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Introduction
Welcome to the Official FalconFX Strategy Handbook.
This handbook is intended for your own personal use as a student of Falcon Trading
Guidance and contains information on but not limited to; The Falcon Method Strategy, Goal
Setting, Market Structure, Psychology, the Break-Even Method and identifying continuation
and reversal patterns.
We are pleased to provide a document that each and every student can use as a reference
to either learn about certain topics such as “The Falcon Method”, or to just simply refresh
your memory if you are a more experienced trader.
One of Falcon’s core beliefs is that to become a consistent and profitable trader your
pathway must be clear and concise! In addition to the resources available to you on your
member’s dashboard, we strongly believe that the content covered in this handbook will be
rudimentary to your development as a trader and guide you towards consistent results.
We hope that you find great value in owning and utilising your personal handbook!
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Psychology
Fear of Missing Out (FOMO)
One of the main areas that traders suffer with is the fear of missing out. This usually comes
down to having the scarcity mentally that is engrained into you by events which you cannot
control such as social media posts on apps such as Instagram where it is saturated with all
kinds of strategies and traders posting images of only positive results, which in turn does
not present a true reflection of how trading really works.
Losses are an important part of trading as they provide you with the perfect opportunity to
improve. You learn very little from your winners, where the growth happens is when you
take a loss and then determine whether you are sticking to your strategy or if you just need
to adjust your style of trading.
If you focus on social media and see other traders taking positions that are not even close to
your own strategy you feel the need to be in the trade which leads you to then “overtrade”
as sub-consciously you are fearful of missing a “big winner”.
Focus solely on your own progress and performance as a trader, and not on what others are
doing or trades they are taking. Only by doing this will you be able to analyse and improve
yourself as a trader.
Trade ideas raised by others should be used as a tool, rather than a signal to enter the trade.
As the Falcon community spans across so many different time zones, this means that we
have eyes on the market 24/7 sharing ideas amongst each other – this is absolutely
fantastic, however it is important not to copy trades but instead to conduct your own
analysis and decide whether the idea fits your style and if you are happy to enter the trade
according to your plan.
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Chasing Your Tail
This is something which you really want to avoid as it is the fastest way to blow your
account to zero or worse, owing your broker money.
Naturally, when you take a loss you feel the need to make it back and what happens in
trading is sometimes we get taken out of a position by only a few pips. This causes us to feel
as if the market is personally against us which makes us want to seek “revenge” by risking
more than 1% on a trade, which then may also result in a loss so you double up again
because you “feel” like this is the trade which will get you back on top.
The worst-case scenario is that you are correct because you will do it again and start to feel
invincible with no respect for risk management whatsoever. In my experience, I have
observed many traders risking up to 50% of their entire account on one trade which went
their way and thus convinced themselves to continue that level of risk and then proceed to
blow their account all in the space of only a few weeks.
To overcome this, you must respect and trust your strategy and also remain precise with
capping your risk to 1% per trade. The strategy is not going to make you a fortune in two
weeks, its edge will play out over time and if you consistently follow your plan to the tee
you will become an extremely profitable and wealthy trader.
Our recommendation would be to use the daily goals method to keep your mind focused
and on track, reminding you to stick to your risk management, trading plan, and overall
goals.
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Fear of Losing
As a trader, it is inevitable that you will encounter losses as the markets can be volatile, and
not all trades will move in the direction you thought it would. Losses should therefore be
viewed as the price of doing business. Moreover, some of the greatest lessons you will learn
can come from your losing trades as they will help you to develop into a better trader to
figure out what you may be doing wrong or perhaps need to improve on.
Trading Forex should be treated exactly the same as running a business. There are running
costs which you would identify as expenses that are part of the business. You wouldn’t think
that your business is “losing” just because you have to pay for outgoings i.e. stock, business
travel or office rent; you would see it as necessary in order for the business to succeed and
become profitable.
In Forex, “losses” should be viewed as “expenses” and accepting this may be an alien
concept, however it is something that you will adapt to over time.
Sometimes the fear of losing can come from being a perfectionist in your day to day life
which may have formed over the years out of habit, however when it comes to trading it
can hinder your performance as your focus is drawn towards having a perfect 100% strike
rate. In reality, putting the pressure on yourself to be right 100% of the time is a form of
self-sabotage and can lead to you becoming part of the 90/90/90 statistic;
90% of retail traders will lose 90% of their capital within 90 days.
One of the main reasons traders develop a fear of losing is because they fail to truly
understand the mathematics behind the probability model and how your strategy has an
“edge” in the market. For example, many successful traders can lose more than they win by
targeting a high reward to risk ratio which essentially outweighs the losses. If you take ten
trades you can lose five and win five - if you cap your losses at 1% as a maximum then you
know all of those five losses can only ever amount to a -5% loss. Your winning trades,
however, can vary based on your strategy and targeted risk to reward. The great news in
Falcon is that we generally look for a minimum target of 3%, and sometimes much higher.
So, let’s say the other five wins were an average of 3% profit each - that would be 15%. Now
if we take away our losses from our wins we are left with 10% profit which is an incredible
return, especially as you were only correct half of the time.
