Great Forex Traders Question

[marc walton]

This is a great forex traders question that was posted a while ago by Ernie . This covers many of the basic problems that all forex traders face (no matter how experienced they may be.) I have posted the question & my response here so that it doesn't get missed as you wander around the site.

"Hi, Marc. Great work on the site, please keep it up. Some questions for you.I haven’t quite developed a trading system of my own yet. I mostly follow recommendations from various news sources and do what I can on my own, and let some EA robots create some minor profits on the side.

Over the past couple of weeks, I finally graduated to trading with a standard lot and I’ve made a few small pips here and there, but I’m beginning to notice a pattern in my trading… I’m starting to be able to *see* where a pair is going without any solid trading system, but I wait too long to get in and miss some major profits. And when I do get in, I’ve missed the boat and the trade goes against me.

I bet you I’ve missed, at the very least, $10K(US) in profit over the past two weeks. I guess this is a bit like asking you to explain the meaning of life, where there’s really no answer, but how does one learn to get into a trade at the right time and not wait too long?

Does it really all come down to a good trading system? Is it being able to trust your gut instincts? It’s frustrating to look back at trades I intended to make but didn’t out of fear or 10% uncertainty and see the potential for a $2K trade here or a $3K trade there just gone.

I *have* learned to take profit when I have it. Learning to overcome greed was a big lesson, and a hard one at that, but I guess what I’d really like ot learn is how to overcome fear and uncertainty. Any suggestions?

My response.

Hi Ernie, thanks for the great question. You are not alone ! We have all been there & some of us still find ourselves going through periods when we face similar emotions & challenges.

You point out that you are now starting to get a "feel" for your pairs. This is true & why I strongly recommend that people new to forex should concentrate on just a few pairs to start with. Each pair has its own characteristics & if you specialise on just a few, gbp/$ & euro/$ you really do start to notice how they are likely to behave.

I would also recommend having the chf chart on screen for confirmation. The chf is going in the opposite direction (correlation) to the euro 90%+ of the time.

Although you are now getting the "feel" for what is going to happen next you are unable/too slow to enter the trade. Yes you do need to find a system or some sign that tells you to enter. Then you have to "pull the trigger."

The problem is either you are not confident enough (in which case demo trade so you can confirm that you feel able to rely on the signal) or the problem could be the biggest ones in forex, fear & greed.

Fear & greed are what motivate & yet are the worst problems for ALL forex traders. Fear of losing & greed - staying in or staking more than you should.You mention that you have gone onto trading full lots, even though you are not yet fully confident with your system.The easy solution is to trade part/micro lots.

If you trade say 10% of a standard lot size then the amounts that you are dealing with are so small that if you lose they aren't going to hurt you & therefore you wont be scared & thus, no fear.

The flip side is that if you make 100 pips you will then be thinking if only i had been in full size i would have made $$$$, so you got rid of the fear, but then the greed kicks in !

You can make or lose a lot of money in forex, the trick is to try & do it slowly. 1st learn a few pairs & make pips. set a pip (not money)target for the week/month.

You mention missing $2/3000 potential profits on trades. I suspect that you are simply aiming too high, dare i say "greed" is rearing its ugly head.The reason most people lose at forex is that they try to get rich quick. Aiming for the big wins will wipe you out. I have been there, done that got the t shirt !

Unless you are trading with a very large account, ie $100.000 therefore risking 1.5 ($1.5k) maximum of your bank to win minimum $3000. There is no way you should be looking at $2/3k trades until you are 100% confidant with your trading.

As I pointed out in a previous article you only need to earn 15 pips a day to turn $1000 into $1.000.000 in 2 years. With a starting risk of $50 per trade - hence the million dollar challenge idea.

If you start this way you should have no fear. If you can't afford to lose $50 you shouldn't be trading forex in the 1st place !

Finally, if you are struggling with where to enter trades take a look at the M1 6 M2 methods in the forexmentropro site.

Basically I ams looking for break outs of an over night range/ breaks of support & resistance. Bounces off/rejections at 200 emas, fibs and or trend lines.

Phew. Very long reply, but I hope this helps, marc

[aprilsun91]

I think the responds of that questions are true. I also thinking whether you are not confident enough in which case demo trade so you can confirm that you feel able to rely on the signal. Or maybe the problem could be the biggest ones in forex, fear & greed.

