This morning, the market stayed consistently between 10 to 15 pips until a manipulation took place in the market, allowing traders the possibility of gaining up to 20 pips. Today is a good example of why patients are so important in trading. Waiting for clarity and the right time, are two of the keys to trading successfully.
So you’ve been trading for a while? Are you making any money yet? Really?
If you are earning consistent gains in your account and have figured out a personal frame work to grow your account, then disregard this writing. If NOT, read on.
Looking at compounded account growth on a spreadsheet seeing how lucrative it would be to ‘lot up’ weekly and bypass small withdrawals seems like a no brainer. Why then do the vast majority never accomplish this?
Remember how here at the Forex365Institute we teach that trading is 90% psychological? Let’s look at a psychological effect that can take place if you are of the mindset that you are going to compound a small account. Take for example Trader A and Trader B.
Trader A makes his initial deposit. This is usually between a few hundred and a few thousand dollars. Game on. His account grows. At this size of account, he is trading between a $1 and$5 pip. He has an amazing month. He pulls over 200 pips. This nets him a profit of over $500.
He tells himself, ‘I am on my way to the big bucks!’
The next month the market ranges out for a few weeks. Trader A enters a slump and eats up most of his profits by trading aggressively on a lot size higher than month 1. He is fueled by the excitement of running up his account, and soon by the frustration of not repeating month 1’s performance. The losses are overlooked because, ‘Hey, at least it was the houses money.’ Months of this purposing follows. Friends and family ask about trading. He’s embarrassed. His subconscious mind starts to disconnect from the money he deposited initially, and worse, from the hope that fueled the journey to learn to trade.
A year goes by. Trader A has lost his enthusiasm, his confidence. Life is frustrating.
Trader B trades opens a $1000 dollar account and expects very conservative growth. 45 net pips/month is AMAZING to her. She easily achieves this and WITHDRAWALS her small profit. She takes her $150 dollars and treats her husband to a fun date, courtesy of her FOREX profits.
He encourages her to continue waking up early and is happy to help. The next month, she looks patiently for set-ups she trusts. Her account grows again. This time, she treats herself to a car detail. Now she is rolling in evergreen scented bliss courtesy of her efforts in FOREX. Her subconscious mind loves trading.
Trader A is looking on scornfully, because after all, he didn’t come here to make $150 a month. After a year of achieving her $150/month profit, Trader B receives a nice $5000 dollar tax return. She trusts herself completely to use this money to trade. Immediately, her profits go from $150 to $700+ dollars/mo. This affords her the ability to take a vacation and she hasn’t taken a vacation in years. Her friends want to know more about that FOREX thing. Life is good, and the future looks bright.
End of story.
The point of this story is not to tell you how to manage your money. It is however, something worth considering if you have been trading for a while and feel like Trader A. Maybe, just maybe, the tortoise who isn’t consumed by the greed of the lot ladder, is the one who ironically wins this race.
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In the world of investing, foreign currency can often times be viewed as the Wild West. In general, people from the ‘financial planning’ world who often use, and promote long term investment instruments that use trends and dollar cost averaging, generally have a scornful view of the FOREX market.
While this can be understandable, usually it is as a result of a general misunderstanding of how the FOREX market works and why it is different. Approaching it with the same strategy as say the S&P 500 is akin to showing up to a horse race with a greyhound dog.
The ‘ah hah’ moment for most comes when they realize and understand that the FOREX market is unregulated, and as a result, is a completely manipulated market. Manipulation scares most because it creates a level of perceived unpredictability, until they realize that manipulation occurs systematically. It occurs systematically because the people who manipulate the market are those with enough buying power to temporarily affect price direction, which causes fear amongst the general public, which then causes them to close their temporarily losing position. The ‘Market Maker’ can take the other side of that same position and now go and win with it.
Anybody who has ever dabbled in FOREX trading likely has 1st hand experience with market manipulation. They are sitting in a winning position for hours, maybe even days… Slowly their profits are increasing, and then suddenly (usually in conjunction with an economic news event,) the market races against their position and takes them from profit to loss, sometimes even hitting their stop loss.
Above is an hourly chart from the EUR/USD that illustrates several examples of market manipulation. You can see that there is a clear trend to the short side. The circled candles are manipulation ‘snaps’ that occurred inside of an hour, probably in minutes, that took out hours upon hours of previous areas that retail traders were likely entering trades short.
What is important to know about market manipulation and how to successfully trade it, is exactly what we teach to our student traders at www.forex365institute.com.
Once you learn the step by step formula that the ‘Market Makers’ use repeatedly week in and week out to make money, you can now wait for manipulation to take place, and take your positions with confidence along side of the big banks because you will know how and why they are doing what they are doing to make money.
‘It’s not what you don’t know that will get you, it’s what you think you know for sure, that just isn’t so.’
Until Next time, Happy Pipping!
By Payton Parnegg