Lessons from the Pros


It’s Certainly Not MY Fault!

Hello traders! A diary of a failed (hypothetical) trader:

Monday morning journal entry: Here it is, another cold day in forex land. I wonder who is going to hunt my stop loss today? If it isn’t one of those dirty dealing desk traders, I’m sure the reason for my loss today is going to be that horrible trade-picking service I subscribe to. Can’t believe they advertise how great they are, yet every time I take one of their trades I lose. Those idiots. Don’t even remember what website I clicked to find their banner ad, they must be out of business as well. Ugh. Why isn’t this market moving? Maybe I’ll just draw in a couple of support and resistance lines, see how things go.

Two hours later… Well nothing has happened, wonder if a moving average will work today? Which one, which one…I’ve tried the 50, the 200, the 8, the 55, maybe an exponential instead of a simple…Nothing here, either. To heck with it, if I’m not trading I’m not making any money, let’s just buy the EURUSD.

Monday night journal entry:  Of course I got stopped out on my trade. I knew I should have been short; bet those other traders were out there just waiting for me to get in so they could move the market against me.  This is all their fault! Tomorrow, I’ll show them!

Tuesday morning journal entry:  Got a decent night’s sleep, can’t wait to get my money back! Been dreaming about the day when I am a super awesome trader, and the market gives me whatever I want! Today is the day it begins!

Two hours later…What was that, what the heck just happened? Did Bernanke say something? Geithner? I thought he resigned? I forgot to check my economic calendar today, was there some bit of news? I just tried a new trading strategy a friend emailed me this morning – he said he made money with it on a trade last week. He can’t wait to make enough money trading so he can quit his job at the fast food restaurant.  Last time I listen to him! This loss is all his fault – I’ll never trust his technique again!  Too mad to even do my research for tomorrow, I’ll just get up early and prepare for the market.

Wednesday morning journal entry: After two days of losses, with those market makers and my friend’s terrible trading ideas out of my way, I know I can make money. I wonder what those traders are doing in that online forum on that news site I like, let’s see if their analysis agrees with mine…Hmm, oh wow, I didn’t see that trade, its already moved 30 pips from where they were talking about it, I bet there is room left in the trade! Time to buy! These guys are good, I don’t even have to identify my zones first, I know this one will work out, look at how strong this trend has been!

Two hours later…That does it, I’m never going to that website again! Those traders are all idiots!  I hope they are happy that they made me lose money! I’ll show them! It’s all their fault!

Thursday morning journal entry: Got up extra early today, can’t believe how slow this computer is. I’ve researched the market for over an hour, and I couldn’t find a decent trade anywhere. If I can just change time frames fast enough, I could try to scalp, but this computer is killing me! I know if I lose today, it’s all the computer’s fault!

Sorry dear readers, but I don’t have the heart to finish an entire week of this hypothetical journal!  How many mistakes did you notice our trader make over those few days of his trading journal?  Let’s start with the first, and most obvious mistake, which is: not trading with a defined plan.

In our Online Trading Academy classes, one thing that we strongly encourage is to make and/or update your trading plan during class. There are many things that go into your plan, but one of the more important is clearly defining your trading strategies. Without a clear set of rules and setups to look for, how are you going to know when/what to trade? Taking trading ideas or suggestions from anonymous internet websites is probably not a great idea. Especially if you haven’t kept track of their performance! What about taking trades from an untested strategy that one of your friends has told you about? Do you really want to throw away your hard-earned money on an untested strategy? Anytime one of my trader friends suggests a new technique that they have used, I test it for 30 trades with very small position size. No reason to risk real position size money on a strategy that I might not be good at. After the 30 trade test, then full position size is allowed-according to my trade plan.

The second, and most painful mistake this hypothetical trader made was the blame game. I’m sure you know someone like this in your life, maybe they trade as well.  Nothing is ever their fault, maybe the whole world is against them, or their computer is too old, or their internet connection is too slow, their broker is out to get them, and on and on and on. When I hear someone start to list the “reasons” that they aren’t successful at something, I just want to grab their shoulders and shove them in front of a mirror. How about a little tough love? “YOU hit the order entry button, YOU didn’t trade with a stop loss, YOU didn’t follow an easy, clearly defined strategy, YOU listened to random strangers and risked YOUR money. NO ONE held a gun to your head to take these trades, NO ONE broke into your house and placed these orders. The responsibility lies 100% on YOU.”

The best traders I know have already accepted the fact that trading is intensely personal – you get the credit when you are profitable, and you lose YOUR money when you aren’t profitable.  The faster you can take responsibility for everything you do in trading, the easier it is to focus on how easy trading really is. How easy is it? Follow our core strategy, follow proper risk management, take the small losses when they happen and let your winners run.  Why do people make trading so difficult? My personal belief is the lack of personal discipline is the main culprit to failed traders.

Take responsibility, be disciplined, follow the simple rules of trading, and start making money in the market! Give yourself the credit you deserve, it can be done!

Until next time,

Rick Wright


DISCLAIMER This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.

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