[frieda]

the main thing i learn from Marc is you need multiple reasons to enter a trade. Getting the feel is cool, and maybe you can view it as one of the reasons, but you need more. fibs, breaks, emas. "Marc said so" is a reason as well, but then I would still want to understand his "multiple reasons" for the sake of learning.
i love (hate) watching myself slip between fear and greed, back and forth. The fear of taking the trade goes away if you can justify it by giving several reasons. Then, taking a small profit on the first half of the trade... but where. marc says not to be greedy, so lets consider 20. But, there is no sign of trouble here, yet, it would be cool to keep the full lot going for a while... oh shoot, it's going down, 15... 10... ok, if it goes up again, I'll take 20. Oh cool, it's at 23... 24... let's see, the first sign of trouble would be 30 pips away... oh we are at 40, maybe i should take it all now, there is some resistance here... but it may break through...? I'l put the stop at breakeven and look away for a few minutes....if it goes back down to 20 I will take half the lot... I promise, and then when you get back to the computer you wanna slap yourself. I did it again. A wasted trade. All the fear and greed struggling and in the end you just hate yourself for allowing yourself to be toyed with by your emotions. Discipline alone can fix that. Planning the trade and trading the plan. I think I've heard that before... a day hardly goes by without Marc repeating it...

[capsmart]

Hi Frieda
I think it is a matter of trust. The reason we all struggle is that we are not confident we are doing the right thing. If I could sign you a paper and guarantee you that if you follow what I say you will win in 70% of the cases and lose in 30% of the cases but you have to blindly do what I say then you would follow my advise. Now the problem is that you doubt your actions. You are not sure that you are doing the correct thing. But there are no guaranties.
To make things worst you will never find a system that is 100% mechanical. You will always have to use your judgment. There will be times that the fibs are important and other times that the ema's are important. Some times price will bounce from a 200 ema and some times (fewer) it will go through like a lighting.
Trading is an art and you need to spend some time in front of the charts to develop a feeling for it.
Backtesting is a safe way to learn.

[frieda]

Vassilis you are right, trust is a huge factor. It builds with experience and lessons learned...
A little story that happened a few days after I canceled the signal service I tried out during a losing streak... I had studied the charts, analyzed responsibly, and was really satisfied with a trade I placed with Euro Aussie. The trade was slightly going in the negative, when I remembered it is a pair traded by the service... and since i was still receiving the signals, I just double checked... and they went long, when i was short. So... turmoil. These guys are a professional team, losing streak or not, I better close my deal. So I closed my trade with a forty pip loss. Worse, even though I had vowed not to use the signals any more,and learn by myself... I took the trade in the other direction... and I got stopped out. So I managed to loose twice on a trade that would have won a respectable amount of pips if I had trusted my judgment. Wouldv'e been the trade of the week.
If anything, I am glad it happened... though I was really mad at myself... I was pleased to see my analysis was right.
moral of the story... if you are pleased with the analysis, place the trade... and keep it on. Darn. You do not have to win all the trades anyway. If it was well planned... it is worth taking, and it is worth losing. Even the pros get it wrong.

[capsmart]

Hi Frieda,
If you work with different systems you will have different opinions.
Just as an example our current situation with Eur/Usd.
Marc thinks we are still in a downtrend. Ok, since it did not go above the 78 area and is under the 200 ema. He thinks to go short at 1.3300 because it is a strong area etc etc. Even if he will enter with half his position because of the strong up trend he wants to go short.
If you watch now the MACD3 system they wait for a pullback to go long. Who is correct? Well both are correct. If price is at 1.32 and we want it to bounce at 1.33 it has to get there before. So we can go long at 1.32 and short at 1.33. Marc is waiting for a bounce and FTC for a pullback of the trend.
Price will not go from 1.20 to 1.40 without stopping. Some systems will trade bounces, some will trade pullbacks and some breakouts.
This is what price does. It goes up and down all the time.
Our job is to analyze the current situation and act accordingly.
We work with probabilities. If Eur/Usd is at 1.32 now, what are the chances to get to 1.33? 70%. Ok let's go long. Could it reverse as soon as we go long? Of course. A 30% chance.
So what are we supposed to do?
In my opinion since we are not experts and cannot see the whole picture it is better to decide which system we will trade. With which system we feel comfortable with. Then stick with this system. Never mind if we lose trades. As long as the trades we took are well planed. Then after mastering this particular system (that works with one of the above mentioned situations) we could move to another system that will deal with another market situation.