FXSIFU - Your Personal Forex Trading Coach

7 DEADLY TRADING SINS

2007-12-16T05:03:00.000-08:00

1. Thinking that trading the FOREX is a get-rich-quick scheme.

2. Reacting emotionally to market movement instead of assessing the market rationally using proven methods for high probability trades.

3. Chasing the Market.

4. Lack of preparation - entering the market with little or no understanding of what the probabilities are and how to handle them. Being unaware of special events or announcements that may be big marketmovers.

5. Poor Equity management.

6. Butterfly Trading. Trying one method after another without mastering any.

7. "Go-it-alone" Syndrome, hoping to discover the 'secret code' for trading. Most successful traders have learned from other successful traders. This can eliminate years of trial and error, and some very painful trading losses.

Author: Mr Don Schellenberg E-mail: don@thenextview.com

My Trading Philosophy

2007-12-14T12:25:00.000-08:00

I base my trading philosophy on three M’s:

M: MIND
M: METHOD
M: MONEY

Out of the three M’s, I find that the Mind component to be the most crucial to trading success.

Mind: The key to winning is inside the Mind. As Master of your mind, you have to manage and understand your emotions very well. It is extremely important to understand not just the individual’s psychology, but also the crowd psychology of the markets. To become a successful trader, you must have sheer perseverance and discipline.

Method: There is no Holy Grail in the search for the perfect method to trade. Follow the wisdom of 'Plan your Trade and Trade your Plan'. A good trading plan should cover your entry, exit and position sizing requirements. My method consists of discretionary trading techniques that combine both fundamental and technical analysis, in addition to my own proprietary automated trading system. Coming up with a good trading plan requires lots of market experience, as you modify, conquer and solidify your trading techniques. Don't be duped by charming salesmen selling get-rich-quick-without-effort secret recipes.

Money: Overall profit/loss depends on money management. The first goal of money management is capital preservation. If you lose 10% of your capital, you have to make 11% just to break even. If you lose 40%, you need to make 67%, and if you lose 50%, guess what? You have to make 100% just to recover! So before you think about making big money, first you got to think about not risking your capital unnecessarily. Money management is too important to be overlooked.

Source : Grace Cheng

2007-07-09T19:03:00.000-07:00

Forex trading strategy
(EUR/USD simple system)

As we move forward we discover a strategy that fits only chosen currency pairs.
Take a look at the next Forex trading system:

Currency pair: EUR/USD.
Time frame: 30 min.
Indicators: MACD (12, 26, 9), Parabolic SAR default settings (0.02, 0.2)

Entry rules: When Parabolic SAR gives buy signal and MACD lines crossed upwards – buy.
When Parabolic SAR gives sell signal and MACD lines crossed downwards – sell.

Exit rules: exit at the next MACD lines crossover or if the market starts trading sideways for some time.

Source: forex-strategies-revealed

2007-07-08T20:03:00.000-07:00

Common Indicators and Simple Trading Rules

There are a number of simple strategies we can create with the use of two or three common technical indicators. The (1-hour) chart below shows the EURJPY over the course of around 1-week’s trading period. The market initially broke to the downside, as the candlestick activity remained below the 20-SMA (Simple Moving Average) and steadily following the lower Bollinger Band to new lows. Once the market reversed direction back to the upside, trading then emerged above the 20-SMA, following the upper band to recent highs. This brief example provides us with the basis for a few simple trading rules:

We should make every attempt to trade only in the same direction as the current trend.

The trend can be defined by studying the market’s position in regards to the Bollinger Bands and 20-SMA.

Protective stops should be placed below the lower band in uptrend’s, and above the upper band in downtrends.

Finally, we may initiate a trade at or below the 20-SMA, while taking profits at the upper band; in up trending markets. The opposite holds true in down trending markets.

This strategy may have to be adjusted depending on the currency pair and market condition, however by analyzing a segment of our charts; we can begin to isolate specific conditions telling us when to trade, and when to simply wait…

Source:
dailyfx.com

Proper Mind Control For High Performance Trading

2007-01-28T02:11:00.000-08:00

Many professional athletes and traders can turn these state of mind on and off on a dime...

The negative state of mind can be a subtle but deadly self-destructive machine to ruining our day, either trading or relations with coworkers, friends and family. It's not pretty watching ourselves get all caught up in our struggle in our head and seeing yourself tearing up other people for little or no reason. Lucky that these people are sympathetic and civic enough to stay cool and ignore your state of mind. But walk into trading with that and you'll get crushed in minutes. Why? The other traders don't know how and don't care, cannot sympathize with your problems because everyone there is doing one thing and one thing only: taking money from your pocketbook.

