Five: If You Can Picture It You Can Create It
By seeing a trade develop you can see in your mind a win or a loss. Also in the markets can be seen what self-destructive behavior may impair your trading. When the price is moving in front of you, you start to anticipate what the market will do.
When traders enter the market they need to do so based on systematic methods and leave the emotions behind. When emotions get involved then it is hard to see what the market is really doing and to know how to react what is happening. Keep emotions out of trading. The current trade is just one of thousands of trades in a career. Do not get attached to any one trade.
A good practice is to get mentally prepared before you start to trade each day. Do a little visualization trading seeing the market moving up and down as it responds to the buyers and sellers. When you see yourself entering a trade notice how you feel about the trade. Make sure you are relaxed and entering on good signals with proper stops and the ability to see how you will get out of the trade.
Four: Think Of Trading As Points And Percentages
We talked about the amount of risk a trader has in the market now it is time to talk about how you feel about money. If you have a big attachment to money then it will cause a big emotional strain when you lose some of the money.
One of the hardest things a new trader has to learn is how to loose. Losing is part of trading. Losses need to be looked at as expenses, or cost of doing business. There is no Holy Grail or magic trading system that just has to be turned on and the money will roll in.
If you can’t change your relationship with money, then just don’t think about it. Focus instead on numbers. Think of a % of your account, risk-to-reward ratio, and points to be made as profit not as points to be lost.
Once you learn how to make points then the money will come. You can accelerate the amount of money you make with good money management once you know how to make the pips.
TWO: A Trading Plan, Having and Using
Trading any of the financial markets is a one on one activity. If someone is going to do it for you it is you. You will need to follow a trading plan and guess who is going to have to write that trading plan. You can get examples of how to construct a trading plan but you have to put in your personal information.
This is something you will actually have to write out. Long hand or computer generated but you will need a hard copy to refer to, it needs to be in front of you. You will need to have your trading rules to refer to so you stay on track. You just need to get the rules down then follow them.
You need at least three parts: the Setup, Entry and Exit. You can find an example of a trading plan in this blog under favorites posts.
A trading plan should be thought out and cover every eventuality. When to trade, how much to trade, when to enter, when to exit, all the details of how your trading will take place. By doing this part of your trading career puts you way ahead of where you will be if you by pass it. You will be wandering around trying to figure out why things happen or what just happened.
Prepare For Success
While on vacation over the 4th of July 2008 we visited Mt. Rushmore, South Dakota in the black hills. You know the place with the sculptures of the presidents of the USA. As we learned about what it took to make this monument I was amazed. It took years of work for many men.
They made small statues 1/16 the size of what they wanted to sculpt on the mountain. Then they took measurements of the small statues and then times it by 16 to get the measurements for the larger work. 90% of the sculpture was done with dynamite. Then they used other methods to get the finished work. The craftsmen became so good that they could come within a couple of inches of the finished surface by using the dynamite.
Mr. Borglum, the artist was 57 years old when he started the project. He lived for 17 years before he died and left his son to finish the project. He had worked on many projects and was taught by engineers how to do this type of blasting with dynamite to get the end result. They had to get rid of the surface granite to get to the granite that was hard enough to sculpt.
The Easy Way To Monitor A Trade
When a trader makes a trade he should always monitor the trade no matter how long he is going to keep the trade on. To monitor a trade easily it is best done on time frames higher than those in which he normally trades. A trader can see a trade more clearly when he has a larger perspective. It is easier to spot the support and resistance levels the farther from the current time frame you are trading. The smaller the time frame is, the harder it is to judge where a good exit point is. That is if you want to get more than just a few pips on the trade. A trader who is concentrating only on a short time frame will miss things that are obvious to someone who is looking at the larger time frames.
Something that I like to do is find the trend on a larger time frame. Time the entry of the trade on a smaller time frame then move back up to a larger time frame to monitor the trade. This technique will help to get more pips out of a trade and still allow the market to move.
