Lessons from the Pros

Forex

The Many Faces of a Forex Trader

I hope you are all well and thanks for checking out another of my articles. I love writing these pieces and will continue to do so for as long as I am asked to. However, it can sometimes be a little tricky to think of what to write about each month, because when it comes to Forex trading, I have been doing the same thing for over a decade: using Supply and Demand zones to find my trades, managing them according to my rule based plan and letting the market do its thing! Sounds simple doesn’t it? Well that’s because consistent speculation in the global currency markets is simple at its heart but just not so easy to do, mainly because humans love to make things complicated. I guess it’s something in our inherent nature, but nevertheless, an objective trade plan with the right rules and strategy has the potential to overcome the most challenging market conditions.

graphs with post it note that says Success Factors

While I have always highlighted the importance of a trade plan and keeping things simple with a rules-based process, we also need to make sure we don’t get in the way of the plan working for us. Often, traders get in the way of their own success and jeopardize their goals with their actions. I’ve taught thousands of people all around the world how to trade and usually they fall into one of three personality types. I decided to highlight these specifically, as I’ve found there are several common themes amongst struggling traders. Hopefully, by detailing their challenges and offering some action points, you too can take something away from this article to help your own FX trading in months ahead.

Case Study 1: The Over-Trader

I can personally relate to the over-trader from my early days of trading. This type trader could be destined for failure right from the very start. Their tendency to randomly click buttons and enter the market on a whim is likely to cause one result: frustration and multiple losses. I have been guilty of over-trading myself, so I know exactly the dangers that come with it. It is especially difficult in the currency markets when you consider that you have to pay a spread as well, every time you get into a position. Imagine taking 20 trades in one day with a two-pip spread – that’s 40 pips given away before you have even had a winning trade!

I’ve seen that most traders hit the button far too many times because they feel that they know what is going to happen next. This is usually a result of losing a few trades in the first place, which typically puts a person on the wrong foot and creates a level of desperation with the need to make the money back and get into a level of profitability. Going home a winner for the day is a far more attractive prospect than going home a loser. It amazes me how easy it is for people to stop trading when they win straight off the bat, yet they carry on when they are losing because they are so desperate to make those losses back. They stop when they win but carry on when they lose!

If you want to treat trading seriously, then recognize that most of a trader’s time is spent waiting for the right set up which will offer the maximum reward and the lowest possible risk, with a high level of probability involved as well. When markets are moving frantically it can be difficult to sit on your hands and wait for the best time to pick your spot. Yes, patience takes time to develop but as they say, the best things in life are worth waiting for.

Case Study 2: Too Many Stop Outs

When I meet a trader who is taking far too many stop outs, it usually comes down to one of two things: either their stop losses are too tight or they don’t have a proven rules-based strategy that they are working with. Taking small loss after small loss can add up and, while we have to prevent the large loss from happening, it is also vital to recognize that a multitude of small losses can start to add up to one large loss over a longer period of time. I call this the slow bleed of the account.

Many traders I encounter use tight stop losses because they are trying to get cheap entries into the market and huge rewards. While there are rare occasions when you can get away with a minimal stop loss and make a huge reward, in real-world scenarios this is often very difficult to achieve on a consistent basis. Many times the forex trader will find themselves getting stopped out, only to then witness the price move in the direction in which they anticipated. The key here is giving yourself enough room for the trade to work, while also knowing when to get out if you are wrong.

Free Trading WorkshopIf you are following a plan, you should know your specific entry, stop loss, and target all before you even place your order. You should only enter a position at the key moment when the lowest risk and the highest probability of success is present. This is what we call market timing. An inability to time the market means you will have a low success rate in your trades. OTA students learn our patented Core Strategy for identifying institutional supply and demand imbalances on a price chart in order to time the market in advance. We also encourage them to use a stop loss entry and target price which could both help reduce stop losses and produce the results they desire.

Case Study 3: Nothing I Do Ever Works!

It’s a frustrating time when traders go through the syndrome of feeling like every time they place a trade, the market is against them. You can feel like nothing you do is right and that you’re destined for failure no matter what you try to do. Obviously, if you have never had any formal education in how to trade, it shouldn’t be too surprising to find yourself facing these hurdles because there are many professionals out there who understand how the market really works and are willing to play that against the novice. They have a rules-based plan and the discipline to follow it. If you’re struggling to get results, you probably don’t have a plan, or at least not one that works.

The only way to find out what works for you and what doesn’t work for you is to simply do the same thing repeatedly for several times and analyze your results. Understand what practices give you positive results and recognize the ones that don’t. By doing this level of groundwork, you will discover the best course of action that suits your style and psychology when trading. Many traders just fail to stick to one thing long enough to figure out what works. If you can’t be consistent enough to gain a track record, then it is pretty hard to achieve a workable plan.

I hope this was helpful and see you next time.

Sam Evans – sevans@tradingacademy.com


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.