Losing Is Part Of Trading
As a trader we need to accept the fact that we will lose some of the time. If you understand this, then you must have measures in place to protect yourself from the losses when they come.
We can’t avoid all losses, but we can manage our risk. The first thing you need to do is define your risk. One way to do this is simply by using a protective stop. Another way is to have a predefined number at which you will halt all trading if too much of your balance is lost. Know what your risk is in advance and have a plan to deal with it before you find yourself losing a large portion of your account.
A trader must not be to proud to go back to demo trading when they have a losing streak. We all need to keep our perspective and remember why we are trading in the first place. If we are trading as a hobby just expect to lose. If you are trading as a business and expect to make money then you need to follow some rules, set some parameters, and have the discipline to do what it takes to learn the trading business.
Feel Stuck With Your Trading?
If you feel stuck in your trading you don’t seem to be able to make any considerable progress. Maybe you are lousing a little then maybe you should go through your mission statement and business plans again. Review these and reacquaint yourself with what you’re trying to accomplish.
Maybe, you need to get back to basics and take a refresher on the fundamentals. Vince Lombardi would say at the beginning of every new season by holding up a football in front of the team: “This is a football.” He would start with the basics and build from there. When you get to the professional level of playing football you know what a football is. He was trying to stress the point that the basics are of great importance. You might go to baby pips.com and do a refresher, graduate again, before you lose all of your confidence and your account.
You don’t need to be hard on yourself. We all go through slow times. Just step back do something different and start all over again. Do 20 demo trades and keep track of the results. If you do not know what you need to work on then do another 20 trades. Once you are ready to trade live again start out slow and you will soon be on track again.
Traders Don’t Change Because… Traders Can Change If…
I came across a couple of quotes I want to share with you:
“Wall Street never changes, the pockets change, the suckers change, the stocks change, but Wall Street never changes, because human nature never changes” Jesse Livermore
“In order to make a success, the trader must act in a way to overcome the weak points that have caused the ruin of others” W.D. Gann
The reason indicators work in any financial markets is because human nature never changes. We remain greedy, emotional, and want things right now. If we can trade by using a system and following rules then we are doing the things other successful traders do. If we chase trades get caught up in one trade that is causing us problems and want more than the market is willing to give then we will do what most of the unsuccessful traders do and that is flounder.
Another way of looking at the quote by W.D. Gann is: If you keep doing the same thing you have always done then you will keep getting the same results you have always gotten. A trader needs to identify their strength and weakness then work on correcting their weaknesses and improve their strengths.
I once heard it said that: “It is insanity to think you can keep doing the same thing and expect to get different results.” Successful traders are successful because they are willing to do the things that unsuccessful traders are not willing to do. Successful traders will keep a trade journal, follow a trading system, and use a set of rules when trading just to name a few things they do.
First of all we must decide why we are trading. Then we must do what it takes to become successful. If we are not willing to do the things that successful traders do then we should never put money into the market we should just continue to demo trade and keep our money in a safe place.
If we trade the news and always lose, stop trading the news. If we chase trades and lose then stop chasing trades, if we trade against the major trend and lose then stop trading against the trend. If we trade without a stop loss and lose then start putting stops on our trades. Success leaves clues so look for the clues. We can be successful at trading if we are willing to change the way we trade when we lose.
O.P.L.P. Approach To Trading
Here are a couple of ideas of how to shorten the learning curve in foreign currency trading.
OBSERVE the good trading habits of others. You can get this information from some of the following areas
1. Personal observation
2. Seminars / webinars
3. Books / magazines
4. Reconstruct trades you hear about and see what the market was saying when the
trade was opened.
PRACTICE What you have learned from your observations
1. Simulated trading
2. Demo trading
3. Visualization trading
4. Live trading
LEARN figure out what you learned from you observations and practicing. Internalize the things you like and have worked for you.
PROTECT YOUR SELF at all times
1. By placing stops on all trades
2. By using good money management practices
3. Continuing to study
4. Getting control of emotions and greed.
5. Trusting your indicators
6. By following a trading plan.
O= Observe
P= Practice
L= Learn
P= Protect yourself
How Much Of My Account Should I Risk?