In our honest opinion having a 50% strike rate would be quite poor! We would expect to see
upwards of 70% which will naturally happen over time as you improve in all areas of the
strategy. I hope this gives you an insight into not only the power of mathematics, but also
the power of psychology. This is why it is incredibly important to focus on this area of
trading and make sure that you fully understand the philosophy behind how trading actually
works beyond just buying and selling.
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Terminology
Terminology
Meaning
Nature
Impulsive Nature
Corrective Nature
Progression
Momentum
Bid/Ask Spread
Sentiment
The characteristics with which price is moving
Aggressive price movements with heavy momentum
Tight low momentum compact price movements creating
continuation and reversal patterns
Heavy momentum moves before/after a correction
Tight low momentum moves before/after an impulse
The use of Multi time frames to draw in a framework of
reversal patterns, continuation patterns and outer trendlines
Reversal or Continuation price shape (pattern)
Higher Highs and Higher Lows
Lower Highs and Lower Lows
When you add to an existing position
Entering a position before the “impulse” out of the structure
Entering a position on the correction after the “impulse” out of
the structure
When price impulses out of a pattern confirming direction
The dominate move on the higher time frames
Difference between the buying and selling price
Using price action to judge the dominant direction of price
Bias
HTF
LTF
B/E
Using sentiment to gain a belief of a bullish/bearish stance
Higher Time Frames (1M/1W/1D)
Lower Time Frames (4H/1H/15min)
Break Even
Impulse
Correction
Structure
Price Patterns
Bullish Trend/Market
Bearish Trend/Market
Scale In
Risk Entry
Reduced Risk Entry
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Nature Theory
What is Nature Theory?
What is Nature:
To understand nature theory, we must first understand what the ‘nature’ of the market
means. ‘Nature’ is the name we give to the characteristics of price action, fundamentally
price action can either have impulsive characteristics/nature or corrective
characteristics/nature and this is therefore what forms the foundation of what the Theory
of Nature is built upon.
What is Nature Theory?
Nature theory is the name that we give to the theory that the ‘nature’ of the market (the
impulsive or corrective characteristics) are the most important aspects of Technical Analysis.
We believe the nature of the market is how we intrinsically understand what is taking place,
and so the use of nature is far superior to any form of indicator based trading systems due
to the fact we are analysing the market based upon the principles of how the market
fundamentally works rather than analysing the market via secondary lagging indicators
and/or price patterns which can often be miss-leading if given higher importance than the
underlying nature itself. Many traders who have previously used other styles/formats of
Technical Analysis have often explained the difference between understanding nature and
market structure to other common trading styles like seeing the market in a 2D perspective
to then gaining a whole new level of depth leading to a 3D perspective of the market.
We believe that the Nature that makes up price patterns is far more important than the
actual patterns themselves, thus explaining why we often find many price patterns fail
beyond the natural probability outcomes that they should, or continue slightly further but
eventually work out in the intended direction – we believe this is due to the underlying
nature of the pattern, and can be forecasted ahead of time allowing those who understand
nature to capitalise on these moves or protect ourselves through effective management
strategies giving us a more ‘enhanced’ edge. Being able to simply identify price patterns
without truly understanding what type of price action is making up those patterns leads to
not understanding the true sentiment of the market correctly – and so we therefore believe
that the Nature of price action is always the most important part of our sentiment and bias
creation.
An example of this would be if we were to identify a Ferrari by only the exterior we would
be correct around 70% of the time, however only those who truly understand the
underlying make-up of the internal workings of the car would be able to distinguish the
difference between a replica and an authentic Ferrari, and that’s what increases our strike
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rate within the probability model from 60/70% up to 80/90% - enhancing our ability to see
what the nature of the price action making up patterns is actually telling us.
How do we use Nature Theory?
The way we use nature theory is to always look at the characteristics of the price action (are
we impulsing or correcting) known as the impulsive phase or the corrective phase which we
will delve into deeper in the next part of this handbook. The market is ultimately made up of
impulsive phases and corrective phases, these corrective phases however can take the form
of continuation patterns or reversal patterns, the characteristics of which is a much deeper
topic to cover (see the falcon quick tips for further information) and so understanding how
these continuation and reversal patterns piece together is something we call the ‘Matrix of
the Market’. We utilise our understanding of the impulsive & corrective phases as well as
the impulsive and corrective nature of price action to determine when possible continuation
or reversal is taking place, however within other types of Technical Analysis what is more
focused upon is simply identifying the pattern that has formed, rather than what type of
nature has created it.
For example, if price is approaching an area of resistance which may be lining up for a
typical “double top” reversal formation, the most important thing is not that it is now
resembling a double top, but actually the nature of how the double top formed. Simple
identification of patterns tends to be the skill level of beginner traders however what is
more effective is to identify the underlying nature that has been presented to us. A common
mistake that most traders make is that they look to sell immediately as price action
resembles a double top. This is where understanding the theory of nature is so important as
it will help prevent taking unnecessary losses by taking trades based upon only price
patterns, where often the nature could be telling us the exact opposite, thus by
understanding how to identify this nature we are able to become higher level traders.
