Forex Facts

I am a wanabe Forex trader and I came across a thread in one of the Forex Trading forums that I joined in. This one is so helpful to me. and have learned a lot of stuffs from the expert traders.
Hope you'll find it useful too...

Here's the thread....

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Caution to new traders:

1. Beware of anyone who claims consistent wins without any losses. This is impossible, and not reality.
2. Beware of brokerages that offer outrageous leverage such as 1000:1. I have actually seen this before in the web with a brokerage in Sweden.
3. And especially beware of anyone promising you 100% guaranteed wins by purchasing their trading software. If that were true...countries would be literally fighting for this imagenary magic trading box.

The reality of trading is that you are going to lose trades no matter what, and it's best to grasp this reality now, and not learn a hard costly lesson down the road.

Absolutely trade with money you can afford to lose.

You should never, ever trade with borrowed money. I have read a few posts in here with clowns trading with money they got from cash advances from credit cards or loans of all sorts. I don't think Citibank will be happy that you are trading/losing their money.

Please remember that no matter how much effort or study you commit to forex, there is no guarantee you will make a living out of this. In fact the odds are overwhelmingly against you. A wall street study www.wsj.com on the profitability of spot forex traders basically came down to this: 95% of all forex traders in the study who started with $50,000
or less lost all of their capital in less than a year. "Thats right, all of it." The study suggested that you have better odds getting hit by lighting a thousand times in one year than making a small pot of say five grand turn into a fortune.

Thats why this is a serious game, and should only be played by someone with cash that can be lost & not detroy you financially.

Spot forex like futures is a zero-sum game..that is for every winner there is a loser. That means for a trader with dilusions of striking it rich must successfully trade & take someone elses money to make money!!! I sure as hell am not going to give it to you...and the market makers won't. And probably none of the guys in this site either.

Fiction is a very popular product. After all, thats why the movie industry is so successful. "Fantasy sells."

P.S. Reality in perspective= Sometimes even the so-called experienced expert traders get blown out of the water, " Hint hint...Long Term Capital Management."

Stay safe and happy trading.

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I absolutely agree with initialsBB. This brochure is undoubtedly very helpful especially for the newcomers but there is another side of the Forex market unlike it is described in it. And Forex is not more risky then any other businesses. It depends just on your skills. Having your own business you can easily lose everything you have. 80% of businesses fall into decay during their first years. That's statistics.

Step One: Unconscious Incompetence.

This is the first step you take when starting to look into trading. you know that its a good way of making money cos you've heard so many things about it and heard of so many millionaires.Unfortunately, just like when you first desire to drive a car you think it will be easy - after all, how hard can it be?? - price either moves up or down - what's the big secret to that then - lets get cracking!

unfortunately, just as when you first take your place in front of a steering wheel you find very quickly that you haven't got the first clue about what you're trying to do. you take lots of trades and lots of risks. when you enter a trade it turns against you so you reverse and it turns again .. and again, and again.

you try to turn around your losses by doubling up every time you trade - sometimes you'll get away with it but more often than not you will come away scathed and bruised

Well this is stage one - you are totally oblivious to your incompetence at trading.Stage one can last for a week or two of trading but the market is usually swift and you move onto stage two.

Stage Two - Conscious Incompetence

Stage two is where you realise that there is more work involved in this and that you might actually have to work a few things out.

you consciously realise that you are an incompetent trader - you don't have the skills or the insight to turn a regular profit.

During this phase you will buy systems and e-books galore, read websites based everywhere from Russia to the Ukraine. and begin your search for the holy grail.

During this time you will be a system whore - you will flick from method to method day by day and week by week never sticking with one long enough to actually see if it does work. every time you came upon a new indicator you'll be ecstatic that this is the one that will make all the difference.

you will test out automated systems on Meta-trader, you'll play with moving averages, Fibonacci lines, support & resistance, Pivots, Fractals, Divergence, DMI, ADX, and a hundred other things all in the vein hope that your 'magic system' starts today.

you'll be a top and bottom picker, trying to find the exact point of reversal with your indicators and you'll find yourself chasing losing trades and even adding to them cos you are so sure you are right.

You'll go into the live chat room and see other traders making pips and you want to know why it's not you - you'll ask a million questions, some of which are so dumb that looking back you feel a bit silly. You'll then reach the point where you think all the ones who are calling pips after pips are liars - they cant be making that amount cos you've studied and you don't make that, you know as much as they do and they must be lying. but they're in there day after day and their account just grows whilst yours falls.

You will be like a teenager - the traders that make money will freely give you advice but you're stubborn and think that you know best - you take no notice and over leverage your account even though everyone says you are mad to - but you know better.

you'll consider following the calls that others make but even then it wont work so you try paying for signals from someone else - they don't work for you either.

This phase can last ages and ages - in fact in reality it can last well over a year - My own period lasted about 18 months.

Eventually you do begin to come out of this phase. You've probably committed more time and money than you ever thought you would, lost 2 or 3 loaded accounts and all but given up maybe 3 or 4 times.

Then comes stage 3

Stage 3 - The Eureka Moment

Towards the end of stage two you begin to realise that it's not the system that is making the difference.

you realise that its actually possible to make money with a simple moving average and nothing else IF you can get your head and money management right

You start to read books on the psychology of trading and identify with the characters portrayed in those books.

Finally comes the eureka moment.

The eureka moment causes a new connection to be made in your brain.

you suddenly realise that neither you, nor anyone else can accurately predict what the market will do in the next ten seconds, never mind the next 20 mins.

You start to work just one system that you mould to your own way of trading, you're starting to get happy and you define your risk threshold.