The Excitement of a Flat Market
We have heard many complaints from traders about the market being flat, the market is dead etc. Is that the real problem or is it that traders do not know what to look for when the market is going sideways?
For new traders it is soon learned that sideways markets are great set ups for break out moves. The longer a price moves in a sideways direction the stronger the break out usually is when the move is made. I like to use the 30 minute chart to see the moves set up and break out. When the 30 minute chart starts to go flat that is the signal that a break out is soon to follow. Put an alert just a little above and below the tops and bottoms of the sideways movement then wait until the market moves outside the alerts that may be a good time to enter the market.
When the market is sideways get ready to trade.
The Smart Way to Lose a Forex Trade
We have seen over the years traders will trade without a stop loss for fear of a small loss. When the market turns against them they let it run in the wrong direction rather than getting into the trade and trade with the move. Their total focus is set on wishing the market would turn and come back for them. Now the trade is several hundred pips against them and they can’t take it any longer so they close the trade and take a big loss and feel good that they did not lose more.
We all have to realize that a loss in trading is part of trading. We need to put the advantage in our favor so we will win more than we lose and not fall in love with a trade that is losing and let it run. When we take a trade we need to know where our stop loss is going to be then let the market tell us when to get out.
Once we have profit in a trade we need to concentrate on protecting the profit. So it is best to protect profit rather than hope a loss will get smaller. The first loss is always the smallest and will give you better vision for the next trade.
When Adding Positions Follow These Guidelines
a. Add only to winning positions.
b. Never add to a losing position. One of the most important money management rules that a trader should never break is ‘Never add to a losing trade’.Trades are split into winners and losers, and if a trade is a loser, the chances of it turning right around and becoming a winner are too small to risk more money on. If a trade is a winner but looks like a loser, wait until it shows you what it really is before you add to it.
c. If you do this you will notice that nearly always the trade ends up hitting your stop loss and does not look back. Sometimes the trade turns around before it hits your stop and becomes a winner and you can count yourself very fortunate. Sometimes the trade hits your stop loss and then turns around and becomes a winner if this happens you can count yourself unlucky. Whatever the result, it is never worth adding to a losing trade, hoping that it will become a winning trade. The odds of success are just too low to risk more capital in addition to the initial risk.
d. It comes down to good money management practices and learning how to trade using trading rules.
Holding Trades For A Few Minutes or a Few Days
We hear the pros and cons of trading short term vs. long. If a traders wants to sit in front of their computer for long hours day after day then they can trade short term. If traders love to trade and want to have a life in addition to trading they should look at using larger time frames.
When a trader is first learning it is helpful to see the entry and exit signals come quickly so it can be beneficial to trade with shorter time frames. Putting in the hours watching charts is one of the more important ways currency trading learned to trade. Once a trader can spot the entry signals for getting in and out of the market we suggest that they migrate to the larger time frames. Some of the thing we find helpful in getting to the larger time frames more quickly are to practice simulated trading, demo trading, and visualization trading. By simulated trading a trader can get one years worth of experience in 30 days. By demo trading a trader can learn how the market looks and feels in real time. By visualization trading a trader may internalize the signals of spotting the entry and exit signals by taking advantage of some down time when they cannot be in front of a compute.
Systems Will Make You a Better Trader
If you are going to become a better trader you will need to use a system to trade with. You will need to follow a solid set of rules that work and you have back tested. How do you back test? Just by doing the simulated trading you are back testing the trading system.
If you are able to make the same good trades time after time then you have a chance of becoming a good trader and the system you are using is a good one. You need to know why you are making good or bad trades. Your trading system should help you figure this out like the trade tracker. If you do not have a trading system you will have a problem determining why you are losing and your trades are being made off the cuff.
Even if you are trading with a good system you will need to use some judgment and get out of a trade if it doesn’t feel right. If you do not cut your winners short on a consistent basis then losing once in a while is ok. If your system is working for you then you should try and take all you see because you never know which signal will be one of the big winners.
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