts to SUPPLY, DEMAND, and FVG—nothing
random. To catch best setups (A+), focus on identifying these key
levels.

38
PREMIUM AND DISCOUNT

You've likely come across the phrase "buy low, sell high." But what does that
actually mean? When you're looking to make a purchase, the idea is to avoid
buying at the highest price, instead, you aim for a discounted price. Similarly,
when selling, the goal is to avoid selling at the lowest price and aim for a
premium price.

In trading, we apply this same principle to ensure we enter the market at the
most favourable price. We use GANN BOX OR FIBONACCI to measure the
levels. To identify your discounted areas when looking for long opportunities
you must plot your tool from the swing low to the swing high and for your
premium areas you must plot it from the swing high to the swing low.

The top part is premium and bottom part is discount. If you selling you want to
choose OB in the premium and if you are buying you want to pick OB in the
discount.

Why do you need to know this?

• To have better potential profit targets.
• To avoid choosing low probability zones.

39
 • To help you avoid smart money traps.

FIBONACCI

40
ENTRY MODELS

• CONTINUATION ENTRY
▪ INDUCEMENT ENTRY
▪ SWEEP ENTRY
▪ ASIA SESSION SWEEP ENTRY

TARGETS: FVG, SWING LOWS/HIGH, LIQUIDITY

CONTINUATION ENTRY MODEL

IMPORTANT NOTE – Please keep in mind where there’s (BOS) it could be

(CHOCH).

41
42
SWEEP ENTRY MODEL

43
INDUCEMENT MODEL

44
ASIAN SESSION LIQUIDITY

45
Examples

46
47
48
ASIAN SESSION SWEEP

SESSION INDICATOR - ADJUST IT TO YOUR TIMEZOME

49
FACTORS TO CONSIDER BEFORE PLACING A TRADE

LIQUIDITY is the fuel in the market, as we discussed. For price movements to

occur, institutions must take some form of liquidity. Therefore, ensure there’s
liquidity being targeted.

BOS/ CHOCH- You need to ENSURE there’s a valid structure break.

SESSION- Trade during high-volume sessions, as liquidity and volume are

directly proportional. If there are fewer participants in the markets, there will
be less liquidity, and as a result, price won't move much. That's why the Asia
session is always consolidating and less traded session.

NEWS EVENTS -Check for any high-impact news events as trading during these
times can be risky. The market is highly unpredictable, and slippage is high. It's
advisable to avoid keeping trades open during such periods and, instead, focus
on trading after or before the release of high-impact news.

50
TIME FRAMES AND TOPDOWN ANALYSIS

Now that you know the basics of the strategy, I can show you how to analyse
and place trades. We start our analysis from a higher time frame to get a broad
idea of where the price is heading. Then, we go to a lower time frame to place
our trades. This is called top-down analysis, as it allows us to catch optimal
entries with better risk-reward. It also helps us avoid being caught in counter
trades. I'm sure you've heard the statement 'the trend is your friend,' so you
don't want to trade against the bigger trend. I recommend countertrend
trading only if you have a lot of experience.

TIME FRAMES:
I know we all have different lifestyles, and you might not be a full-time trader.
So, if you have less time in the day to view charts, I recommend sticking to
higher time frames.

DEPENDING ON YOUR LIFESTYLE AND OCCUPATION, HERE IS HOW I

RECOMMEND YOU DO YOUR TOP-DOWN ANALYSIS.

51
IMPORTANT NOTE – Just because some timeframes weren’t included doesn't
mean you can't check them. In fact, I recommend checking them if you can't
find clear ORDER BLOCKS in the main time frames I mentioned.

SCALPING: You hold trades for minutes, so obviously, you need to watch them
like a hawk because your goal is to catch small moves in the markets.

DAY TRADING: You hold trades for a couple of hours. You don’t need to camp
in front of the charts. You can do other things while your trades are ongoing.

SWING TRADING: You hold trades for more than one day. You spend less time
in front of the charts.

I day trade and swing trade sometimes. If you are a beginner, do not scalp. You
will get humbled by the market. Price gives a lot of false signals. The higher
time frame holds more strength. It's dominant, and you are trying to catch
small moves in it.