Traders need to understand the nature of how price moves into these areas to successfully
capitalise on potential moves rather than taking a trade simply because you have identified
a specific pattern – the lesson being we must always focus on the nature of the price
action, we must ask ourselves:
‘What is nature telling us?’
Example: Price is moving impulsively towards a key level and then stalls for a number of
hours – nature of the market is telling us that the reversal is likely to not happen as we have
got impulsive price action; a correction now would simply act as continuation via any of the
continuation pattern formations rather than price rejecting the double top to reverse –
which is what it would look like to the average trader who does not look at the nature.
However, if price is correctively moving towards the area of the double top – this is what
indicates that the area may be of some importance, however price does not need to reach
the key level nor stop at it, the correction can play out before hitting the level or break
through it and still play out the reversal - it doesn’t matter if price breaks the areas we are
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looking at as long as it is still corrective by nature. If corrective nature was forming – we
would normally see the corrective nature take the formation of an ascending reversal
pattern such as a rising wedge or rising channel.
Essentially, we are only focusing on how price approaches the double top rather than the
area itself.
By learning to understand the nature of the market you naturally become more ‘in tune’
leading to a feeling of oneness and almost 6th sense within the market, learning to analyse
the sentiment of the market in such an enhanced way naturally requires a higher level of
skill and discretion, however this means you have created a lasting skill set that will not
need to change every few years as is the norm for the majority of secondary indicator based
strategies as nature theory is ever present.
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Price Structure – Correction and Impulse Phases
What is Structure?
To understand the meaning of structure, we must first understand that the market has a
continuous cycle that is ever present, we call this the breathing cycle of the market, a series
of consecutive corrections and impulses in a 1-2-3 formation (Impulse-Correction-Impulse)
which we have touched on in the above chapter, each cycle is identified as either the
corrective phase or the impulsive phase.
The nature of a corrective phase is corrective price action, a set of stagnant candlesticks
moving sideways or into an angle of incline/decline taking the formation of a continuation
or reversal formation. The nature of an impulsive phase is impulsive price action, a set of
large momentum candles. The corrective phase is normally counter-trend to the dominant
direction of the trend whereas the impulsive phase is normally moving in the direction of
the trend (with trend) and in the direction of the impulse that took place before the
correction phase.
Naturally if the correction took the shape of a continuation the next impulse will be with the
trend, however if the correction took the shape of a reversal then the next impulse will be in
the opposite direction to the trend.
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In its simplest form structure is the use of trendlines and ray tools to draw in market
framework across multiple timeframes - based upon the principles of how the market
works/moves (Nature Theory) allowing us to understand and interpret what is happening.
We utilise the above across all timeframes (1M/1W/1D/4H/1H) to gain an understanding of
the sentiment in the market and therefore building a bias allowing us to capitalise on bullish
and bearish moves by forecasting them ahead of time, anticipating the movement of the
next market breathing cycle.
How to Identify/Draw Structure
Eventually as you build the skill of identifying the nature of price action; are able to draw
structure into the market; judge the current sentiment and then build a bias you will be able
to identify nature/structure in a matter of seconds.
The first point of call to be able to judge sentiment is to draw in the framework to be able to
actually interpret the data, we do this by drawing in the structure of the market firstly with a
Top Down approach going from the Monthly Time Frame to the 1H time frame, this gives us
the ability to judge long term sentiment (direction of the market) so that we can capitalise
on the predominant momentum. However, we also employ a Bottom Up approach by
delving deeper to be able to understand what is actually making up those large moves on
the HTF’s allowing us to pinpoint our exact entries at great value. By looking into the LTF’s
(4H/1H) we are able to learn to interpret what is happening right now as well as forecast
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using nature theory what the probable and possible outcomes are that could play out,
therefore interpreting and forecasting ahead of time how the HTF’s will play out (as the LTF
price action is ultimately what makes up the HTF price action).
The way we draw in structure is by simply identifying large outer structures (1M); identifying
trends (1W); identifying impulsive and corrective phases (1D); identifying price
patterns/formation (4H) and refine the 4H using the 1H. We use the trendline and ray tools
to achieve the above identifying and drawing in large trends, impulse and correction phases
and then further separating out the correction phases into whether they are continuation or
reversal patterns. (this is explained far more in-depth using countless examples from within
the webinars and other content – as you watch structure being drawn in repeatedly you will
slowly understand how to draw it for yourself).
Some examples of questions we ask ourselves after our framework has been drawn in as we
try to judge the sentiment and build a bias tend to be:
1.
2.
3.
4.
“What is the nature telling us?”
“Are we impulsing or correcting?”
“Are we in the impulsive phase or the corrective phase?”
“If we are correcting and in the corrective phase are we forming a continuation or a
reversal?”
Thus, allowing us to come to a conclusion on our bias on that given currency pair.
In the above example, we you can see how outer structure has been drawn onto the current
price piece (the structure that is relevant to price action right now) – this outer structure is
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then made up of multiple impulse and correction phases within it, the corrections take the
shape of either reversals or continuations.
