Here is what happened in the markets this morning.
The complications of greed
Several weeks ago, a friend of mine was asking me how my trading was going. I told him that it was going well and that I was slowly learning to be consistently profitable. This guy is a very savvy businessman, and has had a lot of success of his own, but has no experience with trading anything. Nevertheless, I value his opinion.
I explained to him how pips and lot size work, and told him that I was basically trading 10-20 cent pips, making a few bucks a week on positive weeks. With this info he gave the most logical encouragement he was able to give. Based on what he knew and what made sense to him, and he suggested that I lot up. He expressed the idea that by doing this I would force myself to take trades even more seriously and that this would more than likely help me grow as a trader. Since I was relatively consistent already, I expected that I would also make some extra cash by lotting up.
This made sense to me, and honestly, I was beginning to feel a little bit like I was in a demo account since I was trading such a small lot size. So lotting up was appealing for this reason, and making cash would be icing on the cake! I took my friend’s advice and threw a couple hundred bucks into my trading account and began to trade larger lot sizes.
My experience with lotting up, and focusing on profit
As soon as I began to consider the idea of lotting up, I began to dream about the money that I could make. It made sense to me that my trading would become more precise if there was more money on the line. I couldn’t have been more wrong.
As I began trading larger lot sizes, I found myself making a lot of really foolish decisions. There were days that I lost a fair amount of money, and still kept trading, taking as many as 4-5 trades per session. I would lose in a trade, and then be upset by the fact that I had lost an uncomfortable amount of money in a trade, but I would still hold onto the belief that I could make that money back. It didn’t work out well.
I didn’t know at that time exactly what I was doing wrong. I tried analyzing my trades, to no avail, because it was simply rooted in trade management. I was taking too many trades and taking foolish trades, mostly based on the hope that I could get my money back. I wanted to get back what the market had taken from me. I suppose the expression is true “Want in one hand…” and… well, you get the point.
After analyzing and making rules such as “rate each trade on a scale of 1-10 before entering,” “wait at least 5 minutes between trades” and plenty of others, I was still losing trades. I would follow this list of rules for the first trade, but then I would get trigger happy and start taking all kinds of foolish trades. I had made a little progress by making all of these rules but I was still failing to recognize the root of the problem. Not to mention the fact that more rules equals more work.
It wasn’t until a few weeks later that something really clicked. I was talking to Steve, our director of enrollment at the Institute, and he told me something that stood out to me. He said “A new trader thinks about how much money they can make, while a professional trader thinks about how much money they can lose.” You can find this in a blog post he wrote titled “Money Management In Trading.” It is a great post and I recommend everyone read it.
The effects of this paradigm shift
Realizing this key difference between new traders and professional traders has had many benefits. Many things that I was doing wrong began to almost fix themselves when I saw the bigger picture. Understanding this simple truth helped me to get to the root of the matter. It wasn’t that I didn’t know how to trade, or read the charts. It was that my trade management was horrible. Even though I was “able” to trade well, I chose not to due to the fixation I had on making money. I had become incredibly biased in my interaction with the market. I entered trades without thinking about what I could lose, always thinking “I know how to pull pips” and “I can make money.” The funny thing is that both of these things are true. But if I focus on those two things, I am forgetting that there is another element of trading that I have to keep in the forefront of my mind: the fact that I can lose!
After I began to keep in mind what I can lose by trading, and keep the dangers of the market in clear view (no longer obstructed by wild dreams of rolling in money) noticed myself not having to try as hard. I was almost not having to try at all to adhere to the list of rules that I had made for myself. Instead of forcing myself to rate each trade so that I would stay out of bad trades, I found myself staying out of low probability trades without even thinking about it. Instead of struggling with overtrading, I found myself naturally limiting myself to one trade per session, and often times going the whole session without trading. Once again, many of these big struggles that I was having were all corrected with my mindset. This mindset of thinking about what I can lose versus what I “could win” is closely related to something that I like to refer to as passive trading.