You start to take every trade that your 'edge' shows has a good probability of winning with.

when the trade turns bad you don't get angry or even because you know in your head that as you couldn't possibly predict it it isn't your fault - as soon as you realise that the trade is bad you close it . The next trade will have higher odds of success cos you know your simple system works.

You have realised in an instant that the trading game is about one thing - consistency of your 'edge' and your discipline to take all the trades no matter what.

You learn about proper money management and leverage - risk of account etc etc - and this time it actually soaks in and you think back to those who advised the same thing a year ago with a smile

you weren't ready then, but you are now.

The eureka moment came the moment that you truly accepted that you cannot predict the market.

Then comes stage four

Stage 4 - Conscious Competence

Ok, now you are making trades whenever your system tells you to.

you take losses just as easily as you take wins

you now let your winners run to their conclusion fully accepting the risk and knowing that your system makes more money than it loses and when you're on a loser you close it swiftly with little pain to your account

You are now at a point where you break even most of the time - day in day out, you will have weeks where you make 100 pips and weeks where you lose 100 pips - generally you are breaking even and not losing money.

you are now conscious of the fact that you are making calls that are generally good and you are getting respect from other traders as you chat the day away.

You still have to work at it and think about your trades but as this continues you begin to make more money than you lose consistently.

you'll start the day on a 20 pip win, take a 35 pip loss and have no feelings that you've given those pips back because you know that it will come back again.

you will now begin to make consistent pips week in and week out 25 pips one week, 50 the next and so on.

this lasts about 6 months

then comes Stage Five

Stage Five - Unconscious Competence

Now were cooking - just like driving a car, every day you get in your seat and trade - you do everything now on an unconscious level.

you are running on autopilot. You start to pick the really big trades and getting 100 pips in a day is becoming quite normal to you.

This is trading utopia - you have mastered your emotions and you are now a trader with a rapidly growing account.

you're a star in the trading chat room and people listen to what you say. you recognise yourself in their questions from about two years ago.

you pass on your advice but you know most of it is futile cos they're teenagers - some of them will get to where you are - some will do it fast and others will be slower - literally dozens and dozens will never get past stage two but a few will.

Trading is no longer exciting - in fact it's probably boring you to bits - like everything in life when you get good at it or do it for your job - it gets boring - you're doing your job and that's that.

You can now say with your head held high "I'm a currency trader"

I hope you've enjoyed this text and can recognise yourself in some stage or another - personally I'm at stage four now and am constantly making good amounts of pips - I've been trading in total for about 3 years and the first two were hell on earth.

for those of you reading this who stick with it, ill look forward to the banter we have together in the future when we are both bored to death during the trading day

Soultrader.

I opened my demo account on Jan 7, started trading on Jan 13 and quickly learned that I had no clue what I was doing.

I've been looking since then for info that will help me learn what do to - I mean the basics of what are pivot points and how are they used? How do I really read the bol lines? where are my moving averages? How do I use those to determine my exit points? So many questions that I need answers to - but the easiest way for me to learn is by hands on doing. Thank goodness for demo accounts.

But I've done exactly what you outlined in your post - 1, 2, and I've made it to 3 - now it's time to document what my plan really is - how will I trade in the beginning, what do I expect over the next xx week? what are the goals? are they reasonable? How do I manage my money? what is my risk level? (low, lower, lowest!).

I just told myself today - 1) discipline - gotta have that in order to leave the trade alone long enough for it to go with the trend (trade the trend!) - 2) money management - as I said before, since it's not cash, I didn't worry too much in the beginning about managing the money - now it's time to turn that around and manage the money before placing the trade 3) know my risk level (low, low, low right now) 4) document the plan! I haven't done that yet, but in order to be a success, I've got to have that document.

I still want to read everything I can get my hands on, just for different perspectives, but more for listening to those who know who can guide me - knowing they can't make the decisions.

And I realize it's not an overnight, get rich quick ticket. I've been told I can treat it like a hobby, but not to depend on trading as a way to make a living - but that's my goal. If I have to start with a mini account (which I will since I don't have the capital to fund a regular account), so be it -- as long as my pip gain is reasonable, it won't take long to open the regular account.

Thanks again for the post!

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There is a concept in learning called scaffolding. It functions just like the actual scaffolds used in construction. You can read lots of things about trading in a relatively short period of time, but you won't learn them when you read them. You may think that because you can remember them that you have learned them. Not true. I've seen it in language learning over and over again. Something you read today won't be of any use to you until you have a better foundation under it. It may be two years from now, but you'll say, "aha", now I understand what that means. So, you need to put the pieces in place, one by one. Each piece needs to be securely in place, or in actuality, truly learned and assimilated. This takes a long time.

In trading there are two components. The first is the technical side. It's probably the easiest of the two, but it takes a lot of practice and that practice takes time. It can be indefinitely prolonged by jumping from system to system. The best thing to do is to learn one system (or a set of systems emanating from the same basic principles of a larger system) thoroughly. However, just getting to the point where one realizes the necessity of this takes time.

The second component is the learning about yourself. There is no guarantee that this will ever be learned. I suspect a lot of folks go broke before they do so. It takes a long time to come to grips with how one really thinks, what one believes and values, and how they act upon those things. It's a grueling process with many detours and delays.

Putting the two together takes much longer than one can imagine. Now, I'd venture to say that the vast majority of people who try trading think that they are above average. They've had success in their life doing other things they deem to have been difficult. They figure they can just apply those qualities that brought them success in the past onto trading. It's just not that simple.