52
STEP BY STEP PROCESS ON HOW YOU ANALYSE AND PLACE A
TRADE

1. IDENTIFY THE HIGHER TIME FRAME TREND

2. MARK HTF SUPPLY AND DEMAND ZONES (Order blocks)
3. IDENTIFY LIQUIDITY (IF THERE’S NONE WAIT FOR INDUCEMENT OR A
SWEEP)
4. WAIT FOR PRICE TO MITIGATE YOUR ZONES
5. PLACE YOUR ORDERS

As much as I want to demonstrate these steps in the e-book with screenshots,

I'm not going to because it won't help you understand. This is the part where
the e-book falls short. However, here is a link to a video that shows the process
in full detail. It's a 15-minute video.

https://youtu.be/dnnFb9V9uLI

53
COUNTER-TREND TRADING

I don't recommend counter-trend trading for beginner traders. It's too risky
because you are going against the bigger trend, and price could easily take you
out if you lack experience. As we discussed before, the market moves by
expanding and pulling back. In a bullish market, you counter-trade by trading
the pullbacks, you get a clue of where the pullback might start and end by
analysing demand, supply, and fair value gaps.
As you can see in the illustrations below, the price has reacted to old supply
zones. These are the moves you want to catch, but it's not a guarantee that the
price will react to them. This uncertainty is present because the price has
strong momentum, which you are countering.

54
How to take counter trend trades
1. Wait for price to tap old supply/demand
2. Wait for CHOCH in the lower time frame
3. Make sure there’s liquidity/inducement
4. Place your order
5. Target the recent supply/demand/fvg that broke structure

55
TRADE MANAGEMENT

• Once your trade is running with a 1:2 risk-reward ratio, set it to

breakeven. There’s no reason for you to lose when you are 2 times your
risk in profit.

• Set your trade to breakeven during high-impact news. If you aren’t

familiar with news, completely close the position.

• When you are taking countertrend trades, aim for a reasonable risk-
reward ratio. Remember you’re going against the bigger trend.

56
RISK MANAGEMENT

Risk management is a key factor that can either grow or blow your trading
account, making this chapter essential for your success. Even if you're using the
best strategy in the world, without proper risk management, profitability
becomes unlikely. That's the significance of effective risk management.

Key Components of Effective Risk Management

1. Risk-Reward Ratio (RR):

Never settle for a reward that's less than your risk. Aim for a potential gain of at
least three times your risk. For example, if you're risking $100, target a
minimum gain of $300. Stick to a risk-to-reward ratio of 1:3 or better. In fact, I
never take a trade if the risk-to-reward ratio is less than 1:3.

2. Position Sizing:
For every trade, limit your risk to 1 percent of your account. This rule applies
whether you're trading with your personal account or a funded account. Prop
firms, for instance, often have a 10% drawdown rule. This means you would
need to lose 10 consecutive trades to break the rule. Let’s say you lose 8 and
win 2, you would only be at a 2% drawdown with a minimum risk-to-reward
ratio of 1:3. This really shows managing risk well makes it hard to blow up your
account.

3. Trading with a Stop Loss:

Always use a stop loss. It acts as a protective shield for your account, especially
when the odds aren't in your favour. Set clear exit points for trades that might
go against you, and resist the urge to tamper with the stop loss.

57
In essence, by following these simple steps, you'll build a robust risk
management strategy that PROTECTS your account and positions you for
sustainable success in your trading journey.

I use the Myfxbook chrome extension risk calculator know what lot size to use.

WINRATE

Win rate measures the percentage of your trades that end in profit. It is
essentially the ratio of your winning trades to your total number of trades,
expressed as a percentage.

For example, if you've executed 10 trades and 7 of them were profitable, your
win rate would be 70%. This means that 70% of your trades resulted in a profit.

58
In simple terms, a higher win rate indicates a greater percentage of successful
trades, but it's equally essential to consider the quality and size of those wins in
relation to your losses for a more comprehensive evaluation of your trading
performance.

The table below shows

59
FUNDAMENTALS

Understanding both fundamental and technical analysis is key to success in

trading. We use fundamental analysis to get an overall bias of the market, and
technical analysis to pinpoint our entries. If you want to make money in the
markets, it's important to know the basics of fundamental analysis.

