Tag: Risk Management

So you’ve been trading for a while? Are you making any money yet? Really?

 

*Disclaimer*

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.

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.

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.

 

For more, follow us on instagram @forex365institute, and visit www.forex365institute.

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Okay, okay, I know, I’ve heard it too – all the modern pseudo pop-psychology of ‘The Power of Positive Thought’, ‘Attitude is Everything’, the ‘Law of Attraction’, etc.  Aren’t we all getting just a little bit tired of all the clichés? I mean, it can’t all be true, can it?

 

Well what if it is? All of it.  And what if it’s the one thing that is keeping you from where you want to be; maybe in your trading, personal small business, career, personal finance – you name it.

 

As it turns out, more winning athletes, entrepreneurs, political figures, and other notorious characters that I can shake a stick at, have at one time or another referenced their mindset as a key attribute in the success that they have accomplished.  

 

If all of these people who have at least financially achieved a status that most of us would aspire to reach, were to openly suggest that this may be a key part of their success, why oh why, must we roll our eyes at the idea of doing such a thing ourselves?

 

I read that Muhammed Ali once said, “It’s the repetition of affirmations that leads to belief.  And once that belief becomes a deep conviction, things begin to happen.”

 

Admittedly, I’ve always had mixed feelings about affirmations.  Part of me felt like there was obvious truth to it, and the other part of me felt that it was redundant and dishonest.

However, I trained in a gym with high level athletes for years. During that time, even though I personally had a fairly high level of fitness, I had generally plateaued.  Now it’s not what you are thinking, one of these stories where I was actually reading Vogue on the treadmill and texting on the weight bench and calling it hard work.  No, this was something else.  One day I thought about the type of (affirmation) dialogue I was having with myself repeatedly: “This is going to suck’”,  “Ahh this workout is so gnarly”, “I’m about to get wrecked”.

 

There wasn’t much positivity in my dialogue.  In February of 2015 I decided that I had to change the voices in my head (fun, huh?).  I decided then and there that the outcome of every workout was going to be deemed awesome no matter what.  Anytime I was going to do, or was doing, a very large effort in the gym, I repeated to myself, “this is going to be so good”, “I’m about to gain so much fitness”, “I love working out”.

 

So what happened?  In the next 6 months I PR’d every movement we focused on in the gym.  Seriously—all of them!  Max pull-ups, deadlift, bench press, pushups, 2K row, bw in calories for time, 10min air-dyne test. Was there a correlation?  Undeniably so.

 

So what does my fitness have to do with your trading you ask?  Well, once you’ve been around the FOREX market for a while, the price action of the market itself is relatively simple.  It either goes up, or down, and always for good reason.  So why is it that some people interact so well with it and get rich, and others can’t seem to figure out up from down and blow up their accounts?

 

If you saying things like, “I got into this trade, so of course it went the other way”, “I suck at this”, “You’re such an idiot”, “This whole thing is a hoax”, “Is this ever going to be viable?”, “I’m not very good at this”… well you are, as Muhammed Ali would say, one of those people who are repeatedly affirming their thoughts into a belief, which is ultimately becoming a deep conviction and will inevitably happen.

 

Let me ask you this, how long would you hang out with somebody that was telling you all of those things?  Not very long, I would hope. So instead, try this on for size.

 

‘I’m becoming a world class trader.’ ‘I’m getting it more and more every day.’ ‘I’m a great learner.’ ‘My account is starting to grow exponentially.’ ‘Trading is the hottest thing since sliced bread.’  

 

Now of course, saying all of the right things probably won’t do much for you if you are already doing the right things like showing up consistently with a great attitude, continuously studying your fx365i virtual classroom, keeping accurate and thorough records of every trade you make, taking screenshots of your own trades and reviewing them weekly. However, if you aren’t doing all of those things, this might be the missing link.

 

Lastly, what is it that you are visualizing?  How often are you imagining what it’s going to feel like to open up your trading station and have a six-figure account balance?  How often are you imagining what your perfect trade setup would look like, and what it would be like to be in that trade?  How often are you visualizing what it’s going to be like to close out a trade for five figures in profit?  How often are you visualizing what your monthly account draw from your trading account to your bank account is going to look like?

 

If you are thinking, wow that sounds like a lot to do, I ask you this: How much thought do you think Muhammed Ali gave boxing?  And if that’s not enough motivation for you, remember, Michael Jordan didn’t make his high school basketball team.

 

Payton Parnegg

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I was asked if I would blog about my experiences as a New Student at 365 Forex and thought it would be helpful for those of you who were wondering what it would be like to enroll. I also think it would help my learning to put down what I am learning and feeling.