In case you’ve been living under a rock for the last decade, technology is changing the world at a more rapid rate than ever before. For hundreds of thousands of people, the changes technology has brought has created a time of uncertainty, turmoil and desperation; and for others, a time of hope, gain & prosperity.
The age old adage, ‘when the going gets tough, the tough get going,’ has never been truer. However, as things have changed more and faster, at steeper curves of progression, many have found that their efforts of working harder has done little more for them than coming up short. If it hasn’t crossed your mind before, it may be time to look at a way to work smarter, instead of working harder. While people have been saying that phrase to me for years, I never really understood it until I was introduced to the concept of leverage.
If you are a forward thinking individual, you have crossed a time when you’ve looked at someone who has achieved high levels of financial success in their life and thought to yourself, ‘they can’t be THAT much better than me; they can’t be THAT much harder working than me.’ If you’ve thought that, I’m here to tell you that you are absolutely right. They most certainly are probably neither. What they are doing better than you though, is playing a different game. And if you ever try to race a Ferrari on a bicycle, no matter how strong you might be, that is a losing proposition.
The person who has leverage however, has found a way to earn money not based off of an exchange of their own time, but from the time of others, a business system that reaches a much bigger group than they can themselves, or by leveraging their own money. Unfortunately for most, in times of trial and tribulation, few people tend to rethink everything they know and usually try to find a higher hourly exchange for something they already have experience with or think they could do.
If you’ve been scratching your head looking for a way to beat the game you have been playing, it’s time for you to learn a skill set that can offer you massive leverage. Enter, “trading Foreign Currency”, or “the FOREX ”. Without providing an over the top education in this blog about what it is and how it all works, just understand that people buy and sell money to each other all over the world every single day. As a result, this market behaves in a certain way, and by investing your time in getting a proper education in this market, you can learn a skill set that maybe for the first time in your life, can provide you massive leverage.
Just the other night, using the methodology that I have learned as a student at the fx365 Institute, I was able to identify an economic news event before it happened (1. 00 AM PST). I set an appointment with myself to evaluate the market at that time (I jumped on about 30 minutes prior), created a trading strategy, and in about an hour from the time I opened my computer, I closed my trading station with 1 trade; a profit of 9.8 pips. Now you’re probably asking yourself what a pip is and what that means to you. A pip is an increment by which the forex market is measured in. Anytime you enter and exit a trade, your profit or loss will be measured in pips. Here is the important part: When you learn the skill set of trading, your quest for pips remains exactly the same. However, the amount of money that they are worth to you changes over time. In fact, you can assign as much or as little value to a pip as you are comfortable with or that your account margin will allow.
Recognize here that the skill set that you are learning never changes. And here is where leverage enters. That 9.8 pip trade for me on that night was worth $0.98. For many, to wake up in the middle of the night, learn something completely foreign and new, earn just shy of a dollar and to be pleased with it is laughable. The fun part however, is soon that denomination will be worth $9.80. Great, you just bought yourself lunch, maybe. Well what about $98 dollars? $98.00 for an hours’ worth of work starts to be a bit more of an entertaining proposition. What about $980.00? Could that put a dent in some of your bills each month? As you become a more competent trader, you can trade; 10 pip, a $1 pip, a $10 pip, a $100 pip and so on.
Where else can you learning a skillset that over time you could put hundreds of dollars an hour into your pocket? On top of that, a skill set that can be used from anywhere that you have a secure internet connection.
While this is only the tip of the iceberg, and of course, there comes inherent risk and fear that surrounds the financial markets, with the appropriate education and an approach similar to what one might go through to become say a licensed massage therapist, a nurse, a welder, trading the forex might just be worth a look. The fx365 institute is the only school in the world where they trade live with you every day, year round via a professional broadcast with professional traders. It’s your best bet to work smarter instead of harder.
Best of Luck!
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….