There are some basic truths to Trading Currency, which you won’t often learn in common Forex programs. It comes from experience or paying someone to tell you the “rest of the story”. Below are a few of the Gold Nuggets I use in my mentor program.
Track Your Trades
The hard thing to do is change bad habits. In fact, we deny that we even have a bad habit, such as impulse trading. So the only way we might come to terms with it is to see it in writing. What I mean is, log your trades. Take a legal pad and write down the: pair, time of day, direction of the trend, the setup (wedge, 76.4, trend line break, etc), # of lots, size of stop loss, and any other information that might be insightful. You'll be forced to slow down, get selective, have a reason, and set your stops. You'll also fine tune your criteria for what is a better trade to take in the future. Until you start tracking your trades you'll keep shooting from the hip (without aim) and making the same mistakes.
Form, Function, Finesse
The first hurdle to doing something new is doing it. We tend to form concepts through watching and listening. However, the real rubber meets the road when you sit behind the wheel and start the car. The next thing that happens is that not all the controls are familiar. This may cause some uncomfortable disorientation, which could cause the potential driver to avoid practicing driving. They need to practice a lot before being able to solo and get out there on the open highway. Anyone with a 16 year old kid knows what I'm talking about. The interesting thing is that when they become familiar with all the controls they start to think about the freedom this skill will bring them. Not long after getting their license they seem to spend more time in the car than at home.
So what does that got to do with trading? When you first get through the FORM of learning about trading you may be reluctant to make time to actually go to your charts on a regular basis to work out the FUNCTION of trading. Some people get frustrated at the process. Just keep in mind that you've probably already worked out how to drive so I know you are teachable. What you need to do is remember the point about having the "Freedom to go where you want".
So go to the charts and get yourself through the function part and it will become fun...if not addicting. You'll get comfortable and then start to quickly see and respond to the art of trading (in your demo account of course). Once you have digested the FORMula via training videos and OTRs, and practiced the FUNCTION on the trading station.... you will want to develop the FINESSE of trading, which comes from the interpretation of the charts combined with the skill of executing the trade. All of this happens in a natural progression if you just commit to it and keep at it. This means don't get disgusted with a bad trade or expect yourself to be a natural. Everyone goes through the same learning curve and similar psychological challenges. There are no bad trades in a demo account, only the failure sometimes to learn from it.
So burn up several demo accounts and lose as much as you can while trying to learn what your issues are. The more winners you have the more confidence you develop, which is good... or the more false assurance you have, which is bad. BUT, the more losers you experience in a demo account the more you learn, respect the risk and understand what not to do in order to protect what you have and build it wisely. You also work out the finesse of trading and become an expert who is always fine tuning and learning for a life time.
Don’t Impulse Trade
"I want to be rich and I want that to be quick." This is both the motivation and curse of many traders. It brings us to the charts and it moves us through the learning process, but it also lowers our guard and causes us to take unwarranted impulse trades. Imagine a pen of alligators surrounding a murky pond with grassy banks and many places to hide. Inside this fenced area are chickens that feed through the grasses and roam aimlessly. Tough to catch. You are there looking for the same thing the alligators are looking for. The trick is how to get in and out without losing your assets, as it were.
Chickens are random, but they will also follow a path. You just need to watch them long enough to understand them and what the path is. The alligator knows the path and is also after your pips, I mean chickens. So there it is. You need to have a plan to get in, get pips, and get out. You need to select the best moment and location to execute your plan and you also need a back door exit (stop loss) in case the alligator jumps up from the grass and your plan is foiled. In fact, what you need is a solid read on the chickens, the path and the backdoor. Getting in the pen without a plan and hanging out hoping the chickens will jump in your arms before the alligator does is crazy thinking. Unfortunately, the mere act of entering the trade sets you up for not wanting to exit the pen empty handed or worse, in the negative. So we aimlessly tend to let our losses run. On the other hand, we get 10 pips positive and quickly exit the trade to claim our reward, thereby cutting our profits.
So be aware of the risk, but not fearful. You are speculating at specific moments and conditions. Make every trade entry important. Be selective. Get in the zone with the currency pair and plan the ambush. Let it zig before you enter on the zag. Watch the direction of pressure and trade with the trend. Move your stop loss to break even when safe to do, and let your profits run to the next barrier or target. Keep moving your stop loss to max your pips and protect larger gains... so the alligators can't take your chickens, I mean pips.
Start Small
Too many people get all jazzed up with trading large demo accounts and think they are ready for a Live Account. So they open a $1000 live account and burn it up the first week. This can either drum them out of trading or give them a much needed wake up call. Learning about trading, learning how to push the buttons gives you enough rope to hang yourself. You know enough to be dangerous. And, you've been working with large demo accounts, which are very forgiving. Take the fresh demo account and shake out the impulses.
Do your homework on the currency and start tracking your compound chart, just like it was real. Learning to ride a bike usually means a few crashes. However, they have simulators for pilots who don't have the option of crashing in order to learn. We have a demo account that simulates an actual trade account. Take as much time as you need there. Then move slowly into the cockpit of a live account.
The difference in demo trading and Live trading is psychology. How you handle stops, gains and losses, and a bunch of other stuff has to be dealt with. Trust me. You will drain more than 1/2 your account before you dial into the fact that you have to be more selective, have a better reason to enter and to protect your position with a stop loss. Better to drain $500 to $300 than $5000 to $3000. The difference is obvious. So start with $300 to $500. Trade 1 mini lot (.10) @ $1 per pip. Don't focus on the money you are earning or losing. Focus on the pips, which are now worth money in your live account, even if it's only a $1 each. That is exciting enough. Treat each $1pip as if it were worth $100, then later you won't treat $100pip as if it were only $1.
Meaning, you won't willy nilly risk big money in stupid trades. Try to double your account. Then double it again. Take out the $500 you started with and trade the $1500 profits using the compound log to determine 5% risk and available lots. Keep compounding your account and get better at winning and better at not losing.
Be Selective
Control your impulse to trade. Trading and pushing the buttons is fun, but impulse trading will cause you to lose your money. Instead, learn to read the market, see it's pattern and pressure. Then select the trade that meets your criteria.
Have a Reason
This comes with planning a trade. What are the reasons you got in? Several reasons and confirmations are best. What strategy or set up are you taking? Retest Failure, Barrier Bounce, etc. If you can't answer that question you may be impulse trading.
Set Your Stop Loss
This is very important. Patterns are everywhere, but so are unpredictable moves that could go against you in a big way, while you went and got a drink of water. If you are selective and place your entry near the bounce point then you can limit your risk with a stop loss and get a better move in your favor.
