Great Forex Beginners Question

[marc walton]

This is a great forex question that was posted earlier in the year on the blog 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.

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 to learn is how to overcome fear and uncertainty. Any suggestions? Ernie

[marc walton]

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.

1. 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 80%+ of the time.
2. 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.”
3. 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.
4. 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 !
5. 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.
6. 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 !
7. Unless you are trading with a very large account, ie $100.000 therefore risking 3% ($3k) 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 point out in this article
http://forex-fxtrader.com/compound-forex-profits.html

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 !

Marc

[marc walton]

Posted on the blog by David 20th April 2009

Another great post from a member of the “club”! David has posted this in response to Ernies earlier question. I have posted here again as this is too good to get lost elsewhere. Great advice for anyone new to forex. I have seen less information in e-books that I have bought.

Ernie, Your questions and dilemmas are common amongst Forex newcomers and not so new as well.
Forex is an exciting and (could be) rewarding financially -
One of the aspect it lacks is – camaraderie ! But – Forex is a lonely job – there are few traders who will share their ‘Secrets’ and ‘System’ with you.

There are few ‘winners’ in this trade (Some say ‘90% lose money in Forex)
Some compare it to a ‘Casino’ betting.

The REAL successful traders have no incentive to share it with anyone. The others – either built web-sites or sell signals , or just wander in the darkness.

Marc is one of the few I`ve seen so far – who opened his heart and notebook and is willing to teach you ! Follow him ! (Twitter too)

I wanted to contribute a bit of my limited experience with Forex trading.
To make it easier to follow here are some of my trading lessons:

1) ‘Nobody knows what the market will do ‘
You could listen to advice – but always remember this #1 .
The signal sellers , the fancy web sites that promise you miracles – better print and post this rule. The FX market is so huge, so involved , and so morphing – makes it next to impossible to predict.
( I’ve seen the Dollar plunge 10% in value in 15 minutes when a small Cessna was flying directly on a collision course toward the White House’ shortly after 9/11 . Turned out to be a lost flying student and his instructors.

There are exceptions, and like any profession or ‘trade’ – you will have to spend the time and money to find them.
If anyone tells you (And it goes for life in general too) “It will be easy and you don’t have to learn” Click on ‘Delete’ !

2) You can’t take ‘PIPS’ to the grocery store
PIPS are just numbers.
In some trades a PIP worth $10 , some equal $9 each , and some are $15
If you trade a ‘Mini’ contract your PIP is a mere $1 …….

So will you sell everything and just trade for 15 PIPs a day ? You Don’t !
The focus on PIPS is misleading .
You have to measure your results in Dollars ! And sense.
(or what ever currency you had opened your trader account with).

In Large accounts – a mere 10 PIPS can represent Thousands of $$ !
PIPS don’t take into account the ‘Spread’ the ‘Interest’ and other charges and fees brokers will charge you on your way to ‘The cashier ‘.

3) Demo trade for as long as it take to establish a winning system !
If you feel comfortable after 30 days of Demo trade – you are lucky .
I recommend NOT to put a time limit on developing and perfecting a weather proof system ( Easier said than done )
And even than …take small steps ( Like feeling the water temperature) .

4) The key is ‘Money Management’ !
Managing risk is studied in the best of business schools.
It is a subject by itself – and I’ll expand on it by special request.
What makes the difference between ‘Trading’ and ‘Gambling’ is money management ! And ‘Capital preservation’

In Forex this issues takes on added importance since there are 50% chances the market will change course at ANY GIVEN moment.
The few times I had suffered huge losses were when I took ‘too big a leverage; of my position – and suffered a ‘Margin Call’ ( Guess I wasn’t ‘Too big to fail’ back than ……) But I learned my lesson.

5) Fear and Greed are good helpers – if you harness them !
We are all humans (well…Most of us are) and utilizing our emotions is what makes us superior to machines, (Albeit the narrowing gap

Fear – Holds you to carefully trade while assessing all risks.