Fundamentals involve understanding how decisions made by banks and

economic factors like interest rates, inflation and consumer spending can affect
the markets. It also means being aware of how global events, such as wars or
natural disasters, can influence the market.

Example

Let's consider a scenario where the US hikes interest rates. In this case, the
dollar is likely to strengthen because investors become more interested in
purchasing the currency, leading to a bullish stance. Conversely, if the rates are
paused, the dollar may decline as investors seek currencies that offer more
profitable opportunities. Having this knowledge helps you know the long-term
market direction.

I recommend trading 10 minutes after the news release.

If the data favours the currency, you should look for buying opportunities. The
same applies to selling, but you should still use technical analysis to place
trades. It's okay if the price doesn't reach your levels.

60
Credit: DAILY fx

BULLISH DATA- Has a positive impact for the currency. (BUYS)

BEARISH DATA- Has a negative impact for currency. (SELLS)

You can find economic data and upcoming events on websites like
investing.com and Forex Factory. Personally, I use investing.com.

One tip for beginners: avoid trading during high-impact news events, which are
usually marked with three stars.

61
62
PSYCHOLOGY

Your mental state is the glue that holds everything together in trading. Don't
believe me? Let me ask you some questions, and if the answer is yes to all of
them, you need to work on your psychology.

1. How many trades did you miss because you weren't confident in your
setups?
2. How many trades did you lose because you didn't follow your rules?
3. How many trades did you let hit the stop loss that could have been
breakeven?
4. How many accounts have you blown because you were reckless with your
risk?

As you can see hope, fear, greed, and impatience are the culprits behind the
downfall of many traders. Let's explore how to overcome them:

Fear and hope: If you lack confidence in your strategy, spend more time
backtesting and forward testing.

Greed: Unrealistic expectations often lead to greed. Remember, the market

doesn't know or care about your existence. React to what it shows you. If your
strategy says get out, close the trade. If it says stay in, follow it. Regardless of
the outcome, you've followed your edge, placing you ahead of most traders
who lack discipline.

What is an Edge?
An edge means there's a higher chance of the outcome being in your favour. If
your win rate is 70 percent, you're likely to win 7 out of 10 trades. Now, here's
what most traders don't understand about probabilities: the 3 losses can come

63
consecutively, but that doesn't mean your edge isn't working. Losses are
random, just like wins. You can win 7 trades in a row, but that doesn't mean
you won't experience losses. If your emotions constantly interfere, you won't
let your edge play out.

This chapter could be a book on its own, that's how critical psychology is. Here
are some tips to help you maintain a clear mind during trading:

1. Don't risk money you aren't willing to lose. Avoid trading with borrowed
money or savings to prevent unnecessary pressure.

2. Don't trade after arguments with your spouse or significant other. You won't
be in the best mindset to objectively analyse the market.

3. Don't set a specific date for your success. Avoid month-end targets as they
can lead to disappointment and forced trades.

4. Don't rely solely on signals or someone else's analysis. This limits your ability
to analyse the market and takes away responsibility.

5. Journal your trades. This alone helps you collect data about your trading. You
will know what winning setups look like, you will also know which days work
best for you.

Here’s name of the book that transformed my psychology “TRADING IN THE

ZONE” by Michael Douglas.
DM me “Psychology’’ on instagram I will send it to you

64
BONUS CHAPTER

Now that you are familiar with the fundamentals of the strategy, allow me to
share my trading plan with you, perhaps you can get some insights from it.

65
5 Tips to become a Profitable Trader

1. Avoid comparing yourself to others. Concentrate on your strategy and

individual progress.

2. Refrain from taking advice from individuals who aren't traders themselves.
Trading is a solitary journey and criticism from friends and family is common.

3. Recognize that trading is not a get-rich-quick scheme. It requires months or

even years for things to fall into place. Experience is the best teacher.

4. Treat trading like a business. Implement effective risk control practices. Learn
how to allocate profits to yourself and reinvest for growth.

5. Less is more. Avoid overcomplicating the strategy. When faced with losses,
resist the urge to believe that the strategy is flawed. Don't fix what isn't broken.

I provided you with the necessary tools you need to become profitable. Now,
it's up to you to put in the work.

66