Becoming a profitable trader is a trial-and-error kind of journey, with a whole lot of learning processes along the way. I learned a lot from my experiences in trading until I put together pieces of advice and strategies that revolutionized the whole process in approaching the markets.
Here are five key pieces of advice that turned my trading around, especially within the realm of Smart Money Concepts (SMC).
1. Using Fair Value Gaps for Understanding Price Targets
Fair Value Gaps (FVGs) play a crucial role in market behavior. While I don’t use FVGs as entry points or direct decision-making tools, I leverage them to identify where price might want to trade back into. Essentially, FVGs represent liquidity voids, acting as magnets for price.
If you study enough price action and test historical data, you will find how consistently price trades back into these gaps. They are excellent insight into potential targets and areas of interest, but their context is critical. Without the right perspective, you risk misinterpreting their significance.
2. Defining Real Pullbacks With the Three-Candle Rule
One of the biggest challenges I had at the beginning was understanding pullbacks. I simplified this concept using the three-candle pattern rule.
Here’s how it works:
A valid pullback consists of three consecutive candles moving in the opposite direction of the trend. For example, in a bearish pullback:
- The second bearish candle must close below the first.
- The third bearish candle must close below the second.
If these conditions are not met, it is not a pullback in my system. This simple rule eliminated confusion about swing highs and lows, which improved my structure analysis significantly.
3. Finding Your Style of Trading
Your trading style should suit your personality, goals, and risk tolerance. For example:
- Day Trading: You are one who needs quick decisions and hates holding trades overnight. You may find intraday trading ideal. I personally hate holding overnight unless I have already collected significant partials with stop-losses at break even.
- Swing Trading: Swing trading may suit your taste better if you’re looking for something a bit more relaxed and do not mind longer holding periods. This is suitable for most traders who have the intent of sustaining their lifestyle or attending to other important activities.
Trading basically represents who you are. It takes time to learn what suits you, not those strategies that oppose your nature.
4. Systemization and Automation During Early Trading Years
When you’re starting out, discretionary trading can be overwhelming. Without experience, it’s easy to second-guess yourself, leading to inconsistent decisions. Systemizing your strategy is critical in the early years.
For instance, I created rule-based systems to identify market structure, entries, and pullbacks. This eliminated emotional decision-making and built confidence in my trades. Over the years, as I gained experience and wisdom, I was able to introduce some discretion in my system. Even now, 95% of my trades are based on rule-based approaches.
5. Challenges With Fibonacci Levels and Market Structure
Fibonacci levels are useful but problematic when applied rigidly. In my experience, relying solely on the 50% retracement rule often created complications:
- Price would frequently reverse after pulling back only 40%, invalidating the setup.
- Constantly adjusting Fibonacci levels became cumbersome, especially during volatile market conditions.
I concentrate on price delivery and structural soundness. With Fibonacci in conjunction with order blocks or even Fair Value Gaps, I get a clearer view of price action.
Conclusion
Trading simply reflects who you are. It exposes your insecurities, flaws, and strengths. The most important thing is being self-aware, disciplined, and knowing what works for you.
Remember, there is no one-size-fits-all strategy. Experiment, collect data, and refine your approach. The advice shared here may not apply directly to every trader, but they’ve been game-changers for me. By understanding the market and yourself, you can pave your way to consistent profitability.
