My First 12 Months in Forex. Here is an article written by John T, One of our members. This is Johns’ entry for the Christmas competition. I am sure many of you will have experienced the same feelings – I certainly have! It also ties in with the Money Management article I posted the other day & did I mention DISCIPLINE

DIARY NOTES ON MY FIRST 12 MONTHS IN FOREX: – some patterns everyone will recognise.

Why am I trading forex?

Fed up with losses or inconsequential gains from taking investment advice I decide the only way to make money is to do things myself. I think I’m intelligent so will easily pick things up. The longer term aim is to attain financial independence by scaling up my trades as I become more competent and consistent. This shouldn’t take too long.

Financial independence for me will mean giving up the part of my job I dislike, security for my children and the opportunity to give away money to local causes that I want to support.

Little did I know….

Looking at where I am now I recognise the following stages, pointed out to me in Marc Tier’s book “The Winning Investment Habits of Warren Buffet and George Soros”:

A naïve beginning

Starting out with some computer software and using a tipping service should be easy – I just have to do as I’m told. With no decisions to agonise over and every faith in my new systems it is just a question of clicking the mouse to bring in limitless wealth – after all that’s what it said on the advert.

Being sensible and cautious though, of course I start with small stakes to make sure I know what I am doing before going for the big money.

The first couple of days have all been positive, so now is the time to increase the stakes. £500 up after an hour – this is easy! But what’s happening now, that 500 is shrinking to 200, not to worry – oh dear we’re suddenly in negative territory and losing fast. I thought this was supposed to be foolproof – what do I do now? Answer – take a big hit.

Next time it comes to pulling the trigger there is some hesitation – but yesterday was just a blip, and bad luck that I chose to increase my stake on the one day when things were against me. Today will be different, so stick to the system and all will be well. Watch the quick chart on the trading platform, just some candles on a blank background – how does anyone make sense of these? They must be clever.

Oh dear….. another losing day and I realise this is just not going to happen for me.

There’s a lot I don’t know – I need to do change my tactics

I soon realise that this Forex game isn’t easy – doubt creeps in, doubt about my “expert tipster”, my software that isn’t right all the time, my broker who is out to get me, and doubt about myself – how do I know which signals are good and which to ignore? What should I do if the trade is going against me? If I bail out I watch the trade recover and move into profit, it I remain steely and stick it out I just see my losses increase.

Something has to change – what next? There is bound to be a system out there that will answer all my problems, it’s just a question of getting into the trade at the correct point after all, and there are plenty of other gurus and software packages that say they can make a complete novice rich beyond his wildest dreams.

Just a question of buying the right system then, so had better try a few….

Several $97 (and more) later it seems that some of these systems can work as long as you stick to the rules and have the confidence to ride out the losers, but sticking to rules when you don’t understand what is going on is not easy.

Maybe its just a question of finding the right indicator, but trying to learn about these just gives me brainache, and eventually I realise they don’t predict the future anyway.

Next I read that trading itself is easy but its all about psychology. What? That can’t be right, surely I just need a scalpel-sharp trading method, where does psychology fit into that?

Beginning to get the idea – I know what I’m doing if I think carefully

Eventually I realise that I am losing on trades placed following someone else, but when I make my own decisions I am making profits. The trouble is I trust the expert so use larger stakes for his trades (therefore larger losses), and don’t trust myself so user smaller stakes (therefore smaller profits) – I am right, they are wrong, but I’m still losing money.

Eventually it hits me – if I am going to make it I need to be able to rely on decisions made by me, and me alone.

So now what? An expensive mentoring course from someone I’ve never heard of who tells me they can make me into a great trader with a few transatlantic phone sessions? Books upon books that contain the key to trading successfully, but then end with a website you need to subscribe to if you want to make it? Or the long and hard (and probably even more expensive) self-taught method of trial and error?

Enter Forexmentorpro (praising the judge who chooses the winners is a sure way to put me out of the prizes but what the heck). For a modest subscription there doesn’t seem to be much to lose, so I give it a try – Revelation time and suddenly things start to fit into place. Price changes direction for a reason after all (sometimes at least!), support and resistance is key – far better to expect price reversal at these points than to hope blindly that price moves through and then heads for the stratosphere.

Now I’m watching for trading opportunities and beginning to see a pattern. However its very scary seeing price racing rapidly towards my resistance point and contemplating a trade in the opposite direction – but uncannily it stalls and then reverses, sometimes instantaneously on a spike, and sometimes after an hour or two of hesitation.

If I try and take too many trades in too many currencies I miss the opportunities – eventually I realise that advice to stick to one or two is sound.

Still taking profits too early.

Getting “in tune” with the markets – the ultimate goal

This is the next step – finally, if briefly, achieved on one glorious morning when I rode the Great British Pound up to a fib level and ema seen on 3 timeframes, exited and rode the bounce back down to major resistance. This is what I would like trading to be like – feeling confident and in control this suddenly feels easy.

The next trap is waiting for me though – filled with elation and newfound confidence I don’t want to stop for the day but take another trade in a currency I haven’t been watching closely and lose half my profit in moments.

What have I learnt?

* I will only improve if I learn by my mistakes, and that I WILL make them even if I’m warned about these very mistakes in advance.
* if I choose a good trade I can relax and allow the trade to take its course; if I take a bad one I’ll feel anxious, and eventually close the trade early just to relieve that anxiety.
* I don’t need to beat myself up if I miss an opportunity.
* even with small daily gains compounding can rapidly build my account.
* to make real profits I am going to have to take a longer term view and let trades run.

I’m not there yet but now feel that success is finally within my grasp. Using careful analysis, pre-planning and discipline (especially discipline) I know I can be successful – maybe 2010 will be the turning point.