So my last blog entry was about the need to make a plan——So I revisited the “lot ladder” and really looked at how I am going to “make money” at this business. If you don’t have the excel spread sheet—THE LOT LADDER– I highly recommend you ask your enrollment counselor to create one for you. This is the business plan—the “way” to see how over time you will create a monthly income. It makes the unknowable and the undoable—knowable and doable. Well at least on paper. Now this plan will not execute itself. It is up to me to make this happen. This “way” is not magical or a pipe dream. This “way” entails an investment of time, an acquisition of real skills and most importantly a realistic outlook. I know what it took for me to make what I make at my current job—the time invested in learning and making mistakes and making more mistakes and I have to be prepared to do the same.
The LOT LADDER provides me an end result I can aspire to. I know that each of us has a different set of “life situations” so the ladder might take longer than mapped out, but at least I will know that it will be up to me to do the work. If life says “distraction over here Andrew” or “better opportunity over here Andrew”, then I know it’s not that “the plan” isn’t working out…I am not working the plan!!! The great aspect about owning your own business (and I have owned my own my entire life) is that I get to call the shots. I get to focus when I choose to focus and I have the power to make as much money as I want only when I want to invest my time and life energy.
Next up- time to build my skills…….till next time….
“I don’t really need to do screenshots. Trading is for smart people. Because I am smart, I will become good at trading soon enough. It takes time to send in screenshots – time where I could be in the market looking for another trade. I view turning in screenshots as a waste of time. Besides I know what I did right or wrong in the trade. I don’t really need someone else telling me (and everyone else) what I did wrong. I don’t really need to spend 15 hours a week on the webinar because I pretty much get everything right now. Thanks for the software and indicators. They are pretty cool. Peace out.”
Signed….a card carrying member of the 95% club
The sentiments above represent the mindset of someone who will join 95% of the masses and lose money as a FOREX trader. Renowned Stanford psychology professor Carol Dweck describes such thinkers as people with a “fixed mindset.” They believe talent is inherent: you either have it or you don’t. They believe hard work is for people who aren’t talented. Individuals with a fixed mindset always have the excuse, “If I really tried, I could do it… but really trying is a sign of weakness.” Also, because hard work takes them out of their comfort zone, they’ll stop trying at the first sign of an obstacle. People with a fixed mindset are hyper-sensitive to criticism because in their minds they are rarely wrong. They also don’t like seeing others succeed because that only exposes their inadequacies. The reason people with fixed mindsets think the way they do is because their desire to look successful is greater than their desire to actually be successful.
The imaginary letter writer above wouldn’t be able to stand sending in his negative trades. He wouldn’t want anyone to know that he failed at something and then couldn’t bear the thought of actually being criticized in public. It is simply too much for his ego to handle. Because his image is the most important thing, he will give some credit to others but only if he can maintain an air of “coolness” while doing so. Eventually, he will give up on FOREX trading because he can’t stand the losing.
We see this frequently in the sports world. A kid will grow up with athletic skills superior to his peers. He wins at everything. People start calling him the next LeBron because he has never had to work to win, he develops a sense that he should win simply by showing up. He graduates high school (barely) and signs with a big time college program. At this point, everyone expects to see him in the Rose Bowl, the Final Four, or the World Series. Then… he is never heard from again. Why? Because he meets other athletes just as talented as he is but with a different mindset … a mindset that propels them to higher levels. Below is a quick synopsis of the Fixed vs. Growth mindsets from Dweck’s book entitled, “Mindset” (you can click on the image for a larger view). In the next blog we’ll take a look at the Growth mindset and how it affects trading.
The value of patience and discipline in Forex trading cannot be overstated. In order to be a successful trader, you must possess these two traits with unwavering consistency. As I have gone through various phases of learning, failure, and success over the past 17 months, I have had moments and weeks where I have been extremely patient and disciplined. However, maintaining that unwavering consistency has been one of the biggest challenges in my trading.
Lately, for a little over a month now, I have finally started to exhibit some reasonable level of self control. I realize I have not yet absolutely mastered these essential survival skills. Even during the past month, I experienced back to back days where I allowed myself to over-trade (the only two truly bad trading days I have experienced since mid-May). As such, I am constantly seeking new thoughts and inspirations for how and why to maintain steadfast patience and discipline. I believe I am starting to turn the corner. I find that I am no longer easy prey for the market. I now lie in wait and take quick small bites out of the market.