For starters, half the people in the world are below average. Yet, if you were to poll a thousand people at random, how many people would rate themselves as such? Now this is not a knock at those people. It's simply to point out the mind games we play with ourselves. Humans tend to delude themselves regularly. I'm the first to agree that there are benefits to doing so. But that same type of thinking doesn't work in trading.

There are very few professions in the world that require one to strive for self-actualization in order to achieve success in said profession. Trading is certainly one of them.

I'm also sure that many of us here have believed that we also could jump ahead of the learning curve. I'm certainly guilty of that. Yet, I've found that it's taking longer than I anticipated, but not longer than what everyone who has done it has said it would take.

Now, this is not to say that you won't be a trading wunderkind. It just very well may happen. But seeing as trading is all about probabilities, I'd say the probability of you beating the learning curve is not a bet I would want to take.

Finally, think of it this way. If you do succeed at trading and it does take you 4-7 years, so what? Any thing worth doing takes time. I spent 10 years going to college to get the job I wanted. Think of any profession you want and point out how many of them can be learned in 1 or 2 years. Once I finished my education it took me years to work up the position I wanted, just like any profession requires. But, just like my profession now, I can do it for the rest of my life. The same is true for trading. If you succeed at it, it's yours for the rest of your life. You'll be able to make a living at it for 20-30 years. But you're going to have do it the old-fashioned way....earn it. That takes time.

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I think you are right. To say that everyone needs three years to get to stages 3 and 4 is nonesense. There are typical mistakes that we are told that all beginners make.

1- Not cutting losses short. I have never had any probelms, right from the beginning, to cut my losses short. I have always had a short fuse for trades that go wrong. I always, without fail, bailed out of losing trades and still do.

2- Letting your profits run. This I found more difficult but not serious enough to stop me from making profits. See 3 below as this relates to having enough trading capital.

3- Not sticking to a system. I had problems with this but fixed them quickly by getting better capitalised. I didn't take all the trades that my signals told me to take because I was afraid of losing. So I got more money from family and sold my expensive car, and the courage came with the money. That was the end of that problem.

My point is that, how long it will take you to become a good trader depends entirely on what kind of personality you have as well as your personal circumstances when you start out. I started trading just over 18 months ago, and I find trading pretty boring and routine by and large. This ain't rocket science. Just understand that it is an odds game and provided you find a way of putting the odds in your favour and realise that you know nothing, then trading fx is a deal.

also bear in mind that the more and more sophisticated your trading will be the more you will have to deal with, and will be aware of, that markets are not a representative image of what the economy should be but more a true reflection of what society is -- meaning a corrupted version of our soul.

real well-intented traders can go a long way but surely not in big institutions, or they quit after a while!

the markets mirror our behavior as a whole, that s why, and where i am parting from bobnat, technical analysis is lagging and will not lead you towards success -- and day trading is a zero sum game if you don t have the chance to be into this network of institutions...only perveted soul make enough dough at daytrading...so i would advise you to trade considering Macro analysis and long term positioning, of course daytrading is always usefull ! but the way to use it has to come after you have been around.

I agree (obviously) that personality has a big effect on learning curve.

My girlfriend asked me: "If that [my refined system] is all you need to do, why doesnt everyone do it?". I replied: "How many people in Melbourne [or whereever you are] come home from work every night and program and test strategies, and read and read and read the old trading masters (like Justin Mamis), night after night, month after month, and refine and execute their trading system(s), because they love it so?". I would say maybe less than 1 in 10,000 do that almost every night, for years.

Stage two seems to take forever doesnt it

The only advice i can tell anyone about stage two is to trade small.

My stage two cost me about £3000 - and that was on 10 pence a pip!

I found that my time trading demo was next to useless and in no way prepared me for trading so although demo trading is good for system testing its no use at all in training you to trade.

Open an oanda account with a small amount of capital, say $500 and trade at 5:1 maximum and pref lower until you show consistant profit - dont watch the money, watch the pips. Pips will take care of the money.

You'll be in stage two for ages and ages most likely, there are no shortcuts and no replacement for time.

One day stage 3 will happen - and it really does happen in just one day but you may not recognise it for a week.

Paper money is one thing i did not do for long as it was excluding a crucial behavioral response that makes the difference between lasting and flaming traders -- you know what i am talking about --

System trading without this extra "feature" can turn bad once you stop paper trading.

I know for sure that when one gets out of technicals for a bit, or at least gives it a little less weight in the trading process, one can reduce the risk in a significant manner and take better decision. Technicals in the short term window have the bad habits to keep us away from the market reality IMO. as soon as i realized this and took a wider vision, it allowed me to "see" the pond with the fretting little fishes, agitating themselves with their systems...and below them you could see that slow-moving shadow....

But for sure, what ever you do, be it Tech or else :
-start small and stick to your plan. experience comes with steadiness.
-don t read too much
-follow every tick and analyse it
-place this analysis in a wider window (wk, mth, year)
-learn history and macro

trading on demo does not cost you anything - and no matter what you do to convince yourself your mind knows the difference and acts accordingly.

only a real money account, no matter how small, will give you a true feeling of your abilities.

Demo ac is fine for testing strats - but you could well find that a strat that works for you on demo doesnt work in real money and the only reason for that is your head

hope this helps

our edge is merely some TA or other method that increase the odds of a favorable outcome at the entry of a trade.

all down to probabilities

Mine is TA based as are most (there are others tho)

most novice traders problem is not 'edge' based but having the conviction to actually play the edge for good or bad without the associated fears and knowing that over a number of trades the results will be favorable.

Even the simplest systems can make money if the trader is committed to it - trouble is that most are not.

Soooo true Soultrader.