Greed – Brings you here in the first place and keep you going for more.
Think of it as Hot and Cold water. If you utilize only one, you may get burnt , or freeze,but if you find the right balance – you are on your way to the promised land !

6) Let the market work for you ! Not the other way.
I used to chase the market ‘Not to miss on a trade’ that looked so promising. ‘What a rally…. what a ‘Stampede’. I used to get so excited…especially during economic news ( Usually 8.30Am EST ).

Nowadays I only use ‘Entry orders’ where it is more likely my position will bear fruits.

It`s a bit like chasing a fish in the ocean – the chances for me to catch it – are slim to none – the fish is faster , slippery, and can change his swimming direction with a fraction of a second – you will lose your breath and remain hungry.

But – if you” learn to set your ‘traps’ wisely – in advance – the fish is more likely to fall for your baits.

I ‘Clip’ most of my ‘profits’ at around 8 AM EST ……why ? The fish took the bait overnight and I had my harvest ready in the morning.
I find that many a times – I do BETTER and earn MORE when I am AWAY from the screen , Tinker-less , trade less and Emotional-Less ( Like Marc’s walks on the beach…..) than when I bite my nails looking how the market chips away off at my ‘profit’……

7) You didn’t earn anything – until you take your $$ out of the broker’s account. Remember that you had paid in with your hardest earned money . The money sits there at the Broker’s account To serve as collateral for your trade.

Don’t let it pile up too high – YOU have to pay yourself – Like Payroll – when the heap gets higher – or you did nothing – Having your gains on ‘Paper’ only means little. Reward yourself – Even symbolically -once you Cushioned your account.

Most info and tools are free.

The ‘Retail’ part of Forex experienced a huge push in recent years . Millions of us are now on line trading.

The competition between dealers ( another separate subject ) is to your advantage. There is a glut of knowledge. Mostly free !

Books – Check first with your library…most books are boring and re hash what old info. After you read and LIKED the book – than think of buying it.

There are some useful forums ( ForexFactory.com ,DailyFx.com many more like these , don’t forget your salt grains !) You can really find good stuff on line .

I strongly recommend working with a ‘Mentor’ ! – someone with experience that will help you separate the chaff from the wheat , help you avoid pitfalls, and shorten your discovery path.

It is hard to find them – the good one are busy – and the bad ….are just that.

Try join a ‘Meetup’ group in your area. It is important to ‘press flash’ ’see faces’ and bounce idea of a common board. ( Go to www.meetups.com)

I’ll break here on a ‘to be continued later’ promise – as not to overwhelm you with too much info. Or blind you with science.
Best of luck ! And you’ll need it !!!
David

[marc walton]

Guy: Posted on blog April 19, 2009 at 4:24 pm Ernie – Everything said here is the honest TRUTH.

Following someone elses recommendations will lead to further frustration. You need to be able to form your own opinions and create your OWN trading plan. Yes you can mimic traders but to be truly successful you have to rely on your training.

Pick a method that is simple. A method doesn’t have to be complicated to be successful. They don’t have to be expensive. A method will define for you Entry and Exit rules based on setups, moving averages and oscillators. A method eliminates some of the greed and emotion associated with trading.



A rule based trading strategy will take the guess work out. A method will re-enforce your thinking and you will begin to have more confidence with every trade.

Remember a successful trade isn’t always a winner. A successful trade can be a loser too. Knowing when to get out is as important as knowing when to get in. A rules based method will do that for you. I would not be trading full lots until you have demonstrated consistency in your trading, start small and learn to trade the money will come. Be Honest with yourself its hard to do.
Pippin isn’t easy…its hard work.

Keep a trading journal. Did I say keep a TRADING JOURNAL…Every successful trader I known keeps a black book with all his notes. It paints a mental picture of Good and Bad trades. Take screen shots at the entry and exit. Put good and bad trades on your wall next to your PC. Know why you are getting in and why you are getting out.



After each day or week reflect back on your comments it will begin to show a trend in your trading. You can then tweak your method or rules to correct mistakes. All of this creates consistency. Consistency is what makes a good trader.
Guy