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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What is passive trading?
When most people hear the word passive, they think of something that can be negative. For me, having a passive attitude in trading has been a really positive thing. Some of my best trading days and weeks have been during times when I have a passive attitude in how I enter trades. To better describe this, my thought going into a trading session with a passive attitude is “I might enter a trade, and I might not.” Some of the worst trading days for me are when I wake up thinking “Boy, I can’t wait to get into a trade and pull some pips!”
What I have found is quite fascinating, it is almost as if I take power away from the market, and the Market Makers when I trade passively. Truthfully, that is exactly what happens when you trade more passively and less emotionally. The market makers make their money by fooling retail traders into entering positions, so the more emotionally you trade, the more you become a puppet on a string. The more passively you trade, the less power and control they have over you. It’s a beautiful thing!
After I talked to Steve, and read his blog post, I started to see the bigger picture, and I started to understand what was going on with my trading. At this same time, there was a period of a couple of weeks where I was really busy. I had to travel to California for work, I had a busy schedule each day, and I was starting work at 6AM, so there was really no way for me to trade during session. I almost tried to, I even brought my laptop with me. But I decided that I would take the week off. I was pretty busy the following week also, so I went almost 2 weeks without trading. This turned out to be a really good thing for me.
Taking time off from trading, accompanied with new ideas and a fresh mindset really helped me to turn things around. Does this mean that I’m pulling hundreds of pips a week? Nope. In fact I think that I’m at 18 pips for the week so far, but I’m ok with that. Slow and steady wins the race. The tortoise wins, every time.
I had always heard Rob G. say that whenever he loses two trades in a row, he takes the rest of the week off (I’m pretty sure he said that). I always thought “Why would he take the rest of the week off? Can’t he just start fresh the next day?” I think I’ve learned a good lesson here. Time off can be a powerful thing. If you find yourself spun out in your trading, take a few days or a week off. I’d bet that you come back with a new perspective. Taking a few steps back is a great way to get a better view of whats really happening.
My recent trades
Since this transition I have been doing much better. Once again, I’m not rich, nor am I slaying hundreds of pips but I’m in control and my trading is relaxed. This is such a stark contrast to the cortisol-fueled, greedy, upset, hunched over, anxious, money losing trader that I was a few weeks ago, “gargoyled” over my laptop, hoping and wishing that the market makers would let me have just one little piece of profit. Recently my trading has been much more enjoyable. I am managing my account by keeping a reasonable lot size. I am calm. I sleep in until 5:30 if I want to. I realize that I don’t have to trade. I no longer have to fight myself and make up all sorts of rules because I see the big picture.
My intention in saying all of this is not to boast or sound like I have it all figured out, but to just point out that we often make things a lot harder than they need to be. Sometimes all it takes is a slight change in attitude, or a simple shift in how we view trading to turn things around. I had taken something fun and made it stressful by focusing in the wrong things in my trading, then adding rules and more stress to correct it. That all went away (for now) when I started focusing on taking things slow and keeping things simple.
I encourage anyone who is having a hard time to remember that you have plenty of time to learn to trade (that’s another thing Steve said). Take it easy. It can be challenging but it should also be fun. If you find yourself stressed out, chill. Take a break. (Side note: taking a break helped me a lot, but I think that it is important to note that it wouldn’t have been such a powerful time if it wasn’t for the fact that I got some good advice). With that being said, ask someone for help! Get some advice. Participate and ask questions on the webinar. Read books. Use all of the tools at your disposal. Don’t be greedy. Keep the dangers of the market in perspective. Keep it simple and relaxed. The reason we learn to trade is to take stress out of life, not to add it.
Well it’s 2016, and another year has gone by. New Years resolutions have begun, gym memberships are sky rocketing and everyone is motivated to become more fit, drop a bad habit, pick-up a new hobby, or set new budgets. Although I have never been convinced that the dawn of a new year gives you any advantage of actually accomplishing any goal, what I do believe is that by writing out your goal on paper and establishing a date, will give you a much better chance of completing it.
One thing I have looked at for myself in the past couple years is a specific Money Management philosophy in my trading. At the end of each year, I take stock of how well (or horribly) I have traded for the year and make sure that my strategy is sound and still valid. This is an exercise I wish I learned my first day trading because it would have not only made me more money, but it would have substantially mitigated a good percent of my total losses in my first year. So what I am going to share with you now is a very simple philosophy I follow that has helped my trading massively.
The difference between a new trader and a professional trader is this: A new trader thinks about how much money they can make, while a Professional Trader thinks about how much money they can lose. Do you see the difference? The moral of this story is that trading is risky, and although it is fun to think about all of the money you could potentially make, most new traders seldom like to think about the fact that one bad day of trading can cut their account in half, or how a misunderstanding in risk reward ratio can lead to taking far greater losses than positive gains. The market doesn’t care about how much money I have, what I lose or what I win. The market itself is pure and emotionless, but is driven by the emotions and beliefs of the people who participate in it.
