Secret Sauce of the Forex “Big Dogs”: Inside Tips from Pros

The foreign exchange (forex) market is the biggest financial market in the world. Over $6 trillion is traded every day by banks, hedge funds, institutions, day traders and more. But a select group of elite traders, known as the “Big Dogs,” seem to make massive profits consistently. What’s their secret sauce?

In this comprehensive guide, we’ll peel back the curtain and reveal the key strategies, mindsets and insights from professional forex traders who have reached the pinnacle of success. Whether you’re a beginner looking to get started or a seasoned trader aiming to join the “Big Dogs,” use these pro tips to take your forex trading to the next level.

Crafting a Rock-Solid Trading Plan

The foundation of any successful forex trading endeavor is a strategic trading plan. Without a plan, you’re trading blindly and emotions will sabotage your results. Big Dogs know that trading discipline comes from having a clear set of rules, parameters and steps to follow. Here are the key elements in a pro-level trading plan:

Defining Your Trading Style and Timeframes

There are many different ways to trade forex. Are you a day trader looking for quick profits from short-term volatility? Or do you prefer swing trading on 4-hour or daily charts for bigger moves? Big Dogs have a defined style for their personality and schedule. Popular styles include:

• Day trading – closing all positions daily
• Swing trading – holding positions 2-5 days
• Position/trend trading – holding positions weeks to months

Choose trading timeframes that match your temperament. Intraday charts like the 1-minute or 15-minute appeal to active traders. But the 4-hour and daily charts provide more reliable signals for swing traders.

Setting Trading Rules and Stop Losses

Pro traders set concrete trading rules for entries, exits and stop losses. For example, a day trader might establish these rules:

• Enter long on a break above 20-period EMA with increase in bullish volume
• Set initial stop loss 20 pips below entry
• Move stop loss to breakeven after 20 pip profit target reached
• Exit when price crosses below 20-period EMA

Rules remove guesswork and emotions during trading. Stop losses limit losses on bad trades. Initial targets lock in profits.

Choosing Currency Pairs to Trade

The forex market has dozens of currency pairs to choose from. Big Dogs focus on just 1-5 currency pairs they have thoroughly analyzed. Common pairs include:

• EUR/USD (euro/U.S. dollar)
• GBP/USD (British pound/U.S. dollar)
• USD/JPY (U.S. dollar/Japanese yen)
• AUD/USD (Australian dollar/U.S. dollar)
• USD/CAD (U.S. dollar/Canadian dollar)

Stick to major pairs with adequate liquidity and volume. Exotic pairs with low volume tend to have high spreads and volatility.

Determining Ideal Risk/Reward Ratios

Risk management is crucial – even more so than winning percentages. Pros aim for at least a 1:2 risk-reward ratio on every trade. That means setting a profit target ($200) at least twice as far from your entry as the stop loss ($100). This ensures you only need to win 33% of trades to profit.

Some traders are very conservative, using a 1:3 or higher risk/reward ratio. This requires longer holding periods and wider stops, but creates very favorable odds.

Committing to a Trading Journal

Finally, adopting a trading journal is non-negotiable for elite traders. A trading journal tracks details on every trade:

• Entry/exit prices and dates
• Stop loss and profit target
• Technical analysis
• Fundamental catalysts
• Screenshots of chart patterns
• Trader’s market analysis and psychology

Journals reveal strengths and weaknesses over time. They also instill trading discipline, as traders don’t want to log poor trading decisions.

Mastering Technical Analysis

Technical analysis (TA) allows traders to forecast price action using past price behavior and market psychology. Big Dogs have an in-depth knowledge of TA and use it for all aspects of trading:

• Identifying trends and reversals
• Planning entries and exits
• Pinpointing support/resistance levels
• Executing with precision timing

Here are some technical analysis skills that separate profitable traders from amateurs:

Price Action Strategies

Price action focuses purely on price movements. No indicators required! Pros use techniques like:

• Trendlines – Drawn along a trend to signal continuations and reversals.
• Chart patterns – Common patterns like head and shoulders, triangles and flags.
• Support/resistance – Key levels where buyers/sellers entered historically.
• Candlestick patterns – Reversal/continuation patterns using candlestick charts.

With enough practice, price action provides a complete trading system.

Momentum Indicators

While optional, indicators can improve trade timing and confirmation. Popular momentum indicators include:

• Moving averages (MA) – Crosses, slope and dynamic support/resistance.
• MACD – Moving Average Convergence Divergence identifies trend changes.
• Stochastics – Overbought/oversold levels show entry opportunities.
• RSI – Relative Strength Index measures price momentum.

Use indicators to confirm price action signals, not replace them entirely. Apply on higher timeframes (4-hour, daily, weekly) for robust signals.

Volume Analysis

Volume indicates the strength or weakness of a trend. Savvy traders analyze volume surges/drops around price movements for additional confirmation.

Key techniques include:

• Volume precedes price – trends start with surges in trading volume.
• High volume on breakouts – shows true conviction.
• Low volume corrections – indicates weakness in trend.

By combining price action, indicators and volume, Big Dogs enter and exit trades with precise timing and optimal confidence.

Mastering Forex Chart Patterns

Chart patterns appear across all markets and timeframes. Recognizing and trading these patterns is crucial, as history often repeats itself on the charts. Here are some of the most common and useful chart patterns for forex traders.

Triangles

Symmetrical triangles have converging trendlines and indicate continuation patterns. Ascending and descending triangles have flat and angled trendlines respectively, pointing to likely breakout direction.

Wedges

A rising wedge has converging ascending trendlines, indicating a reversal pattern. A falling wedge with declining trendlines showscontinuation.