The Falcon Method & Entry Types
The ‘Falcon Method’ is the collective name we give to everything that has been explained in
the prior chapters, the identification of nature, drawing of structure, and interpreting of the
market using market principles of phases and patterns. The Falcon method looks to increase
our ability to analyse and interpret the market to a much more enhanced level than ever
before, once a trader is able to do so, the Falcon Method then looks to maximise our
potential profits via actions such as scaling in, while minimising our potential downside by
methods such as the B/E method. Having an overall effect of maximising upside, and limiting
our downside, at the same time.
The Falcon Method comprises of two specific entry methods, ‘Risk Entry’ and ‘Reduced Risk
Entry’.
Definitions:
1. Risk Entry: a risk entry is seen as an entry where the overall move we are looking to
trade has not been completely confirmed, i.e. we are taking the trade from within
the pattern rather than on the break of the pattern.
2. Reduced-Risk Entry: a reduced risk entry is seen as an entry where the overall move
we are looking to trade has been confirmed i.e. we are taking the trade on the
outside of the pattern (on the candle close outside of the pattern, or after the next
correction is broken)
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Risk Entry:
With “risk entry” trades we are entering the trade based off of a reversal target (often HTF
outer structure) being met, however the reason that this entry style entails an element of
higher risk is due to the fact we are entering a buy/sell position purely from structural highs
or lows based on a corrective reversal pattern that has formed, however as we know,
corrections can last for longer than anticipated and evolve into other structures, leading to
an increased risk, as it is only when the overall pattern has broken that the position has
been confirmed which leads to an element of higher risk/aggressiveness. The main benefit
of this type of entry is that it can be more rewarding due to maintaining a smaller position
size which in turn will result in higher percentage risk to reward ratio. With the right amount
of experience and skill risk entries will often provide an advanced trader with more
opportunities and due to understanding the set ups one trades, will often mean that the risk
element is actually minimised.
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Reduced Risk Entry:
With “reduced risk entry” trades we are enter the market once our continuation pattern has
been broken and thus confirmed, this confirmation provides us with the signal that the
move we are looking to trade has been confirmed and now is the time to enter. We expect
this to provide continuation in our direction via a continuation pattern (correction phase)
which in turn provides us a much safer type of entry. The main benefit to this style of entry
is that you enter positions after we have been confirmed and proven right by the market
leading to a higher strike rate overall, however the price to pay for this increased safety is
our reward will be slightly less due to a larger position size often above structure highs or
lows.
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Trade Management
Summary
At Falcon, we believe trade management is possibly the most important part of day to day
trading once a foundation skillset of analysing nature and structure has been built. This is
due to the fact that your management is what defines how much profit within a given trade
you are actually able to bank. We often find many traders have the ability to enter great
trades after a few months of learning however it is those who truly understand
management that achieve consistency and those who utilise management to its highest
effectiveness who achieve great returns.
We see that there are 2 crucial components to trade management: the first being protection
of our downside risk and the second being maximising our upside potential. But what does
this mean? What it translates to is our ability to remove risk from a trade as quickly as we
can and once we have done so focus on maximising the profit potential of what we actually
close the position out for. These two areas are critical to a traders’ success, both points
being something quite unique to Falcon Trading.
1. Downside Risk: the way we manage our downside risk is by removing risk from the
trade at the first possible chance, this is what we call the Break-Even Method
(moving stop to our entry point) and the Half-Risk Method (moving stop to -0.5%
risk). We do this for a multitude of reasons but the essence of it is to deal with the
emotional aspect of trading as well as taking a message from the market as if price
has moved around 1%/to the previous high/low and then retraces, this is likely a sign
that the market is evolving and we do not want to be in this position.
2. Upside Potential: the way we maximise our upside potential is by taking messages
from the market looking for signs of reversal that may form at key resistive areas, we
therefore would look to take action on the formation of these market signals to
secure profit via trailing/manually closing positions. We further maximise our upside
potential by utilising ‘scaling in’ which can often increase our percentage return by
almost double
By mismanaging positions: letting positions running at 2/3% profit retrace and take you out
for -1% full loss; not taking messages from the market as price dwindles around for days at
your entry point; not identifying reversal signs at potential reversal points and letting
corrections correct all the way back to take you out for break-even we find traders often
give a large amount of potential return back to the market, the same returns that could see
them being consistently profitable, all which can be avoided with the right trade
management principles.
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Once learning the key management principles to cover your downside and increase your
upside it is critical that upon entering each trade we have a management plan ready to
apply, having planned ahead of time this removes any emotional effects of making decisions
within the trade, increasing your objectivity in your actions, however it is just as important
to stay fluid with the market and adapt your actions as the market forms as price
movements and patterns can form which give you clear indication of management actions
thus always referring back to your management principles to make these decisions is key.