 

A little history first…..I was looking for a way to create additional income. I am currently a Certified tax preparer and really busy for 3 months. During the rest of the year I do business consulting with an organizational called Catapult Leadership. That contract is for 1 week a month. The rest of the month—-my time!!!!

I am very interested in the financial markets and have always been extremely passionate about what is happening with the economy and how I could use my knowledge to my advantage. I saw an ad for a company called “online trading academy” and went to a presentation. I was so excited to learn something new and make $$ doing what I love— leveraging the market to my advantage. The presentation was very professional and informative however they only really wanted to manipulate me into purchasing additional education modules. I was disillusioned and disappointed. I read some of their reviews and realized there as a large group of folks like me that were also “duped”.

I wasn’t going to give up though! I did my homework and found another online trading company 365 Forex and went to tour their facility. The experience there was profound. No high level sales manipulations, no ridiculous high-priced commitment. Their business model made sense to someone who is a business consultant. They make their money when we make money. So for only a 5000 investment for their education modules and daily online sessions.  I could learn what I need to learn to supplement my income.

Signing up was the easy part. Now it is up to me to learn. At this point I have watched the modules….I have traded using the “fake account”….I have funded my real account……and I am ready to start trading. However I am stuck….I am taking this experience seriously and don’t feel I have done my job in the education process. There are still areas I don’t understand and need to learn. The folks have been there to support me but I am not “supporting me”. I want to understand what I am looking at…I don’t want to make a trade for the sake of making a trade….I don’t want to approach this experience like I am going to a “slot machine” and hoping that luck will get me through.

I have met a lot of people using this software and watching the daily sessions and they are making great money “doing this”…quite frankly I envy them. I know they know something I don’t and that bothers me. As you follow my journey to “learning this” I will do my best to provide you with a template to also “learn this”. Right now I am frustrated with myself that a “tax accountant/calculus major” – who “thought this would be easy” is finding it’s not!! I guess the old adage “if it was easy everyone would do it” holds true. My next step…..going to make a plan to “get there”….guess I should’ve done that first…..

 

Andrew Bisaha

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A couple of weeks ago I noticed that there were some very specific bad habits beginning to frequently occur as I was trading. Each time these habits would come up I would think “Wow that was stupid, I definitely won’t do that again.” Then guess what, I did those things again, and again, and again.

So I decided that I needed to take some time to dissect these specific issues and find out why I kept repeating these mistakes. It has been really beneficial, and I plan to do the same thing with any recurring bad habits in the future. This is what I wrote.

 

The Issue

After seeing considerable profit in a trade, I tend to ride it negative. I have caught myself doing this fairly frequently. This happens due to the overconfident belief that price will go where I expect it to go. Most of this journal entry is written from the perspective of being in a trade, so most of the following observations apply to my mindset while in a trade.

 

Why does this happen?

A) I believe that price “has to” go places.

B) I stick to bias too rigidly, failing to take in new information.

C) I look at obstacles as “springboards.”

D) I tend to forget that breaths are normally larger than anything I want to ride through.

E) I stay in trades too long in hope of eventual profit due to the fact that I am limiting my trades.

F) I get greedy. After seeing a decent profit, often times 10-20 pips, I still expect more.

G) I am too excited to think logically.

 

A) Belief that price “has to” go somewhere

Price does no have to go anywhere. I can call directional bias, and set a profit target, but more often than not, price does not go all the way there. And if it does, most of the time it does not go straight there. Movement is only semi predictable.

To help with this issue I think that I need to remember that I don’t need to get all of the pips all of the time, anytime the market moves. Even in a predictable and unsurprising profit release it should be my goal to grab some pips out of the middle, maybe catching one of the two ends of the move, but I should never expect to get every last pip. To reinforce this, I should remind myself that 10 pips is a good trade. 10 pips is 25% of my current weekly goal. That’s not bad for one trade, yet often times I find myself turning up my nose at these profits, expecting more, and believing that I will get more.

One thing that I am realizing is that I need to treat my profit targets more like a maximum. I tend to just think that price will go to my target, and that’s that. So instead of saying, “there’s my target, that’s where price is going and I’m staying in this trade until it gets there,” I should be saying, “I could see price possibly going here, so I will stop myself just before there if price were to go that far in my favor.”