So, what has been working? What is helping me maintain my patience and discipline? I go through a routine before each trading session. The first thing I do is look at the lot ladder. I must warn you, without the right mindset, this can be a double-edged sword. The lot ladder allows you enter the number of pips you expect to average per day (along with some other variables) and then see how much money you will be making each week if you climb the lot ladder one rung at a time. The reason this is so dangerous is that you can make the mistake of raising your daily pip goal so that you can make huge money so much faster. This is completely counter-productive as it leads to over-trading, not covering profits, etc.
However, I have set my daily pip goal at the Fx365 Institute’s long-time suggestion of just 7 pips a day. Once you have been trading on the Smart Money Profile platform for some time, you know this is truly a modest goal. Before any trading session, I look at where this highly obtainable goal can take me. Here is a screen shot of what one part of my lot ladder looks like:
I take a few moments to really focus on the truth that averaging just 7 pips day turns a $1,000 account into a $20,000 a month income in a ridiculously short time frame. I mean, this is incredibly powerful stuff. It helps me cover smaller trades rather than trying to swing for the fences. I still need to get better at not caring if the trade runs another 30, 50, 100+ pips. It’s tough knowing that I could have made my whole week on one trade, or hearing that someone else pulled a 40 when I had better entry and only pulled a 10 or 20. However, I come back and look at the lot ladder again and realize I only need 2-4 of my modest winners a week. I have to always remember, trading is a long-term race. By taking those smaller positives, I avoid taking negatives that make it harder to reach my goal. Then, at the end of the week when I have made my goal and am moving up the lot ladder again, I am one week closer to the financial freedom that $20,000 a month brings. Isn’t that the whole idea?
My other monumental struggle has been to avoid over-trading after taking a negative. Now, although I am making significant progress towards trading at indifference, there are still times when I take a negative trade and literally feel the stress prickling through my body (what a horrible feeling). When this happens, I absolutely must exhibit tremendous discipline and STOP TRADING until I have calmed down. If I look at where I want to be by the end of 2015, I ABSOLUTELY CANNOT ALLOW MYSELF TO DAMAGE MY ACCOUNT.
At those crucial moments, I lean on something Fx365i’s Head Trader Wade Guth once told me. He asked if I was planning to trade tomorrow. I said yes. He asked if I was planning to trade next week. I said yes. Next month, next year, etc? Yes, yes, and yes. So he asked me, “Why on earth would you get worked up about one trade or one negative day?” I also reflect on Shane Guth recently telling me that the biggest thing he NEVER wants to do is let one bad day cause him to lose his buying power. Live to fight another day!
Over this past month, I have also started telling my wife how my trading went each and every day. She has believed in me and allowed me to stay on this journey despite several months without positive results. Believe me, it is not easy to tell her when I am down for the day. However, when I have taken a couple of wrong trades and walked away with relatively small losses, I can proudly tell her I kept my discipline and didn’t throw money out the window like an idiot. Knowing I will have to report to my wife on a daily basis helps me maintain steadfast discipline and patience in my trading.
One last thing I think about is basically a lesson from Rhonda Byrne’s famous book, The Secret.” The Secret teaches that if we want something, we have to hold it in our mind’s eye, believe we have already obtained it, and be fully grateful for having received it from the universe. So yes, I am thankful for my huge trading account. More importantly, I am thankful for being a highly successful trader with tremendous patience and discipline. I know I did not get to this point by getting emotional and overreacting at every unexpected twist and turn in the market. I am thankful for the self control and confidence that made me the trader I am today.
I realize the lot ladder may not help everyone. Of course everybody is not married or willing to discuss their daily results with their significant other. I also know that not everyone has the same view of The Secret as I do. That is not the point. What is important is that I have found ways (and will continue to seek and find new ways) to exhibit patience and discipline in my trading. If you are struggling with patience and/or discipline in your trading, maybe you can use one of my tools. Some of you will have to come up with something totally new that works for you. The key is to find something that truly resonates with you – something powerful enough to give you the internal fortitude to do the right thing in the face of strong negative emotion. Once you find ways to be patient and disciplined, you will be much more likely to survive in the unforgiving Forex jungle.
Two quick notes:
1) One other thing that has helped is writing this blog. Thank you so much to everyone who reads it and especially to those of you who reach out to discuss your own trading experiences with me. Thank you, thank you, thank you!
2) In regards to the 7 pips, you may be saying, “Well what about the commission?” On my personal spreadsheet, I subtract 1.5 pips from each trade to come up with what I call “net pips.” This number will vary depending on the pair you trade and whether you are in a micro account. I can help you figure out the exact number if you need help with this.