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The Break-Even Method & Half Risk Method:
There is a specific ideology behind why we use the B/E method and the Half-Risk Method
both psychological and pragmatic:
1. When we first start to trade these management methods primarily designed to cover
our downside risk acts as a tool to help us control our emotions and learn to manage
our emotions more effectively throughout our trading career
2. The Falcon Method is one of higher discretion thus it creates a higher calibre of
traders which we often describe as ‘enhanced’, the reason for this increased
discretion is due to the fact we rely solely on our ability to interpret and read market
structure and nature thus if the skillset has not yet been formed there is a higher risk
of potential losses, or a streak of losses. Therefore, effective downside management
allows one to learn the strategy live in the market learning from wins and losses and
the emotion of trading in a more manageable way. In essence, the management
methods offset the increased discretion.
3. We often find that the emotional effects of multiple full -1% losses have on all
traders both new and experienced is a lot higher than B/E trades and -0.5% losses
and so naturally these aid us in effective trading as due to lower emotional effect our
judgement will not be impaired when the next position arises after a loss.
4. The mathematical upside of the B/E method and Half-Risk method works in the
favour of the trader also, as multiple B/E trades or -0.5% losses are much easier to
offset over the period of a month’s returns compared to that of full -1% losses
5. We have found through our own testing of the strategy over a period of 8 years that
when positions impulse away from our entry points and then retrace back further
than our entry (into the negative) they over a large sample size will be more likely to
hit our stops for full -1% losses then go back in our favour and into profit, thus we
choose to eliminate the emotional and mathematical effect on a probability model
and utilise the management methods.
6. We have also found through our own testing that over a large enough sample size
the probability that a position that hovers around our entry point for days at a time
goes in our favour eventually is less than when it doesn’t, thus to eliminate the
anxiety and the potential loss we look to use the above management positions
(specifically Half-Risk Method)
7. The Falcon Method is very specific, looking for the exact point price will move
therefore once the trade moves in our favour there is no reason to leave risk on the
table as if we pull back the position has changed.
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8. As price moves in your favour, you have protected yourself early on and can focus
your efforts on maximising profits and capitalising on other trades.
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What is the Break-Even Method?
Break-Even Method: the movement of the stop loss to the entry point (break/even) when
price has impulsed away from the entry point.
Normal:
The Falcon Method is based upon anticipating the next impulsive move within the market,
therefore we look to target the large momentum moves, so as price impulses away from our
entry point we look to move our stop to our entry point, leaving our position at Break-Even.
Additional points to aid the above would be to find the right balance between moving your
stop to breakeven where price has moved 1% into profit, or reached the recent high/low
dependant on a long/short trade.
Adaption:
In some cases the break-even method is adapted to fit the scenario or set up better, for
example where we are taking impulsive reversal trades from structure highs/lows we look
to only move our stop to -0.5% risk where we would normally move to B/E until price has
moved heavily away from our entry, this is due to finding over a large sample size and
through backtesting that price often consolidates just enough to take you out for breakeven before dropping, thus we plan for this by only trailing to -0.5% on these specific trades
to deal with being taken out of trades prematurely.
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What is the Half-Risk Method (-0.5%):
Half Risk Method: the movement of the stop loss to -0.5% risk when price does not impulse
away from our entry point (correctively moving out – lack of momentum & progression from
the trade)
The Falcon Method is based upon anticipating the next impulsive move within the market,
therefore we look to target the large momentum moves, thus when this outcome does not
take place we can utilise this as the market giving us signs that the original structure being
traded may be evolving further and the entry point we entered at was not the exact point of
entry needed. Due to this we take precautions by trailing our stop loss to -0.5% risk.
Essentially, we are viewing a lack of momentum entering the market and so we want to take
precautions due to this, minimising our risk is our action in this instance.
Summary:
1. Price impulses away from our entry = B/E Method
2. Price does not impulse away from our entry (moves our correctively) = Half Risk
Method
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How do we lock in profit?
As price runs in your favour and the trade continues to work out, once we have eliminated
risk from the trade we then want to focus our attention on maximising profit potential.
We do this in three separate ways:
1. Analysing the price action of the move we are trading, looking for potential signs of
reversal that may be forming at points that may provide resistance, on anticipation
or confirmation of these we would look to take action to lock in our profit.
2. As price moves in your favour we will be anticipating corrections and other
structures forming along the way, once these structures form we can then look to
trail our stops behind them as price continues in our favour (we often find smaller
corrections in the shape of tight flag continuation patterns often form).
3. As price moves in your favour as we will be anticipating corrections and other
structures forming along the way, we however often find that large corrections may
form, some of which may correct all the way back to our entry point, turning a 4-5%
trade back to a B/E trade, and as such we look to lock in our profit at a point where
we feel if price breaks this area we are likely to reverse all the way back to our entry
point.
4. Additional – ‘90% Rule’ the 90% rule states that 90% of the time an impulsive move
should reach the start of the correction of the pattern of which you are trading, thus
we can place a ray line at this point and watch the nature of price action as we
approach this area, if reversal forms we look to take action, if not then we allow the
trade to continue playing out, locking in profit.
As your skill set as a trader increases your ability to understand the way the market moves
utilising the principles of the market will allow you to take messages from the market
knowing when to close positions down both to minimise risk and to maximise potential
allowing the trader to mould the strategy to best fit their personality, however the above
can be considered a general guide.