I was proud of all my backtesting and analysis, and pride comes before the fall. I made 12% in a week (on stocks), then lost it the next week as I was too uncertain (scared) to follow my system, when I didnt know if I would keep making money. A profitable system after commissions IS hard to find, and I dont believe people who say it isn't (all my testing has proved that out), but when you find one you are only half way there. Then the 'balls' and psych comes in.

Yeah - that works, but its not the answer. Once your account gets large, 2.2% bets (which are optimal for my strategy (Monte Carlo tested)) even that or even 1.5% gets scary as the cash in absolute terms is getting large. I risk $700 per trade, which is scary - though if I cut size I'll never get anywhere. If I do 1% risk trades I cant make more than about 20-30% per year. If I do 2.1% I can make 100% a year (compounds so not linear) with 20% drawdown.

greed greed greed

sorry mate - but 30% a year is as good as any fund out there

as for monte carlo tested - well, we all know who are the rich folk there and it aint the punters

it will kill you in the end mate - your choice

im guessing i stake about the same amount as you (guessing cos i dont know how large your stop risk is) but i only use leverage of 5:1 and only 2.5:1 at the riskiest part of the trade (the beginning) - that equates to around 0.7% of capital risked per trade based on my stop levels

It does get uncomfortable if you have large jumps in the amount you stake - for example if you are buying 300k one week and next week its 400k thats a massive jump in terms of your psychology - stage the changes and dont increase till your brain tells you its happy to

slow growth is the key to successful trading in my book.

dont even look at the balance when trading, just the pips. Cover that part of your monitor with the chat room or even black tape lol

regardless of the edge, you and your discipline are the key to consistency in trading .

i agree finding your trading niche does take time,as i learnt in trading stocks.
however i also think its imperitive that we do our home work
for me my mistakes were as a result of failing to do my home work.
i just like to ask you what were your mistakes.?

hats a big question my friend.

and heres a list

* Underestimating the power of trends in forex
* overtrading
* over leverage
* top and bottom picking
* lack of discipline
* not having a thought out plan
* revenge trading
* listening to others too much
* reading too much rubbish
* lack of patience
* being a system wh**e
* trading too many pairs
* thinking this would be easy (although eventually proved right )

and im sure there are many others that ive forgotten and are now a part of my unconcious processes

Thanks for sharing. I think I am still in the STEP ZERO -- I need to know more about the system then would know how can I start.

"Reminiscences of Stock Operator" by Lefevre has the most important rules of trading. It is just amazing how a book that is 82 years old is still actual. I guess the old saying that "markets never change and people never change" is true.

Absolutley!

I have read it several times.Its a must read.

Here is some excerpt from the book
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"The desire for constant action irrespective
of underlying conditions is responsible for many losses in Wall
Street even among the professionals, who feel that they must
take home some money every day, as though they were working for
regular wages."

"They say you never grow poor
taking profits. No, you don't. But neither do you grow rich
taking a four-point profit in a bull market."

"Men who can both be right and sit tight are uncommon. I found it one
of the hardestthings to learn. But it is only after a stock operator has
firmly grasped this that he can make big money. It is literally
true that millions come easier to a trader after he knows how to
trade than hundreds did in the days of his ignorance."

"I can give this rule: In a narrow market,
when prices are not getting anywhere to speak of but move within
a narrow range, there is no sense in trying to anticipate what
the next big movement is going to be up or down. The thing to do
is to watch the market, read the tape (chart) to determine the limits
of the get-nowhere prices, and make up your mind that you will not
take an interest until the price breaks through the limit in
either direction. A speculator must concern himself with making
money out of the market and not with insisting that the tape
must agree with him. Never argue with it or ask it for reasons
or explanations. Stock-market post-mortems don't pay dividends."

"In addition to trying
to determine how to make money one must also try to keep from
losing money. It is almost as important to know what not to do
as to know what should be done."

"I have said many times and cannot say it too often that the
experience of years as a stock operator has convinced me that no
man can consistently and continuously beat the stock market
though he may make money in individual stocks on certain
occasions. No matter how experienced a trader is the possibility
of his making losing plays is always present because speculation
cannot be made 100 per cent safe."

have blown up 5 Demo trading accounts in 5 months!Each with $ 25000.00 . Thanks to God this wasn't real money.For sure i would be up there with him if it was! And after reading whats posted up here,i think i am still at stage zero.It'll take me more than 3 years to get there for sure.

There's no way to predict right? Yet i have to make up a system to be able to do so correctly most of the time? I just cant understand this.

Never mind as long as it's not real money ,i'll keep on trying and see if it makes sense somewhere.

By the way i read about three competitions where guys multiplied their money 400 to 500% in a month.Two of the three winners were from China and the third was from Poland.Got me thinking ,why no one i can come across in
inthese here parts wins in such a fantastic manner?

Any way as i say to my self when i am on this Demo of mine,Sweet Dreams do no harm.

Quote:
Originally Posted by taxmem
Yet i have to make up a system to be able to do so correctly most of the time?
No.

Would you like to come up with a system that is correct 30% of the time and wrong 70% of the time?

How about if each time it's wrong (70 times out of 100 trades) you lose 20 pips including dealing costs and each time it's right (30 times out of 100 trades) you win 70 pips net of dealing costs? That would mean that out of 100 trades, you would win 2100 pips and lose 1400 pips. Net profit 700 pips = 7 pips per trade. Do you see what I mean?

I'm not suggesting that that's the sort of system you _should_ be looking for, and in fact that sort of system might have some other problems (like making sure your money management can cope with the _really_ long losing run you'd definitely have at some point!), but it's just an example which helps to show that it's possible to get "direction" wrong more often than right and still make a living if you cut losers short and let profits run.