The market is a cold and unforgiving place when you make mistakes or trade for wrong reasons. It'll take that reason and turn it against you. It may teach you to do it properly or don't do it at all. There are many traders who use their trading as a therapy unknowingly. How? They reflect their emotions and behavior from their real life into trading. If a trader is angry that day (or an angry by nature), chances are he'll trade like the person he is: aggressive and unreasonable. Being aggressive is not a bad attribute in trading but it needs to used in certain conditions (i.e. the market is trending smooth and stepping up size in the right direction is acceptable aggressiveness). But being aggressive randomly is sure to take your account down and out. Unreasonable is even worst, that throwing dice without thought and reason leaving to chance to decide about your money. Each personality has a weakness and the market will point out that weakness quickly. Unless we hide it away and put forward our strength, it'll be a bloodbath.

Whatever happens outside the trading room (trading hours) should be left outside. It's not an easy task to turn off a feeling or state of mind since we're all humans and we can't manage ourselves as well as we'd like. But if we can't turn it off, better not to trade that day.

But some traders have to trade every day as a way of making a living. How does one go about to overcome this deadly state of mind or put into a proper trading mindset to trade with high performance and consistency? There are several tricks or methods to change it quickly. Here are a few:

1. Using a physical cue to engage that emotion or state of mind. Many times a physical action we take change our state of being, such as sports. When we practice sports, the physical activity clears our mind and takes us to another level, mainly state of less stress, worry and anxiety. This cue can be learned. For example, you can practice smiling at the same time thinking of the wonderful time you had in the past. Or by pulling out a cue, the body fools the mind into thinking and feeling something else. This will quickly flushes out the bad emotion unwanted for trading.

2. Using verbal cues to go into a desire state of mind. This may sound mediocre or cliché but the effect speaks for itself. Sport athletes use these cue every time before a major game or meet. Examples would be, “I´m ready to win today, my mind is clear and focused,” or “I’m thinking of a nice sunny sandy beach in Hawaii with a nice drink in the hand and am relax and ready to enjoy the session.” Practicing positive words with focus and concentration will eventually cue the mind to automatically go into that state when it hears these words.

3. Turn the trading environment into a sanctuary where a state of mind is turned on immediately. Many traders trade at home or trade at the office so it's a difficult to get a place where distractions are the norm. This can only create more stress than necessary. Learn how to cope with it or build a set of rules where limits (such as time limits or no trespassing in the office, etc) are set for others.

Many professional athletes and traders can turn these state of mind on and off on a dime by having practicing these over and over along with the real practicing (physical training or trading knowledge building). It is an essential training to go into the "zone" instantaneously. Without doing, it may take hours or days to get rid of this state of mind before that right state of mind back to be ready to trade. This is a waste of productive time.

Author: Larry Swing
Webs: mrswing.com

Discipline

2007-01-27T08:00:00.000-08:00

Discipline is the soul of an army. It makes small numbers formidable; procures success to the weak, and esteem to all.

- George Washington -

Discipline in Everyday Life

The winning trader is the disciplined trader. Disciplined traders devise very detailed trading plans. And they use them. They don't prematurely abandon trading plans. Once a trade is executed, the disciplined trader patiently waits to see the outcome.

The more you trade with discipline, the more profitably you will trade. How disciplined are you? If you have a problem with discipline, it is worth building up this skill.

Some people are highly disciplined and very self-controlled. Others are more impulsive. Extremely disciplined people scrupulously follow rules. They are careful to control their impulses, and may even have trouble letting lose. You know the type. They pay off their credit card bills every month, and are never late for an appointment. They carefully plan every detail of their lives. Although these characteristics may be ideal for trading, there's a downside: Overly disciplined people tend to have trouble taking risks. They prefer a sure thing, but trading outcomes are rarely sure things. People who are overly disciplined don't make the best traders because they crave certainty, a kind of certainty that just doesn't exist when trading the markets in the short term.

Winning traders are the kind of people who tend to prefer living a little on the wild side. They may not recklessly seek out risk, but they don't mind it. Relatively speaking, they tend to lack discipline and self-control. Perhaps that's why so many trading books and coaches find it necessary to remind novice traders to practice discipline and self-control. How is your discipline and self-control? Do you have trouble sticking to your trading plan? Do you long for more discipline and self-control when it comes to your trading?

