Earlier this week I was thinking about all the emails that I get from traders who are frustrated and confused about how to succeed in the markets. I began to realize that most traders simply think way too much about trading and thus drastically over-complicate the process of trading and making money in the markets. So, I began to write down some pieces of insight that I have learned along my journey as a Forex trader. After about five cups of really strong coffee I condensed my scribbles down to the following four pieces of trading insight that I think you will find quite helpful…
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• Forex trading success is defined by consistency
One of the first things that struck me during my caffeine-infused contemplation this week, was that most beginning Forex traders simply put too much pressure on themselves right out of the gate. It seems as though everyone wants to be a “pro” trader right away. While this is indeed a noble goal to have, it is just not realistic to assume you will easily be able to make a full-time living as a trader right away.
I think you need to ask yourself, “What’s wrong with just supplementing my income each month?” Honestly, what is wrong with that? Many beginning traders seem unhappy with just making some extra money each month to supplement the monthly income from their jobs or to slowly build up their trading accounts. Thinking you will be able to quit your job and trade from the beach after one month in the markets is analogous to thinking you will be able to perform open-heart surgery without ever going to medical school. I urge you to realize that your chances of success as a Forex trader are far greater if you will accept slower and smaller but more consistent gains each month, rather than trying to go “pro” without any training, fortitude, or money behind you.
The classic fable of the “Tortoise and the Hare” is a good analogy to trading; the tortoise wins the race in the end because he is slow but consistent, whereas the hare decides to take a nap and losses his focus on the race. In trading, if you lose your focus on being consistent and instead try “betting the farm”, you are sure to end up losing to those traders who behave more realistically and consistently than you.
• Good trading should be effortless
The ironic thing about trading is that the harder you try the more you tend to struggle. Think of it like a pit of quick sand, everyone knows what happens when you move around and struggle in quick sand; you sink faster, whereas if you stay still you buy yourself more time to hopefully get out of the pit.
Traders who have their strategy or system mastered and who are totally comfortable with the risk they place on every trade, are not stressed or overly-anxious, and their trading is thus effortless. If you have a detailed and effective forex trading plan that you actually follow, you will already know exactly what you are looking for in the market, what you could lose on any one trade, and what your entry and exit strategies are. Since everything is predefined, there will be no catalyst to cause you to struggle and meddle with your trades; otherwise known as trading emotionally.
Good trading should not only be effortless, but also somewhat boring. If you aren’t risking too much on each trade, you are unlikely to feel “excited” or “afraid”, this is actually a good thing. Traders who are glued to their screens all night watching every little increment of price movement are typically the ones risking too much money. Swinging from feelings of euphoria to extreme disappointment or rage is not characteristic of a consistently successful trader; if you are experiencing these emotions in your own trading it means you are a gambling.
• To win at Forex trading you must embrace losing
Another very important piece of insight that I feel many traders aren’t aware of or simply choose to ignore, is that you have to know how to lose if you want to make money in the markets. There is no “holy grail” trading system out there; in fact, most very successful traders only win around 60% of their trades, that’s it. You can make money winning a much smaller percentage of your trades though. For example, if you achieve a risk reward of 1:3 on all your trades, over a large enough sample of trades, you would break even while losing 75% of your trades. So you would only need to win about 26% of the time to make money on a risk reward of 1:3….if you know how to lose properly.
Risk: Reward = 1:3, $100 risk per trade, 100 trade sample =
74 losers x $100 = $7,400 loss, 26 winners x $300 = $7,800 gain = $200 gain, winning only 26% of the time.
So what’s the point of this you might be asking? The point is that you can lose more trades than you win and still make money in the markets. In fact, if you win 50% of the time you should be making quite a bit of money if you have a risk reward of 1:2 or greater. The reason so many traders lose money is because they simply will not take small losses, or they don’t fully accept the risk on any ONE trade.
You should go into every single trade assuming it could lose, because it could! This is yet another reason why the set and forget trading method is so effective; it teaches you to lose responsibly. The truth about Forex trading is that you are going to lose trades, no matter what you do, you are going to lose, so you have to do it in a calm and calculated way, otherwise you will end up moving stops further from entry and letting small losers snowball into big losers.
Also, moving stops to breakeven is often not done correctly. Many traders move to breakeven just out of fear of losing. This is the wrong reason to do it. Moving to breakeven should really only be done once a trade is up at least one times risk or more; not as soon as possible. I rarely move to breakeven because I fully accept that losing is part of the game and that any trade could lose; you have to embrace losing if you want to make money long-term, so you really just need to accept that you will have losses and get over it. Trading will only become more difficult for you if you constantly struggle and try to avoid losses.
• Wait for the right time to strike
The final point that I contemplated while on my last cup of coffee, was the fact that above any other trait of successful forex traders, patience is probably the most important. To put it simply, any very successful trader is also a patient trader, and they understand the importance of patience.
You should think about your trading like you are a lion in the wild, stalking your prey slowly but with sure steps. Lions don’t try to take out a whole herd of zebras at one time; instead they scope out the entire picture and find the easiest targets; which generally means the weakest of the herd. This is exactly what you should do as you trade; you should analyze the market according to your trading plan, and only take price action trading setups that are the “weak prey of the herd”, in other words, the ones that are obvious and sticking out like sore thumbs.
The final point I want to make is that when you pick your trades wisely instead of over-trading; you are preserving the money in your trading account to use for the “obvious” setups that are higher-probability. This clearly all hinges on knowing exactly what you are looking for in the market, so if you learn from a systematic trading education course, and master one strategy at a time, you will have a much easier time stalking and trading the “weak” prey as opposed to trading with no formal education or structure behind you. If you want to really learn what to look for in the markets I can teach you an arsenal of high-probability price action setups, but it will be up to you to exercise the proper discipline and patience while trading them. You can find out more information about my price action forex trading course and members trading community here