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Smart Money Trend Trading: A Dynamic Approach

14/06/2013 11:15 BST | Updated 13/08/2013 10:12 BST

Ask an experienced Smart Money trend trader what his worst habit is and he will say he does not have one. Ask the uninitiated and they will say mastering their emotional demons. Emotions are the bane of the inexperienced trader. Fear, hope and greed all play their part in the failure of most that enter the trading world through a lack of education and a gamble-like approach to the markets.

There are a host of reasons that cause 95% to come up short, all that can be solved with the right mindset and approach. One of these reasons is the unhealthy emotion of "attachment" traders build to a pair or at best a small group such as the majors. I often come across profiles which state "a EURSUD expert" or "a Cable enthusiast" but in reality, limiting yourself to such a small portfolio is highly unlikely to do well and is not going to bring home the financial rewards you look for when pursuing a career in the markets.

A Smart Money trend trader has a very different approach where every tradable instrument has equal weighting and are simple divided into high and low probability set ups. We trade those that have a high probability setup and stand aside on the ones that don't. When the structure of an instrument we are trading changes from high probability to low, we simply exit and stand aside without any emotions and move to ones that have better setups. In simple terms, by using just the weekly and daily charts, we trade markets that are trending and stand aside on the ones that are not.

The challenge for newbies is trawling through all the free information on trading found on the internet and separating the wheat from the chaff. I have come across sites where "experts" actively encourage their students to make "best friends" and even to "fall in love" with one or two currencies to better know their structure and hence extract consistent profits. Although this may bring some profit, it will not bring you the income you are looking for to eventually take control of your life and break free from the shackles of the rat race.

A far more consistent and more lucrative approach is to be dynamic and learn to move between trending and non-trending pairs:

The expression "the trend is your friend" is always best practised using just the daily and weekly charts. Let price dictate the length of your attachment for as long as price is in a trend. As they say. let your winning trades run. When conditions start to change, stops can be tightened and more profits can be locked in until we are stopped out.

The natural movement of price is cyclic, switching between periods of trends and consolidations. "Standing aside is also a position" is a phrase often heard and dictates when to drop you attachment during the range periods. There are those that trade ranges but learning how to hold multiple positions on a trend is far more financially rewarding and requires far less time to manage.

For this reason, attachment to a small portfolio of currencies will not give you the freedom of choice to move between trending and non-trending pairs, hence trades being made in periods that are not favourable due to limitations of choice which then leads to a need to over-trade. A Smart Money trader has no qualms dropping a pair that has been trading well for weeks when consolidation kicks in and move on to one that has broken into a trend after weeks of standing aside on it.

There can be periods, possibly weeks, where a whole market such as Forex can be in consolidation and high probability setups are few and far between. This is where an "attachment" to a market can bring you up short. The Smart Money know how to move between all the markets, knowing what is trending and what isn't.

It is the emotions of millions, possibly billions, of traders that move the market but the market has absolutely no sympathy for those that trade based on emotions.

With the right education, adopting a ruthless Smart Money, emotion-free, attachment-free approach is the easiest way to extract consistent profits from all the markets. Trading is not a get-rich-quick scheme but deserves the time and investment to be understood. Once mastered, Smart Money trend trading is not only complete empowerment of your money but more importantly, your time. Using only the daily and weekly time frames, we do not trade for more than 30 minutes a day and have a built a very good lifestyle from it.

Ask yourself, is it really the attachment to a currency pair you are looking for or a lifestyle without attachments where you are in complete control of your choices?