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Scaling In
What is it?
Disclaimer:
Scaling in is on the far end of advanced trading and must be treated with care, although it
often allows an advanced trader who understands nature and structure to a high degree to
double or triple the returns on trade may make them if they only had their initial position, it
can just as easily lead to letting great positions end in closing out for break-even, allowing a
3-5% running position to be taken out for break-even is not something that should be
happening with correct management principles as well as understanding the nature of the
market. Therefore, we offer a word of caution to traders who are new to the Falcon Method
and instead recommend once the skillset of analysing the market correctly, ability to
forecast the market correctly and you have some experience with winning trades, that only
then you start to delve into scaling into positions. What the best traders understand is
scaling into a position that was incorrectly analysed will not lead to higher returns, it is only
through scaling into great positions, analysed correctly in accordance with market structure
and nature that will increase returns, and so the focus should be placed on correct use of
the Falcon Method and using scaling in as the final tweak to ‘boost’ returns.
How to Scale-In:
Scaling in is adding a second or possibly a third position to a running trade, all while keeping
the risk at MAX -1% we do this by entering an initial position, and then adding a position on
the next continuation correction that forms in our given trade direction. However, we
cannot add a second position until our first position has been moved to break-even as that
would lead to an overall higher than 1% risk on the trade overall.
Initial Position: break-even
Scaling in Position: 1% risk
Overall Trade Risk: 1% Risk
As the scale in position then impulses away from its entry we employ the break-even
method as usual and then we repeat the scale in process as we continue to add positions to
our trade as further continuations form.
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Further Notes:
1. We have found entering our initial position early into the trade, followed by 1-2 scale
ins fairly early after our initial position tend to work out better than entering
additional positions half way through the impulsive move of the trade, this is due to
finding that we often form large 4H continuation patterns half way through the
impulsive move which therefore are more likely to hit our scale in stops, so entering
our positions early on has the highest probability of success.
2. If price were to move a distance away from our initial entry (+3%) before presenting
our scale in we would look to lock in profit by trailing our initial position stop down
to the new stop area (of the scale in) this would mean we would move our stop to
+3% profit for the initial position locking in +3% profit and then risk 1% to enter the
scale in position, meaning if the after the scale in price were to go against us and hit
our stops (all at the same area) we would be taken out for an overall +2% Profit on
the trade as a whole
Initial Position: +3% Profit
Scale In Position: -1% Loss
Overall Trade Outcome: (+3% Profit - 1% Risk = +2% Overall Profit)
3. The only instance in which all our stops would not be placed at the same point is if
we had a long term bias on a trade in which we would like to give the position
further room to breathe but still enter scale ins, in which case the example would go
as follows: Initial Position is sitting at +3% Profit, Scale in position has a -1% risk
placed, however in this case we do not lock in all +3% of the initial position profit
(placing our initial position stop at the same place as the scale in stop) we instead
only lock in +2% profit and leave the buffer room of 1% for price to retrace further
before taking us out of the position. In this example if price were to then retrace
taking the scale in position out for -1% we would still have the initial position
running. With a locked in profit of +2% - 1% Loss leading to an overall profit of +1%
total for the trade (so far – as the initial position is still open if price continued in our
favour further % returns would amount)
Initial Position: +2% Profit
Scale in Position: -1% Risk
Overall Trade Outcome: (+2% Profit - 1% Loss = +1% Profit)
Additional: Initial Position still open and running live
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Why Scale-In to a Position?
The power of scaling into great positions is enormous in the fact that you have the ability to
maximise your potential returns far beyond often thought possible, the best way to
illustrate this is via an example:
If you took a short position on AUD/USD and banked 5% on the initial position, there may
have been 2 further opportunities of textbook continuation corrections (tight bull/bear
flags) to scale into the position, in total these positions along with the initial position could
lead to your overall returns being in excess of 10% on the single trade, over the course of
months and years this can compound out to have huge effects, the Falcon Method allows us
to continually capitalise on trades that workout in our favour, and minimise the effects of
trades that do not.
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When Would You Scale In?
As you can see above, the initial entry was triggered in short on the break of the correction
with a risk entry. Once price had moved down, the position was bullet-proofed by moving
the stop/loss to the entry price (B/E Method), as price then formed a correction in the shape
of a continuation pattern (bear flag) we looked for the short scale in opportunity. When
price eventually broke and closed below the overall pattern our order entry/1H entry was
executed/triggered and so we were entered into the scale in, as price then impulsed away
from the scale-in position the stop losses were moved to the new break-even position of the
scale in (B/E Method) with all the stops now trailed down to the entry price of the scale in
As you can see price then made its way down to outer-structure & just past the 90%
probability point (pattern low) where it then formed a reversal pattern and impulsed to the
upside.
Initial Position = +6.33%
Scale in Position = +7.76%
Total Trade P/L = +14.09%
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Backtesting
What is Backtesting?