 

B) Sticking to bias too rigidly

This is almost the same as issue A, and the many of the same fixes apply. I need to be open to new info. I also feel like I need to feel the market to some degree. When price is moving strong in a direction and then it slows or stalls, it may not be a bad idea to get out with some profit. Usually I will find some content to back this up, often times though it is found after the fact. My point is that I should pay attention to stalling in price and look for clues as to why it may be stalling, instead of sticking to bias or belief that may not be true.  I always need to be looking for clues while in trades.

 

C) Looking at obstacles as “springboards”

Frankly, this issue is just dumb, but it is something that I have caught myself thinking.  Sure sometimes things such as dots or average prices will cause a slowing or some kind of rotation but to think that this will be followed by an acceleration in the original direction is just unfounded. It is purely imagination. I suppose where this came from in my mind is the fact that liquidity lines can fuel price movement, which, as I have learned, does not apply to dots or average prices in the same way.

To fix this issue, I should be treating obstacles as obstacles, and not imagining a magical propulsion of price in as a result of them. Perhaps instead I should imagine price rotating off of them into a breath, whereupon I would be stopped out with -20. This is a good scenario to remind myself of the reality of what may actually happen. I know this reality because I’ve been there and done that, and it ain’t fun and it sure ain’t cool.

I should also be looking at these obstacles as targets (maximums). Instead of setting a target far away on the other side of prominent dots or average price lines, perhaps I can use these points of interest as targets, or just play it by ear and watch closely how price reacts to them. This ties into what I said in the last section about feeling the market. Basically, if I see some funky stuff about to go down, maybe I should just get out of the trade, especially if I’m up in the trade.

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C) The Sense of Having a Quota

This is most definitely one of the biggest factors in what causes me to switch from being precise and patient to being a loose cannon. I feel as though I have to pull some pips, often lowering standards for trading habits in hope of getting lucky and getting a few pips. This is by far most noticeable after losses. After I have lost, I feel as though I need to “get my pips back,” which most of the time leads to losing more pips. This is a variation of that sense that there is a quota to be met, or a target that I need to reach.

This “quota mentality” ties in to the “target mentality” that I have been working on lately. It seems that in the same way I can set a pip target while in a trade, and often ride it negative while waiting for price to reach my target, I can also have a pip target for the day, or some idea that there is a number of pips that I should end up with. Such targets or quotas can be dangerous if we treat them as a minimum that we must reach. One thing that helps me be consistently profitable in trades is the idea that the target should be treated more like a maximum. I think this mindset can be applied to the issue of having a daily or momentary quota also, so that I look at my quota for the day as a maximum, with the minimum being dependent on opportunity.

Regarding this issue as it relates to losses, I believe that I need to just learn to be okay with losses. Most of the time this is not an issue, but when I am not closely monitoring my emotions, that sense that I need to get my pips back can creep in, and lead to all sorts of ugly trades. I haven’t thought of a name for this yet, but it is the close relative of the Big Bad FOMO Monster. I need to keep in mind that having some pips and losing them does not mean that I have to get them back, most of the time this ends badly, and leads to out of control desperation trading.

I have noticed these problems at high news events, which often times seem harder to trade, perhaps due to the fact that emotion can quickly take over. I’ve had a couple of bad high news days that have gone something like this: I get in based on FOMO, I get stopped out once or twice, then I get back in because I am frustrated by the fact that I am losing money instead of getting paid like we are all “supposed to” on high news days. Then I make another trade or two, all within a few minutes, trading both ways, with no clear directional bias, or complete disregard for bias if I had actually established one. Then I leave even more frustrated than I already was, with the question, “What just happened?” resounding in my mind. These are the kinds of days that I want to avoid.

 

Some good habits to avoid the quota or target mentality:

  1. Look at any target, quota, or variation thereof as maximum, and not something that must be reached at all costs, and do not disregard risk for the sake of a quota.
  2. Welcome losses as the price of doing business, view them as a piece of the puzzle in my trading career, do not become emotional from losses, they are normal and should be expected. It is my job as a trader to limit them however, which means that I need to be in control and constantly observe my emotions.
  3. Exercise extreme caution during high news events.
  4. Get comfortable with smaller profits in each trade, for each day, and even for the week. Try to take some 10s in each trade, or for the day, and remember that all I need is 35-40 pips per week

 

Conclusion

Most everything in trading ties together, and the product of all of these aspects of my personality, style, and habits defines who I am as a trader. All of these rules or habits to help me stay on course do not work by themselves, so focusing too much on one rule may lead to oversight in other aspects of trading. These good habits have a synergistic effect, producing exponentially better results when combined. I must learn to ingrain all of these habits into my identity as a trader in order to succeed and become a consistent, disciplined and profitable trader. I am confident that with time, and constant introspection I will be able to do this.

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