As always, please feel free to reach out to me at firstname.lastname@example.org. I LOVE hearing from fellow traders!
Smart Money Profile Trader
I am thrilled to be able to say I was up 56.4 pips today (Thursday)! As someone who has struggled mightily with my trading, I now feel that I am starting to turn the corner and become a consistent, disciplined, and profitable trader. It feels GREAT to have made my goal for the week.
I took three trades today (Thursday morning New York session). All were to the short side. I took a +19.7, a +6.1, and a +30.6. I could talk for ages about all three of these trades, but this post will focus on the first trade of the morning.
I had tried to trade the Aussie session from around 6:30 – 9:00 on Wednesday night and it was flat as a table (by GBP/AUD standards). One of Wade’s great pieces of advice about the Smart Money Profile (SMP) software is to pay close attention to where the market is at in the volume curve. Usually the market is pretty wide awake during that Aussie session. However, while I was watching, the volume on the hour stayed almost exclusively dark blue…. ice cold. This really helped me stay out of the market. Sure there were some pips to be had as the market rolled back and forth in a 30 pip range, but I stayed true to my trading plan, exercised some discipline and stayed out of the market.
This morning I got online at around 5:05 am pacific time. The first thing out of my mouth was, “Ohhh Nooo!” Why? I saw the market had run up over 200 pips! I was ticked off. On Wednesday morning I had seen an excellent entry, but didn’t pull the trigger on a trade that would have paid at least 50 pips. On Wednesday evening, there was nothing to trade. Now I come in on Thursday morning and the market has already made it’s move? What??
I realized had a decision to make. Was I going to be an idiot and stay upset, or was I going to exhibit some emotional intelligence and get ready for the next move? Thankfully I chose the latter. I pulled out Wade’s awesome Trading Questions and started evaluating the market. Here’s what I noticed (see screen shot below):
So, other than sheer panic, why did I actually get out? Here’s what I was thinking in the moment. I knew that when the market makers tapped 1.8350, there was a chance the market could breathe back significantly. Knowing that the target for the trade was over 100 pips short from the start of the move, I felt there was a good chance the market might breathe back much more than 10 pips. I thought it very possibly could breathe all the way back to 1.8375.
Now, remember, my entry was 1.8380. If price did retrace back to 1.8375, there was a great chance it could stop me out and I really didn’t want to end up with a zero or 5 pips. Thanks to both Shane and Wade’s teachings, I am constantly asking myself, “At what price will I know that I was wrong about the trade?” In this situation, I would not have confirmation about being wrong until price would have gone north of the original average price of 1.8389. This means I would have been forced to have my stop up over 1.8390 in order to truly know that I was wrong about the move. There was no way I was willing to see a +30 in the trade and take a negative 10-15 pips.
So in my mind, it didn’t make sense to risk letting the trade back up to 1.8375 because I wouldn’t even know that I was wrong yet. I also wasn’t about to set my stop up over 1.8390 and take a big negative. As I look back now, this tells me that the best option for that trade would have been to take the 30 pips. Now, if I would have had truly pristine entry up around 1.8388, then I would have had the ability to let it breathe back to find out if I was wrong without taking more than a 5 pip negative.
I hope and expect it will soon be a common situation where I am up a significant amount of pips and then have to decide whether to stay in a trade or get out. Right now, it’s tough to imagine being up 20-40 pips and being OK with giving it all back. As such, I believe I may err on the side of caution and book those profits (hopefully without giving back 10+ like today). While I definitely want to pull bigger trades, I am also highly fearful of losing those pips because it is not yet commonplace for me to be up 30+ pips in a trade. As I gain more experience with SMP, I believe I will start encountering this situation more frequently. As such, I hope over time it will become easier to stay in the trade because I will have the confidence that I will be up 30 again soon.
Well, it sure is awesome to have made my goal, made 56 pips, AND learned a valuable lesson all in one morning session. What a great day! I’m planning to watch the market tomorrow, but I’m not pulling up my rate indicator. Heck, if I’m tired enough, I might just sleep in like a wild man until 6am (welcome to the west coast student trader’s lifestyle!). On a serious note, I hope your trading is going well. If you are struggling, please reach out to one of the instructors. These guys know their stuff, but they can only help you if you are open and honest with them. Also, please feel free to connect with me any time at email@example.com.
All the best!