“Many people think that trading can be reduced to a few rules. Always do this or always do that. To me, trading isn’t about always at all; it is about each situation.” – Bill Lipschitz, Market Wizard
Without a written plan, emotions almost completely dominate your decisions and experiences when you trade.
For instance, when you run into trouble, or come across a less obvious decision point, you can be hijacked by fear or greed. You become irrational and make mistakes.
The human limbic system is the gatekeeper for all higher thought processing and evaluation.
Your emotions overshadow and prevent logical thought processes. Conversely, when you think rationally and trade your plan, you are in the zone. You’re freeing yourself from the constraints of your emotions. You’re more open, agreeable, and compliant. All in all, you’re much more likely to make much better decisions.
If you have ever traded without a plan, and then started to use one… you’ll know the difference is palpable. It’s like chalk and cheese.
Your plan becomes the foundation for consistent and rational action-taking, instead of reckless emotion-driven mistake making.
But not any old plan will do. It needs to be unique and special to you. It needs to be your plan – one you own deep down.
Have a trading style that suits your personality
“Stick to your own beliefs.” – Steve Watson, Market Wizard
The quest is not finding the one approach that unlocks the secrets to market success, but rather finding an approach that fits your personality.
You cannot succeed in the markets by copying someone else’s approach, because the odds are remote that their method will fit your personality.
You have to know yourself, and not try to be somebody you’re not. If you are a day trader, then day trade. If you are a long-term trader, then be a long-term trader. If you are a technician, be one – if you are a macro trader, be exactly that. Hell, if you are a stock trader – trade stocks!
Don’t get distracted by the number of ideas and strategies that you see opportunities in.
Be cut-throat, and pick the ones that suit you. Sometimes, this means you have to let go of a promising idea, which is actually okay. Remember, good can be the enemy of great. Don’t let it stress you. Note it down and you can revisit it later if you need to.
It’s about figuring out what you are the very best at, and doing more of those types of trades. If you want to be as successful as possible in the markets, it stands to reason that you need to zero in on your winning attributes, and exploit them mercilessly. It’s the same in business, art, and even sport. The best of the best know exactly what they’re good at, and how to use it to full effect.
The seduction of day trading
“The less time I am in the market, the less risk I am taking.” – Mark Minervini, Market Wizard
Day trading is like the Vegas of trading. Lots of bright lights and seduction, which only a few seasoned pros can resist well enough to make significant amounts of consistent money from their edge.
Now, my goal here is not dissuade you from being a day trader. If you are confident and sure about what you want, you are not going to be persuaded by me one way or the other. What I do want to do is stop traders from getting stuck down the wrong rabbit hole.
Day trading requires enormous amounts of time, preparation and commitment. This is always going to be beyond the practical reach of many of us.
It is a romanticism created by brokers that you can come home in the evening and sit in front of the computer screen, trade, and then pop off to bed with a few grand’s profit. Yes, some people can do it, and many other full time day traders do exist. But these traders are like the professional poker players in Vegas. They are not there on a holiday from their full time job. It’s what they do day in day out.
Instead, master the slower timeframes first. Your edge as a retail trader is much greater in swing trading or position trading. Your cost, both in terms of spread and time, are considerably less, and the slower speed cuts down the impact of any mistakes on your performance.
Don’t think that that you need to day trade to make big returns. Less can be more.
Personally, I look for only a few winning trades a year, in order to make a return of 30-100% or greater. By setting clear objectives, constructing a position-sizing model to achieve that objective, and then using advanced trade management techniques to build positions, I eliminate the need to place trades every day to make large returns.
I say this not to skite, but to let you know there are other ways that can better suit the retail Forex traders. Some retail traders are looking for ten trades a day – and that is infinitely more difficult than ten good trades a year.
Carefully consider what you want out of the market, why you have chosen the method you have, and whether it is realistic for you.
In saying that, if you want to be a day trader – go for it. You have my full support, and I applaud you for your courage.
Have a side income
“I’m extremely well diversified. My thought process is if I screw up in one place, I’ll always have a life preserver someplace else.” – Marty Schwartz, Market Wizard
Much of trading effectively is about stress management. A highly stressed trader makes mistakes, and has trouble trading their plan.
In my first foray into full-time trading, I struggled with this. I knew that if I did not make money from my trading, I would not be able to sustain myself and my family. This played havoc with my psyche, and led to overtrading.
These diverse sources of income allow me to manage my stress levels, and to commit more capital to my trading. (After you are confident and practiced in your trading system, raising capital becomes one of your biggest challenges.)
A wise trader once told me that it does not matter what you do, even if it involves stacking shelves part-time. It’s just important to make sure you have another source of income if you want to be a trader. Cash flow is king, as it helps you manage stress.
Manage your own account if you can. There is nothing like doing it
The best way to grow and develop is to live trade.
Paper trading, back testing and trading a demo account all have their uses, but they are very limited since they don’t give you the full experience of having skin in the game. Trading is about psychology, and if you neglect this mental component or (much worse) learn bad habits from practice trading, then these “safe” methods of trading can only take you so far.
This is another bad rabbit hole you can all too easily get lost in.
Demo trading is a good way to learn the basics of a trading interface, so that you don’t make mistakes with position-sizing or placing orders when you do it for real.