Flags and Pennants

These classic patterns have parallel trendlines converging towards a pole. The slope indicates likely breakout direction.

Double Tops and Bottoms

Double or triple tops/bottoms show strong reversal levels as bulls/bears are exhausted after multiple failed attempts to breach support/resistance.

Head and Shoulders

A head and shoulders top signals reversal after a high forms between two lower highs, with a break of the “neckline.” Inverse for bottoms.

Keep these patterns on your radar when analyzing charts. Enter breakouts once a pattern completes with increased volume for the best risk-reward.

Optimizing Trading Psychology

Trading success hinges heavily on psychology. The best technical system can’t overcome crippling mental errors. Pros acknowledge this and work relentlessly on their mental game.

Cultivating Patience and Discipline

Impatience and lack of discipline destroy more traders than anything else. Big Dogs stay calm and stick to their trading plans without exception. They focus on the long term, not short-term P&L.

Managing Fear and Greed

Fear leads to panic selling, missed gains and excessive risk avoidance. Greed causes overtrading, revenge trading and ignoring stop losses. Pros confront fear, manage risk wisely and lock in profits.

Avoiding Regret and Second-Guessing

Looking back and dwelling on past trades causes regret and self-doubt. Instead, focus efforts on perfecting your edge moving forward. Losses are inevitable – learn and improve.

Maintaining Objectivity

Beware of confirmation bias. Consider conflicting information objectively. Don’t force trades that aren’t aligned with your system. Detach emotions from analysis and execution.

Accepting Uncertainty

The markets are inherently unpredictable. Pros accept what they can’t control and focus energy on following their plan in a disciplined way despite uncertainty.

With trading psychology mastered, you can trade consistently without sabotaging yourself emotionally or financially.

Insider Tips from Forex Trading Pros

Beyond core strategies, what philosophies guide the elite? Here is tactical advice from real traders who have spent decades honing their trading skills to rise to the top:

“The trend is your friend until the end.”

“Don’t try to pick tops and bottoms. Learn to identify the larger trend and stick with it. Be patient and let winners run.” – Greg Secker, founder of Knowledge to Action

This emphasizes the importance of trend trading. Trading against the trend is extremely difficult, while trading with the trend maximizes profits.

“Plan your trade and trade your plan.”

“Have every aspect of your trades predetermined – entries, stop losses, targets, lot sizes. Don’t make emotional decisions. Follow your plan no matter what.” – Sandile Shezi, youngest self-made billionaire.

Success comes down to trading discipline. Let logic not emotion guide your trades by having a strategic plan.

“Risk management over profits.”

“Focus on risk first, not profits. Manage risk on every trade and the profits will follow. But excessive risk can wipe you out quickly.” – Rayner Teo, investor and trading coach

Risk management, not profit targets, preserves trading capital over the long haul. Make it priority one.

“Cut your losses early and let your winners run.”

“Don’t get attached to losing positions hoping they’ll turn around. Close them quickly. But let profitable trades keep running to maximize your winners.” – Adam Khoo, stocks and forex trader

These wise rules compound profits dramatically over time while limiting capital drawdowns.

“Be comfortable being wrong.”

“You’ll lose on 40, 50 or 60 percent of your trades. Accept that as part of trading. Don’t try to be right all the time.” – Justin Kreiger, Forex Analyst

Losses are inevitable, even for pros. How you respond to being wrong determines long-term success.

By adopting the mindsets and tactics of the “Big Dogs,” you’ll be well on your way to trading like a pro.

Frequently Asked Questions

What percentage of forex traders are consistently profitable?

According to most estimates, only around 20-30% of forex traders achieve consistent, long-term profitability. The vast majority lose money over time or eventually stop trading. Proper training, realistic goals and risk management can greatly increase a trader’s chances of sustained success.

How much money do I need to start forex trading?

Most brokers allow you to open a forex trading account with as little as a $50-$100 minimum deposit. However, it’s best to start with at least $500-$1000 to properly manage risk. Never risk more than 1-2% of capital per trade. Invest only discretionary funds you can afford to lose.

What makes forex trading so difficult?

Traders battle the unpredictability of markets, the intense influence of emotions like fear and greed, and the difficulty of creating a strategic trading edge. Discipline, risk management and continuous practice/improvement are required to succeed long-term. Many underestimate these challenges.

How much can you make from forex trading?

Return depends heavily on account size, risk management strategy and win percentage. With proper risk management, skilled traders averaging 5%-15% returns per month can compound those gains to very attractive yearly returns over time. But get-rich-quick expectations rarely pan out.

Is forex trading banned in some countries?

Some countries including India, China, Malaysia and Egypt have banned forex trading or restricted leverage. Residents must trade through an authorized domestic broker with lower leverage caps than offshore brokers. Other countries allow trading through properly regulated international brokers.

Do I have to pay taxes on my forex trading profits?

In most jurisdictions, forex trading profits are subject to capital gains taxation similar to stock market investments. The tax rate varies based on your income tax bracket and how long you held the positions generating those profits. Keep detailed trading records for tax purposes.

Conclusion

Mastering the “secret sauce” of the forex trading elite takes time, effort and patience. But armed with the hard-won wisdom of the pros, you can craft a strategic trading plan, hone your technical analysis skills, optimize your psychology and evolve into the trader you aspire to be. Define your trading edge, manage risk diligently, and keep improving through discipline and commitment.

The journey will have ups and downs. But by internalizing the tips and insights presented here, you have a blueprint for joining the ranks of the trading “Big Dogs” who earn impressive profits year after year. Now get out there, refine your strategies, and soon you may be the one providing wisdom to aspiring new traders!