Not true. You need a system that works, whatever the reason!

Quite true ,the trend is your friend;repeated to me a thousand times by many.So the basis of making a system is there?Yet it proved no friend of mine.
Maybe my impatience is my worst friend?

hat would mean that out of 100 trades, you would win 2100 pips and lose 1400 pips. Net profit 700 pips = 7 pips per trade. Do you see what I mean?

Guess all three of us are right.1.There is no way to predict. 2.Never the less the trend is always right.3.Of course it can turn on me if i over ride it.4.I should maximize my wins and cut my losses that way i'll be a winner even if the trend is mostly against me.

Fine i'll try only that and try and forget the rest of the TA theories for the time being.Wish me luck.

The succesful trader, the ones that are making consistantly are the ones that have discovered the "Holy Grail". Trouble is 95% spend their time looking for it in the wrong place. Thankfully I found it. So I guess I have been through all the stages. You don't half kick yourself and smile when you do find the "Holy Grail" though

quite true - found mine in a most unexpected place :

Once youve found it tho youve gotta make money with it - there are many languages in the holy grail and heres the key....

When you have found a grail spend the time to optimise it to reduce max drawdown to below 10% when playing straight lots.

then find the optimum compounding formula to keep max dd below 30%

then trade it.

The important part is that the initial max drawdown is below 10% otherwise compounding will hammer the hell out of it and a system which wins flat trading may in fact blow your account when compounded.

and compounding is the key to wealth in this game.

my grail = 7% max drawdown uncompounded = 27.3% compounded 7:1

The "Holy Grail" exists within each one of us, anyone can trade successfully, that is what is so beautiful about this business. We just have to find that Grail within ourselves.
Bad news perhaps if we all find it at the same time though!

yes, all within us mate - just sat in our brain - many even find their own 'grail' so to speak but their head doesnt let em play it long enough to prove it and they swap and turn from one strat to another eventually blowing their account. (did it several times in my own case!)

Dunno if anyone is familiar with a guy called Henry Rollins ? Well anyway read something in one of his books that i thought was very true and also very related to trading........

"Long ago i threw out the idea that the world was against me, trying to undermine all that i was trying to do. I used to think the same thing about life itself. I used to think that life was hunting me down and trying to destroy me. I have found that to be untrue. It's always the easiest way out, trying to blame your problems on something else, someone else. I threw out the ideas that the world and life were my enemies. I found that i was protecting myself from the real enemy that i had not yet dealt with - myself. As soon as that was stripped away, i saw things more clearly."

Maybe change the words "world" and "life" in this for "markets" and it'll seem more relative ? Basically we are our own enemies, not other traders, not the markets not such and such and so forth !!! Took me over 3 yrs to learn that one !

To all the traders of the world,

Why do most traders and investors in the FX and
futures markets fail?

As the saying goes, everyone gets what they deserve.
Many trade out of boredom, excitement and ego. They
get emotional and eventually, they lose money and
then, the cycle continues. I have also gone thru ups
and downs throughout my 20 years of trading the FX and
futures market. Today, I am confident because I have
developed a trading strategy that fits my personality
and risk profile to achieve realistic tangible goals
per trade, per month, per year. Thats why I call my
system a Steady Income Producer and I will wait
patiently and position myself with the most
advantageous opportunities to achieve the "ambush
edge" and hence greatly enhancing the odds of winning.

The trading system is based on evaluating the most
optimum risk-reward trading ideas analysed with
fundamental and technical analysis combined into one.
Other ingredients include:
1. patience, patience and more patience
2. realistic targets and profitability for each trade,
each week, each month
3. knowing when to be in a market and when to stay out

4. market reaction to positive/negative economic news
and the signals that follow
5. trade to win consistently and not trade for
fun/boredom/gamble

Thank you,
Sk.

Glad to see that I am not the only one is is just starting. As of today, I am comiting myself to FX trading. Though I have been trading options for a year and know technical analysis, FX seems to be a somewhat new ball game. I want to take the approach of knowing nothing and building from scratch. Why? That way I don't miss out on any of the fundamental building blocks of learning this new subject.

well, forex is kind of game and is more like a game the less you're following the rules..

his is a great thread for beginners Soultrader, thanks for the start.

I cant say what stage I am at...maybe 2 or....?

But for what its worth this is my experience so far.

1. When your comfortable with position sizes its easier to ride the trade out to its profitable conclusion.

2. If you take a long term perspective, its easier to justify going into a trade.

3.If fundamentally a trade is sound, its easier to stay in it until the fundamentals (and your profit) is realised.

4, If you know your trade is sound long term but it makes a profit in a minute, hour, day or week why not take it ?

5. Once you understanding the long term relationships between pairs using TA to enter for short term reasons becomes a safer approach.

6 If your in a trade based on fundamentals and TA, but it turns a profit in a minute,hour or week why not take it?(I know same as 4)

7.If the trade is fundamentally sound its easier to stay in it until the fundamentals (and your profit) are realised (I know same as 3)

8 If you take the long term perspective its easier to justify staying in a trade.

9 When your comfortable with position sizes its easier to ride trades until their profitable conclusion.

What I am I getting at here?? Well, the markets are cyclical, one of the lessons is learning to ride the cycle, also when you buy something (In this case a currency) you clearly have to believe it has value otherwise whats the point? If something had value when you bought it....if you wasn't raised by parents who had "throw away values" its value should remain. At some point if your patient and stick to your conviction its value will be realised.