Backtesting is an extremely important part of trading as it allows you to become familiar
with the behavioural characteristics of each individual pair by analysing the strategies
performance on the historical data of any given currency pairs. This allows you to see your
edge playing out over time and brings you confidence in the strategy, both on a conscious
level, but more importantly, subconsciously.
What we mean by this is that when executing trades on any given pair you are able to
flawlessly and effectively place the trade without hesitation, taking emotion out of the
picture. We recommend creating a profile on each pair and its individual characteristics to
inhabit the ability to understand the personality.
For more information on how to back test, please see our backtesting feature topic which is
available on your dashboard.
Example Currency Profile (EUR/JPY)
Summary
The data in this document was taken over a course of six-years using the Falcon Trading
Guidance strategy, which I have refined over a four-year period. I have broken down and
backtested the EUR/JPY currency pair for my own reference, which is intended to improve
my overall trading performance and allow me to identify the currency pairs which provide
the highest reliability when trading with my strategy.
It is entirely acceptable to go into more depth when calculating such statistics such as bull
flags versus bear flags, descending channels versus ascending channels and rising wedges
versus falling wedges for example. This depends entirely on what data you would find
beneficial for your research and development as a trader.
The other point to highlight would be identifying which types of trades you are more
comfortable taking, which suits your personality as a trader. It is important to create an
approach to trading which is personalized to you and does not copy that of another trader
who may, for example, prefer risk entries to your preference of reduced risk entries.
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In this document, I have covered the following:








Trades Taken
Strike Rate
Trades Won
Trades Lost
Continuation Patterns Versus Reversal Patterns
Bull Flags Versus Bear Flags
Ascending Channel Versus Descending Channel
Reduced Risk Entry Versus Risk Entry
The approach you decide to take with trading should be tailored by the statistics which
you find when analysing your performance and backtesting currency pairs.
EUR/JPY Breakdown
Here is my EUR/JPY breakdown with the statistics taken over the course of six years and
one-hundred trades. As you can see out of those one-hundred trades, seventy-three were
continuation patterns and twenty-seven were reversal patterns. The strike rate in total was
eighty-one percent, with eighty-one winning trades and nineteen losing trades.
The trades I backtested on this pair have an average risk to reward of 3:1 with an average
size of 50 pips. The main trades which banked over a 3:1 ratio were entered with a tighter
flag continuation pattern after the break of a bigger structure, this either being a bigger
continuation or reversal.
EUR/JPY Statistics
Trades Taken: 100
Strike Rate: 81%
Trades Won: 81
Trades Lost: 19
Continuation Patterns:
73
Bull Flags: 43
Reversal Patterns: 27
Ascending Channel: 18
Descending Channel: 9
Reduced Risk Entry: 84
Risk Entry: 16
Bear Flags: 30
This data gives me a clear indication of the edge that plays out over time with this strategy.
It is clear to see that continuation patterns occur far more often than reversal patterns on
this pair, which gives me confidence when executing my strategy and trading continuation
patterns as the data shows me the reliability of this currency pair.
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Moreover, I have found that after analysing this data it shows nineteen losses on this pair
which, statistically, is one of my strongest pairs in comparison to others.
This allows me to build a list of stronger pairs versus weaker pairs which is personalized to
my own findings and trading style.
Conclusion
All in all, this pair generally likes to correct deeper before finally committing to the trade. So,
when taking EUR/JPY on any continuation patterns or reversals I’m always looking to move
my stop to BE at the first possible and logical opportunity.
This ensures that this style and strategy is working in congruence with the behaviour of this
currency pair. This is where I truly find my edge as I am in tune with the characteristics and
personality of EUR/JPY.
Moving forward, it is my intention to use this data to compare with other currency pair
statistics and behaviour observations which will allow me to identify my strongest and
weakest pair. This allows me to concentrate on my more stronger pairs and thus increase
my overall performance and percentage gains over time.
I encourage you all to backtest as much as possible and as mentioned above, you may go
into depth as much as you find necessary and beneficial to your performance. It is important
to bear in mind that the end goal is to firstly prove to yourself that the strategy works and
provides an edge over time which allows you to build your confidence when taking positions
and executing them flawlessly.
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Daily Goals
Why Set Daily Goals?
Identifying your core values is single handedly one of the most important things you can do
because the biggest frustration is working on goals that you think you should be achieving
that are not in alignment with your core values.
If you come to a hurdle with your goal and give up on it easily you’ll find yourself saying “why
can’t I follow things through?” or “that goal was just too hard for me and I need to set more
REALISTIC targets”. This is normally to make yourself feel better and justify why you haven’t
achieved the goal when in fact the reason you have not achieved the goal is because it is not
in alignment with your core values. We all know what realistic thinking will get you… realistic
results and that’s not what we want - You can read this in more detail in my smart goals
section.
Exercise 1
Write down 5 goals to achieve every day. Start by putting the date at the top, followed by
your signature and your signature again at the bottom right corner of the page.
The reason behind this is because when you sign a document, there is the feeling of an
obligation to fulfil what you have signed. This will have the same impression on you when you
sign your daily goals as you will feel committed.