When a trader first starts to trade there are many things to learn like:
1. How to use the platform
2. Which trading style I should use
3. Which indicators should I use
4. What time frames best meet my life schedule
5. How much money should I trade with
6. How much should I place on each trade
7. How much of a loss should I take
There are many other things to consider when trading but the one I want to address here is how much money you should risk in the market at one time. Here is one formula of how to calculate the amount of money you may want to trade at any one time.
You should trade with no more than 5% of your account on any one trade. i.e. $2000 account x 5% = $100. Divide The 5% or in this case the $100 by 50, which is the amount of margin you will be using in a mini account. This gives you 2 lots per trade.
This is only a formula, be sure to trade on the side of caution.
How The Currency Market Stacks Up
I was reading an article in e-FOREX magazine. It was talking about a survey that was taken that highlights the activity of the foreign currency market. It said “Did you know that the market in daily Foreign Exchange volume is bigger than those of OTC Interest Rates, Us Treasuries, Us Equities and Europe, Middle East and Africa Equities put together?” WOW that is big.
The Daily traded FX volume has more than doubled between 2001 and 2007 but an increase by some 50% between 2007 and 2010 might once again still be expected. This will be largely due to the growing importance of Foreign Exchange as an asset class.
The article went on to say besides classical FX trading there is a growing importance of emerging market currencies. The most important emerging market currencies are the Hong Kong Dollar, Polish Zloty and South African Rand.
What we gathered from the Article is that the currency market is well and strong. We already know that it is a fun trade. So Learn and trade well.
Letting Winners Run
There is an old saying that says you should “let your profits run”. In regards to this there are two schools of thought. One: this is good advice and it should be followed. Two: it is better to be consistent and follow your system and take several trades out of the long run. The down side of letting the winners run is that you lose perspective of what is average. The really big winners do not come along that often. By staying away from all of the big moves and stick to your trading plan you will not become confused as to whether it is a big move or an average move. By sticking to your trading plan then you can keep your mind and your capital free to make the most of several trades over the life of the larger trade.
A good method of trading is to be consistent in the way you trade even though you will take small losses once in a while. By trading the same way every time, you will have a better chance of seeing your account grow on a steady bases. When you do this, you are freeing up time and money that can be spent on other average trades—trades with which you are familiar and know how to handle without panicking. In the end this should prove itself more profitable.
Best or Worst trader Or Be The Best You Can Be
When studying traders that seem to have it all together learn concepts do not try to copy exact. We want to know what they did and exactly what happened. That is good in trying to learn but do not compare yourself to other people; Just compare yourself to your own efforts.
Yoga students do not compare them selves to the other yoga students that is detrimental. The same goes for trading. If we compare ourselves to other traders we may not know the real story. They may only be trading demo accounts. We hear people talk about how they made all these pips and it starts to make us feel like we do not know anything. But we do not know anything about the truth of that trader.
We ask how someone trades and no matter how much I am told about it I will not be able to do exactly what that trader did or does. The market moves and may not do what it did the last time. So I will not be able to create the same results. We need to learn concepts and read them for ourselves to be the best trader we can be.
Which Is Best: Trading on Offense or Defense?
We have all been told that we should only trade with money we can afford to lose. This does not mean to be wild and care free with your trading money. So we do not want to think of our trading account as money you can afford to lose. We just have to know that we can lose this money and not affect our life style. You want to be stingy with this money and try to keep it and guard it with all the skill we have.
Playing offence is important but you will keep and make more money by playing defense with your money. Before making a trade you should always think defense and check the risk before you place the trade. Once you have the risk figured out and you are willing to accept that level of risk you need to figure out the number of lots you will trade. It is best to think about how much you will lose rather than how much you will gain. When you approach trading defensively first, then money management will have a higher priority in your trading decisions.
Not Using A Stop Loss Mind Set
When a trader sets a stop loss they have pre determined how much they are willing to loose on a trade. They are exercising good money management. Hopefully looking at this one trade as one of many and only part of their trading system.
When a trader does not set a stop loss, the way he looks at this trade and maybe his whole approach to trading is lets see what happens. Here is an example of what a no stop trader may be thinking.
Example one:
Trade is placed without a stop loss
Trader thinks he will only risk $500
Trade moves against trader
Trader thinks the trade will come back
Trader is down $1000
Trader adds on to trade because he knows it will come back
Trade is down $1500
Trader adds on to the trade because he knows it is going to come back now
Trade is down $2000
Trader can’t stand the pressure any more
Trader closes the trade and feels good he does not have the pressure any more
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