This allows me to have a clear advantage over most traders if I can follow these simple rules while trading:
(I will explain these concepts now)
This is very simple math and this will keep you from not only having a really bad day trading, but also helps prevent you from biting off more than you can chew. It answers a very simple question of what lot size should I be trading? Here is an Example:
If I have an account balance of $1,000, then 5% of that is $50. So, if I am trading a lot size equating to $1, then a -50 pip stop out would reduce my account by 5%. This means that the most I am ever willing to lose on any one trade is 5% of my total account. Now I am not advocating take a -50, but you get the idea. The dollar figure and lots size is proportional to your account balance.
This is the mark of a professional trader and for me, this was a huge milestone in my personal trading. In order to understand what my risk and profit target is getting in to a trade I needed to really understand how the market works. When I can comprehend what I am looking at on my screen and I can say to myself (or anyone else) “this is good entry because….. and as a result of this I will know this trade is behaving when it does X and I will know it’s time to dump it if it does X,” then I am on my way to making some money in FOREX. This is how you make money. There is no luck involved. It comes down to being able to identify a trade set up and being able to pull the trigger. In actuality, this is the easy part. Let’s talk about where things really get hard…
If I am trading from a place of indifference all the time, why would I ever need to run a stop-loss? The answer is that we are a human beings and no matter how emotionally stable we think we are there will come a day where the market spins you out and makes you feel like you know NOTHING about trading. Any long time traders know this to be true, no one is immune from taking losses. The mark of a true professional is how clever we can be, and gracefully we can lose (I’ll cover this in the next section). To protect ourselves from ourselves, we need to preset a stop-loss when going into any trade that is automatically set the moment I click in. It is there to serve as a safety net to ensure that my emotions will not get the best of me in the event that things go wrong, which they will.
As I mentioned above when explaining the importance of a stop-loss, the next logical question is “what should my stop-loss be.” For me I use a 1:2 risk reward ratio. I will explain how this works. If my target PIP goal is 50 pips, then my stop should be set to -25. This way if I am making smart trades and my win Ratio is 50%, then I am profitable in my account. I’ll give you this analogy: If you flip a coin, you have a 50/50 chance of calling it correctly. Simple right? Trading should be no different and here is why: If I am only winning 50% of the time but I make 50 pips every time I am correct and lose on half that (-25) when I am wrong, then over a long period of time I am going to remain profitable in my account. This is what I meant when I was referring to losing cleverly and gracefully. Obviously, I don’t advocate blindly trading your account but I love the simplicity of this because you can become a profitable trader with a 50% win rate! Awesome.
An experienced trader trusts their methodology. If any strategy is going to be successful, you need to give it enough time to work. In the first year for me, it was all about gaining experience and trying not to lose money in my account. Every year after that has not become about how much money I can make, but about how little I am going to lose. My experience has shown me that the more I can depend on high probability averages (like a 50% win/loss rate on my trade) and trust them to be true, the more confident I become in the methodology. When a trader combines a sound methodology with experience, and solid foundation in Money Management and risk mitigation, then you are well on your way to becoming a Professional Currency trader.
Director of Enrollment
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…..
Luckily for those of us that trade the Market Maker Business Model, the way in which Forex works is extremely simple.
I’d like to lay out an example of what I would consider a pretty standard technical trading screen. It was built with free indicators that are widely available, and widely used by Traders across the world.
You can obviously see how easy and intuitive this type of trading is just at first glance…
Not so much. And it isn’t even so much an issue of which ones were used in the example. Frankly whichever indicator is added into the fold or taken out is a moot point. In a world where technical system development runs rampant, screens that take this form often fail to produce results.
Less is More
If you have ever been down the road of system development in trading, this thought is sure to have crossed your mind at some point. There is a tipping point where you are being bombarded with information and can not make a decision that holds any water. This is when the balancing act of removing indicators starts to come into play. God forbid you have access to the calculation settings, because that’s where things start to get really crazy.
It is possible to tweak nearly any screen to give perfect signals on any given day. If the market moved in the exact same way day in and day out this would work exceptionally well. Unfortunately reality stomps on that dream. So close.
So how exactly can you apply the ‘less is more’ to system development in Forex trading? Get rid of every indicator?
No we’re getting somewhere. The issue with standard technical indicators, however many of them are used, is that they mask the simplicity of how the market actually works. Using technical indicators can be great if you are playing a metaphorical baseball game. The only problem is Forex would then be football.
The Market Maker Business Model works in 3 stages:
The moment you add a moving average (or technical indicator) of any type, you have added a mask to this process, as it does not show you when and where money has changed hands. It is based off of price action that will never repeat itself in the exact way for the rest of history.
To conclude, I would encourage anyone looking for the perfect trading setup to research the Market Maker Business Model. If Forex were a casino the Market Maker Business Model is card counting, while everyone else is wearing their lucky socks looking for a machine that ‘speaks to them.’
Director of Education