5 small goals could be as follows:
•
•
•
•
•
go to the gym - push and pull workout
1 hour of reading/audio book
30 minutes road running
1 hour writing out your goals
mediate for 10 minutes using the headspace app
Tick these goals off as you go by and watch the magic happen. When you become accustomed
to ticking off these small goals, your mind starts to think: ‘if I can achieve these what else can
I achieve?”
I like to call this process the conditioning process. You are getting your mind ready for
achieving bigger goals, essentially building the foundations in your mind ready to tackle the
big goals! Once you get used to it with the small goals, the bigger goals seem much easier!
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Exercise 2
Write down your daily goals and list your daily values. Align them with your goals. This
exercise is designed to help you break through what is holding you back and put you in
alignment with your goals.
Exercise 3
Affirmations and signature. After you have listed your goals and values and aligned them with
each other, write out affirmations that are going to strive you to achieve your goals and that
are in line with your core values.
I call this the 555 rule. Your mental 5-a-day. Nutrition for the mind.
Signature - It is important to sign the page each and every day when doing your
daily goals, in the same way you would when you are writing out your longerterm goals in full as mentioned previously. This ensures you feel committed.
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Exercise sheet:
GOALS, VALUES AND AFFIRMATIONS
Date:__________
Daily Goals
1.______________________________________________________
2.______________________________________________________
3.______________________________________________________
4.______________________________________________________
5.______________________________________________________
Daily Values
1.______________________________
2.______________________________
3.______________________________
4.______________________________
5.______________________________
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Affirmations
Affirmation 1:
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
Affirmation 2:
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
Affirmation 3:
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
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Affirmation 4:
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
______________________________________________________
Affirmation 5:
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
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Bonus Exercise:
To ensure your goals are really aligned with your values, you can use this sheet to do so.
Daily Goals
1.______________________________________________________
2.______________________________________________________
3.______________________________________________________
4.______________________________________________________
5.______________________________________________________
Daily Values
1.______________________________
2.______________________________
3.______________________________
4.______________________________
5.______________________________
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Outro
What to do now?
Once you have read through this document a first time it is likely you will need to re-read
through and study it to understand each of the areas outlined. By doing so you will create a
solid foundation to build upon further as you embark on the path of building your personal
skillset within the market. Each of the areas touched upon within this handbook act as a
starter foundation and glimpse into the underlying workings of the Falcon Method, however
it could never compare to countless real-life examples in video format. This is why once the
handbook has been completed and assimilated we highly recommend you now start to
study the webinars.
On the next page is a list of some of the main content to work your way through that will
only fast track your progression. The Falcon Foundation series lies the foundation for your
journey within Falcon and as a trader. Our mission is to continue to create content that
helps show as many people as possible the path to consistency – our focus is always on
creating new content that covers all aspects of life. Within the webinar content, you will
also see countless examples of trades forecasted, analysed, planned for and then executed
and managed all in real time providing you with real life experience of how the Falcon
Method functions and plays out. Our continuous focus on creating new ways of helping our
students break through barriers ensures this community thrives moving forwards.
As you attend each weekly webinar where we break down the market you will be able to
ask individual questions and have them answered in real time by our Head Trader. You will
be able to request specific pair breakdowns and often ask further questions within Q&A
sessions at the end of webinars. As you work your way through the video content library
you will see your ability to analyse, forecast and trade the market grow exponentially given
the right amount of time and effort applied to learning.
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Top 10 Recommended Webinars:
1. 12th February – Market Structure Principles
2. 19th February – Top Down Analysis & Evolving Patterns
3. 26th February – Evolving Trend Lines & Gaining Sentiment
4. 28th May – Breakeven Method & Corrections
5. 23rd July – Understanding Nature using HTF/LTFs Together
6. 27th August – Drawing & Identifying Structure Using Nature Theory
7. 17th September – Stop Placement & Trade Management
8. 22nd October – Taking a Message from The Market to Fully Capitalise
9. 12th November – Short Term Positions
10. 19th November – What an “Edge” Truly Means (Plus Bonus Management Mini Lesson)
Falcon Quick Tips Season 1:
The Falcon Quick Tips series is designed to build on everything covered in this handbook
offering tips and tricks to take your trading to the next level. Season 1 goes in depth into key
bits of information that are going to take your ability to analyse and forecast positions
within the markets.
Episode 1: Nature
Episode 2: Patterns within Patterns
Episode 3: Multi-Touch Confirmation
Episode 4: Candlesticks & the Override
Episode 5: Phase Identification
Episode 6: Forecasting
Episode 7: Watchlists and the 3-Step Process
Active in the Community:
Hands down the best investment you can make into your trading journey is to connect with
as many like minded people as possible. Smash limiting beliefs through life changing
conversations from those further along in their journey. Give back, hop on Skype calls,
communicate in the Slack group – Falcon is a movement, a culture, and a community that is
going to thrive for years to come and you are now an integral part of the movement.
We hope that you have taken, and continue to take, great value from this handbook. If you
have any questions please feel free to get in contact with us.
-The Falcon Team
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