Deeep!But it seems to be working for me, in fact any other approach doesnt seem logical, consistently locking in losses becuase your position size is too large in relation to your balance, or becuase you have changed your mind about a trade based on a new short term view (you have bumpy ride for a day or so a chart looks bad) simply isnt going to make you money..

,m usually passive reader on MTforum coz my english not good enought to make a comments. But your stages of Traders evolution gives me excelent picture where i am now (18 months, stage 2) and my perpective as a trader. Those stages like a maps helps to find right direction knowing where are you now what to expect of going North or South.

One thing about trading that is very different to a lot of things, is that you're esentially on your own. There's no one to talk to face to face, if you're lucky your mentor will be on a phone (and costing a small fortune) - if you have a mentor that is.
I'll use learning a martial art as an example. How many people do you know that are accomplished martial artists learnt their skills from a book or the web?! not many (you'll no doubt hear of the odd one or two on forums...). TO truly learn there's two ways:

1. Go to a class where the sensei/teacher is recognised and accredited and practice at least twice a week, while keeping fit in the mean time. With some martial arts you can have a black belt in a short period of time (sometimes a year) if you really put the hours in, other arts usually take 3-10 years even with the extra hours.

2. buy the books, videos and go onto the web - then you have to find someone to spar/train with - in trading terms the other person is the market be it on a demo or with real money. Learning this way will cause you pain and will result in many more mistakes being made.

To my mind no. 2 is the reason so many people fail at trading because if you've an 'in the flesh' teacher, showing you the way to way to do things without hurting yourself twice a week in a dojo, your improvement rate is exponential in comparison to the guy learning from a book, who will spend a great deal more time with injuries, both mental and physical - if he can find a regular partner. ALso a teacher/sensei, having been through it all before and having him/herself learnt from someone equally competent will be able to break down complicated moves into easy bite size chunks that you as the student can fit together as time passes. There's also the interaction at the class, where one week your up against a big 120kg beast, followed by a nimble, fast and untouchable 50kg girl. You're automatically given many different situations to just 'deal with' but in a safe environment.
Maybe that's why the Turtle's did so well as a group.

It's also, interesting that the drop out rate for traders and people starting martial arts are about the same, only about 10% will still be in the dojo after a year.

I really believe though that my learning curve would have been a lot less erratic and a lot shorter had I had my own trading 'sensei' to go to twice a week.

Mind you, try and find a trading 'sensei' for $10 a lesson

Its is great for those who are lucky enough to find a mentor, but with so many sharks out there this is not easy. I do agree that a true mentor is definitely the most preferable option to start, but his/her absence should not be discouraging because forums like these can be a mentor if you know how to slice and dice the information posted here.

how do you slice and dice the information?
For the newbie there's so much to take in, plus a great many differences of opinion. All adding to the confusion...
It really comes down to desire to succeed as the odds are very much stacked against you when just starting out. The desire to succeed is the only thing to get you through it as you're going to get pretty beaten up for a period of time, unless you're the one in a mllion that finds it all very easy.
To the bring the martial arts example back, you usually end up going to a dojo and seeing if the teachers style of teaching will fit your style of learning, they are usually recommended too or you know someone who goes - it's also a local thing with most people training with 10 miles of their home.
Nothing like this exists in face to face format in my limited knowledge of the trading world (unless working for a bank/hedge fund, or you've a huge wedge of personal cash to learn from a pro).
There's sharks in both the martial arts world and the trading world. The internet is littered with "my amazing system never before taught in the west can disable an opponent with your little finger, no training required just this expensive video"...
As you all know the trading world is even worse due to the splurge of the internet, and sorting the good from the bad is difficult and takes time.

So I suppose thanks goes to Moneytec and other forums, but mainly the traders that don't slate, flame or speak in riddles, but take the time to pass on their knowledge.

I definitely agree that you need desire. On the surface trading seems easy, but in reality, it is one of the hardest professions out there. Trading successfully does not happen over night, it requires a lot of time, and very few are willing or can sacrifice tons of their personal time. When I began reading these forums and books my head was spinning, but over time, you learn what you are comfortable with, and take it from there. The key is not to give up.

I've been trading for about 4 years and I think I've barely made it to stage 3 (at least I hope I have).

After trading the ASX stocks, options, futures and options and many more instuments, fx seems to be the best instrument by far.

What's holding most amateur traders back from earning money, imho (I hate the term winning as it is too close to gambling), is their small account size. Meaning the proper stops cannot be employed.

I wiped my futures account out because my account was not large enough for my 2% risk model. Stops could not be larger than $ 1k on a 50k account. And whoever has traded futures will agree that 1k on a single cntrct is, most times, not enough.
That's where the fx comes in streets ahead of anything else.
What gave me the break through was the realisation that I did not have to make a fortune with every trade. I guess that's what has been said several times in this thread already.

So, me thinks, the advice given here before, that to trade small and accumulate till the acct is large enough to set proper stops, is a very good one.

I will keep reading this here forum and I thank all contributors from my heart for the fair dinkum, honest advice given so freely.

Thank you so much.

Thanks to bobnat and soultrader for their excellent posts. I have traded before with Options in AUS, too thinly traded. Also on the NASDAQ in the good old days before someone crashed aeroplanes into various US buildings. Did very poorly in options, quite well on the NASDAQ initially until all the volatility left that market due to the aforementioned event. But it was the lack of #1 education. #2 Not knowing myself more than anything killed me both times. Other people have succeded where I have failed in the past. This forum and the posts made by it's more experienced traders have convinced me that I can do this successfully. But most of all I am glad that most of are bound to make the same stupid mistakes that I have but can still succeed. Glad to know there is still hope for me. Not sure where I rank on the scale but realise that there is probably a long way to go. Living in Australia that doesn't really bother me.