Back-testing is valuable in confirming whether a particular technical pattern provides an edge, but it is not going help you build the best system you possibly can. Think about this: some of the best systems or trades in the world cannot be back-tested. It’s much better to focus on what is in front of you, rather than dedicate excessive energy to the past.
It’s by being brave, taking the hits, and having the courage to trade live that you take those first steps towards mastery. After that, it is down to hard work, self-awareness, and learning from what you have done in order to become a winner.
Keep a balanced life
“You have to decide whether you want excitement or you want to make money.” – Mark Cook, Market Wizard
“I was totally focussed on my trading. Not my health. Not my relationships.” – Jimmy Balodimas, Market Wizard
If you recall our last lesson on the tasks of master traders, one task that we missed (kudos to you if you noticed it) was the task of being out of the market.
An unhealthy or unbalanced obsession with any activity is not conducive to long-term success.
If you recall, Van Tharp suggests we are made up of a mess of conflicting parts. Each of your parts has good intentions, but if you don’t take steps to satisfy those parts outside of trading, they will have no other option but to interfere with your trading processes.
If you don’t satisfy your need for excitement outside of the market, for example, then you may try to satisfy it when you are trading (with disastrous consequences). The market is not there for pleasure.
It is therefore important to learn to deal with your personal issues outside of the market. In a sense, you can hang them on the metaphorical “coat rack” when you sit down to trade, and then pick them up again when you finish for the day.
You should also schedule vacation time and take breaks during the day.
Trade in alignment with your purpose
“I don’t judge success. I celebrate it. I think success has to do with finding and following ones calling regardless of financial gain.” – Ed Seykota, Market Wizard
The best traders understand their greater role in the trading ecology.
They know why they are trading (outside of simply “making money”), and are appreciative of the good that they create both in their own lives and others’ through their trading activities.
Acknowledgement of your purpose is an important check to the hubris of success. If you let your wins get to you, you start to think you are bigger than the market – a sure invitation for a costly comeuppance. Understanding and valuing your purpose keeps your ego in check.
On the flip side, being clear about the good you are doing is a critical factor in aligning your subconscious towards wealth.
When you know your role deep down, and you can see the bigger picture, it helps to eliminate some of the more subtle forms of self-sabotage, such as the negative attitude towards wealth that many people have as a result of their upbringing (“rich people are selfish,” etc).
Important tools to have on hand when you trade
When you trade, you want to have some resources ready on hand. These will help you to eliminate mistakes, and keep your trading psychology in ship sharp shape.
Fill out the trading plan template
Complete the trading plan template you received when you first joined the course. You may need to refer back to earlier lessons to fill out some of the sections.
Don’t trade without a written plan.
Write your trading principles
You want to keep a summary of your trading principles on hand, so that you can refer to it easily. It is good to refresh yourself often, and to review your performance against them as well.
You can see an example of what I mean with my trading principles.
Create a trading checklist
A trading checklist is what you refer to each day – to ensure you are following correct trading processes. You will write your trading checklist in this week’s course-work.
Thank you and where to from here
“A losing trader can do little to transform himself into a winning trader. A losing trader is not going to want to transform himself. That’s the kind of thing winning traders do.” – Ed Seykota, Market Wizard
“Anything is possible with persistence and hard-work. It can be done, and your own determination to succeed is the most important element.” – Bill O’Neil, Market Wizard
You have made it to the end of the Advanced Forex Course for Smart Traders… but your journey is only just beginning.
Firstly, I want to say thank you for the considerable time and effort you have put into the course. The combined length of the course is that of a good book, with detailed exercises at the end of each chapter. Making it to the end is a real achievement to be proud of.
Secondly, I would love to hear any feedback you have regarding the course, and how your trading has changed based on what you’ve learned in the 20 lessons.
Finally, here are some next steps that you can take.
Go back to lesson #1 and re-write your beliefs about trading – then send to me.
In the first lesson of the course, you wrote your beliefs about trading. I would encourage you to revisit the exercise, and compare your beliefs about trading then with your new beliefs about trading now. This will be a good indicator of the transformation you have made. If you are comfortable with it, send both sets of beliefs to me at email@example.com, and I’ll give you some feedback.
Want to receive one-on-one coaching?
I maintain a trading coach on staff who can assist your personally, including teaching you their trading strategy. Enquire as to whether there are spots currently available.
Want a variant perception?
Gaining a variant perception is one of the hardest things to do in trading. It takes time, experience and access to research and analysis that is not always publically available. That is why we built FX Renew.
FX Renew was developed to give you, the retail trader, access to the ideas and signals of ex-bank traders and FX Hedge fund managers. They are traders with a wealth of market savvy that just can’t be matched in the modern day and age, where banks are shutting down their prop trading desks.
Their signals and insights are clear, actionable, and provide a learning experience so you can develop your own variant perception, too. Get your free trial here.
Continue the conversation?
I publish my best work each week on the FX Renew Blog. If you are not a member already, and want to continue to receive trading inspiration and insight, I suggest you join the FX Renew blog. It’s your secret weapon to becoming a winning Forex trader – and it’s free.
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Once again, thank you for your time and participation.
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