My personal favourite:

Loose a Heap of money

Break Even

Make money.

Hi RichardK
Not sure if this is some language problem or whether this was some sarcastic dig.
If it was don't bother to post you waste your time and others.
If it wasn't sorry that I have taken offense it may be some language thing.
Just for the record I came out even on the NASDAQ only because I had to maintain a minimum equity balance because of margin rules. Thank God.

Now I look at things very differently thanx to people like MickMason FXsniper BobNat Simspeed and a host of others.
For the record before I enter a trade I calculate my RR must be 2:1 or no go.
I place stops at logical places like fib retracements previous high or low etc and allow enough room to move tipically 30 pips as I trade on a 15min chart. I also use larger timescales to ensure that I am trading with the longer term trend not against it. For this I use 89SMA and 144SMA on the 4H confirm on the 15min and use the 5min for entry/exit.
I trade breakouts and fib retracements thanx to MickMason on his excellent thread and to all the others who added to it. (Wow opened my eyes and made sense!)
I use 3 lots on my demo account and take 2 out at the 161 fib or at S/R level and let the 3rd ride if possible. I just use a mini only for real and ensure that the signals are as rock solid as possible........
Great Plan? It is when it works and only possible due to helpful informative posts by experienced Traders. It takes a lot of time to write the posts label the charts etc and take the time to reply to questions from people like me.
Thanx again to all who do post charts and take the time critique
Any I have rambled on for long enough. Here is my last win. I will post more of my charts but more likely the losers as I will learn more from the losses than the wins. And I don't have enough to brag about anyway. But I liked this one a lot because it went to plan.
I still do more dumb things than good.
Sorry about the messy chart I will concentrate more next time. It is the first one I have tried.
Good Trading

Quote:
Originally Posted by correl
20 GOLDEN RULES FOR TRADERS
1. Forget the news, remember the chart. You're not smart enough to know how news will affect price. The chart already knows the news is coming.

I stopped at # 1 ,
and .

the chart already knows (e.g. bollinger bands contract), but news will tell which direction, and the chart wont let u to catch the monkey from its tail !

SimSpead touched an other aspect of trading, you have to have a close reign on your emotions and feelings. A trader who gets upset because he lost a trade and tries to "get even" is asking for trouble. Also trading when one feels down or any disconfort. I am not here to advertise or advocate, but the best book on the subject is: The Disciplined Trader: Developing Winning Attitudes by Mark Douglas.

I enjoyed this reading. I am in stage 1. Barely. I can hardly crawl. So, how do I go from beginning crawler stage to running? Does it just take time to grow, or can I somehow bypass all the pain of thinking I have the right system, only to lose pip after pip on it, then switch to another and do the same thing?

Didn't the parents say to the kids: "Better leave home WHILE you STILL know EVERYTHING"?

But jokes aside, its a well known mistake to switch systems if they don't work out straight away..

m still in the learning cycle.....its as if each new trade is a new lesson. One thing I dont yet understand is, "When do we know we are in a losing trade?" I have had some great lessons from the market since I started trading live. Not a single one of the trades I entered in last 6 months would have been a losing trade had i not closed it at a loss either becuase of some rule/system i had adopted or just thorugh plain fear....I have also closed myself off from some great profits through fear of losing what i had made to that point.

Is part of the learning cycle realising that thier is no such thing as a losing trade? Only losing traders?

Ruf

Careful Ruf, see this is where experience comes in. you have to sit down and do some sharp thinking, it is easy to say what you should have done. The problem is, that hindsite is always 20-20. Had I nown what happened, I would have always won. Be fair with yourself. Keep a diary.

Haha!

Thanks for the reinforcement Supereader. I do keep a journal. The point I was making is that as a result of mistakes I made in the past, and having the journal to refer to, I have chnaged tact on a number of trades since, and in one or two instances trades that 6 months ago woud have hurt me badly, this time turned around and eanred me money. Hindsights pointless educating yourself through your mistakes is I think possibly the only way to become succesful at trading FX

trading is a zero sum game , someone will win ( the minority ) and the majority will lose .

obviously at the start of such a risky venture , many will lose for some time before they even break even . like they say , traders are born not made .

given this that most newbies will lose to varying amounts at the start of their venture.

the better question is " how much can I made in % returns when/if I start winning and how can I get there with the minimum risk " .

all esle is fantasy .

I am new here. I signed up for this site and read some threads. I am just ten months in this trading world. i had mistakes (sometimes quite often), i had times when tears flowed down my cheek as i suffer losses. I sometimes doubt about my entering forex but reading your post, just now, makes me think that i am willing to suffer and learn.

This entry blows be away.

Thanks

Please Carlo! Be careful, Do not be reckles. The good tader must uderstand, that there always be losses and have little emotions about losses. The stronger your emotions, the more likely the next time you enter the trade, the more irrational you are going to be. Perhaps you entered trading too soon, maybe you should start with stocks, and reading books. Two good books I can recommend are: High Probobility Trading, and The Disiplined Trader. Especially the second one.

looks like a trader moves back and forth from one stage to another .....

Great post like others have said but some of the rules need to be further broken down. Maybe by reading some of the replies one can get some insight into what message is being conveyed.

Will print it out and read often to learn this trade. I am desperate to be a successful trader.

The greatest warrior is the one that conquers himself!

conquering self is the hardest thing though

Just came across your thread. Very interesting stuff. Really useful too. Good analysis of the human thought process. The sooner we all realise this is a job and not a money making machine the better. You can live off your day job and with the same motivation you can live off Forex, but it is not 10 minutes a day in front of your computer screens as many would have you believe. Some days my eyes are coming out the back of my head from staring at screens and watching moves!

I think I'm wavering stage 3 somewhere here. I'll let you know in a few months.

just get married - If you cant conquer yourself - she will!

If that does'nt work - have kids... they conquer everything!

Whenever I first read this thread I thought, "I am gonna defy this and be ahead of the curve." And then I found out the hard way that noone can break these rules. Now, I am following them to a T, and guess what, it is working! I am slowly moving up the learning ladder. Great post,

good thread, very good... gone through all 20 pages on one breath... i've realised, that i need at least two months more to start my first mini account... and then a year on it to learn how to do it with real money... lots of work... 2 demos blown, 3rd +200 pips and growin'... 3 months in the "game" and i'm beginnin' to believe... it can be a way of life, despite all people i know tell me that is only a "toy" for rich...
mind my english, next posts will be better
wish me luck,

Similar here. A lot of my friends think I am insane. Getting up at 2:15am to stare at some charts. Time will tell.

demo's are great but they do not come close to the real thing. Once you start trading with real money, even if it's mini money, you really start to learn. I spent 2 years demo trading and blew out approximately 1million in monopoly notes. How, well simple, I knew it was not real money so I did stupid things and on some occasions I nullified a $50,000 account in 3 days.

But since trading my own money I take a different approach. I too sit up all night reading charts, drawing fibs, reading reports, analysing trend, plotting pivots and now when I enter a trrade I can give you a reasoned reason why, even if it fails, whereas before I would read something saying 'go long on EUR' and I would go long on EUR. I read everything including news stories. When they say trading is a job not hobby it is true. But for me it is both because I love it. I started trading when I was 13 and at the age of 14 I made more in the stock exchange than university grads in employment. Then some time later came the big crash of 1987 and I went took a collosal loss in under 30 minutes. I burnt my fingers, went away and became a lawyer instead. Now I've done that, seen that, and I re-entered the market, this time with Forex and modern computing and internet. At 14 I scalped and account traded like a pro. But I always knew that if I had the facilities of a screen and instant access to the markets then, I could have made millions.

You can not play this game without knowledege of charts and indicators. The market is unpredictable, but she is also logical. Read Larry Pesavento on Fibo's - incredible book and a great place to start your trading career!

i know that i need to play with real money and so i will do, when i become more familiar with indicators... chart reading goes quite well... i have to work with my discipline, blown another account because it was demo, exacly as you said... im 19 and have a lot of time to become perfect trader... after gathering 200 usd for first mini i will surely go for it...
btw. thx for the book, i will try to find it in Poland

Quote:
Originally Posted by RedDuke
Similar here. A lot of my friends think I am insane. Getting up at 2:15am to stare at some charts. Time will tell.

haha .. nice post RedDuke

I like to trade the London session too, but sometimes the hours are crazy. I lived in Asia for awhile, and it was great. Woke up to the asian session, after lunch followed the london session, and then in the evening, NY was just waking up.

There was suggestion in the first post that you would realize that it's you, not the method that prevents you from making money. This is dangerous misconception and i strongly disagree with it. If you are not profitable or not profitable enough and you follow certain method-then it is the method, it is not you. You will not make it work no matter how long you stick to it or how hard you try.

Great post...I enjoyed learning and laughing at what stage I am at.

However, I can say that I have gotten just as pissed lossing fake money as I would have with real money, If you want to play first...without the pain, but without the profits...just to learn your strategy, then check out www..com and sign up for their FXgame,its free and last as long as you want,

I tried Forex.com's sleazy trading demo...30 days only before I had to pay for a "training package" to use the program again and I got consistent early morining calls from their company.... is about as good as server based FX trading comes

Soultrader,
This is a great article and you exactly painted my current desperate situation. I am still struggle with "taking profit" on winning trade.Each time I try to set up a stop loss it will end my winning and cut me out of the trade. Reading all the mess of studies and trying to apply confusses m the more - just dont know what to do.Unfortunately you did not offer anyway out of the situation. What do I do?

Good system and its proper execution will get you there. Go to strategybuilderfx forum and read a thread titled "CCI and other derivations", it will set you on the right course.

Dear RedDuke I believe that most newbies falsely given the confidence of trading forex or any other secutities by these free demo programs. I am certain, that you know that traiding is 20 percent strategy and 80 percent psicology. A lot of traders find that they can go through the demos with flying colors but when it comes to the real thing they fail. I recomend a book by the title of the "Disciplined Trader" which is one of the best before anyone attemts to trade real time.

You definitely need a system with positive expectancy, the rest is psycology and experience. One of the best books on this topic is "Trading in the zone" by Michael Douglas. But the value if this book will not be comprehended by a beginner.

Do you think psycology is more important than knowledge in relation to trading? Some people are of that opinion but hmmm...

Quote:
Originally Posted by RedDuke
Hi Thesupereader,

You definitely need a system with positive expectancy, the rest is psycology and experience. One of the best books on this topic is "Trading in the zone" by Michael Douglas. But the value if this book will not be comprehended by a beginner.

Regards.
redduke

I think you are wrong about that. I read this book when i was a wannabe trader and i immediately understood its value. The trick is that it really takes time to actually implement what you read Knowing something intelectually does not mean you'd act that way when the time comes to press the trigger.
And cesc, you are right - those that tell you that it's 80% psychology - they lie, because it's not. I'd say it's the other way around - 80% strategy, 20% psychology.

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