If you have trouble with discipline, you may want to try a stimulating exercise to increase your awareness: Observe your level of self-control in your everyday life and try to gain more control. How much discipline and self-control do you practice in your everyday life? Are you late for appointments? Do you spend more money each month than your budget allows? Do you frequently find yourself breaking promises? It's not necessarily the case that a disciplined trader is disciplined in all aspects of his or her life, but it helps. The life strategies we use in everyday life may bleed over into our trading life. If you often overspend, overeat, or have an unrestrained need for pleasure, you may find maintaining self-control and discipline while trading a little more difficult than others.

So try this exercise: spend a few weeks trying to control as much of your life as possible.

Pick specific areas where you can gain more self-control. Control your caloric intake, the money you spend, and time spent in leisure activities. See how well you do. It may change your reference point. You may soon discover that you rarely control your impulses, and can do much better. And this in turn may positively influence your ability to stick with your trading plan. It's worth trying. Discipline is the key to trading success. The disciplined trader is the winning trader. It's a skill worth honing.

Mind Power for Traders: The Power of Visualization

2007-01-01T12:08:00.000-08:00

"When an object or purpose is clearly held in thought, its precipitation, in tangible and visible form, is merely a question of time. The vision always precedes the realization." Lillian Whiting

Sounds like magic, doesn't it? Picture something in your mind, and magic presto! There it is! A lot of our thought processes do work like magic. We're somehow not aware that we are the ones creating the magic. We think it just happened.

As you think about your trading, do you picture success? Or do you picture disaster? Or something in between?

We all of us make pictures in our minds of things and events. We may do it so quickly we're not aware of it. Remember a picture is worth a thousand words. If we're making pictures of success, we move towards it.

To succeed at any activity, whether it be athletics or trading, you need to have a clear mental picture of what you want. Through visualization, you imagine yourself successfully having or doing what you want even though it hasn't happened yet. Often unwittingly we do just the opposite-imagine ourselves having or doing what we don't want. This too works like a magnet.

Whenever I work with a client who has trouble pulling the trigger, I ask two questions. What are you saying to yourself when you see the signal? What are you imagining (imaging/picturing)? If they're having trouble pulling the trigger, you can be sure they are imagining the trade taking out their protective stop and giving them a loss.

Whenever I work with a client who overtrades in terms of size or frequency, or a client who continually jumps into the market before his signal matures, I ask the same two questions. You can be sure they are imagining the trade going the way they think it will. They want to get there early or fully. They do not entertain the possibility of loss, and therefore fail to take precaution.

Once again, what we need to picture is ourselves doing the right thing, following our methods and maintaining clarity about price action. Since we do not know and cannot know what will happen, it's best to maintain an attitude of not knowing with an openness to probabilities.

Imagine yourself replicating your methods in the markets. Imagine yourself being consistent and successful. Make a picture of it. Enter the picture so you're looking out of your own eyes. Adjust the qualities of the picture so that it is most impactful. Try making it larger, brighter, more focused.

Take time each day to visualize yourself trading the way you want to trade. Relax. Imagine yourself doing it right now. Make it real in your mind. Make it rich with vivid detail. Enter the role of successful trader and become it in your thoughts.

Do it repeatedly. Visualize your goal at least once a day, every day. The power is in the repetition. Any thought placed in your mind and nourished repeatedly will manifest results in your life. The magic is yours.

Author: Ruth Barrons Roosevelt
Website: RuthRoosevelt.com
Source: MarketMavens.com

Business and Trading: Stress Anxiety Worry and Fear

2006-12-21T19:46:00.000-08:00

It does not really matter if you are a financial market or business trader unless you have mental discipline and are able to control your emotions and your own mind then stress fear anxiety and worry will effect your personal performance and your income.

Success, Wealth and Happiness are Your Choice.

This is the area that Hypnosis, NLP, and EFT will certainly help you with.
Your own Mind

Successful Business traders from all areas do have things in common.

Emotions.
All your emotions are caused by you subconscious mind that area of you that controls over ninety percent of who and what you are.

Your beliefs, habits, behaviors and opinions all come from this area of your mind and to be effective you really do need to be aware of the habits and behaviors that you subconscious has and is running,, because there will effect in a dramatic way how successful you will be.

Stress.
This as you know can drive you or kill you. The amount of burnt out business people I meet is truly horrendous. Many realize that if the had not gone down they would probably be ill or dead. The less switched on come to me after heart attacks, strokes or broken marriages.

Yet the situation is absurd, you cause most of your own stress by how you think and chose to feel.

Very few people suffer from real stress, by that I mean in the world not in there minds and emotional energy field. One of my friend's (ex-sas calls) the every day stress that most people put them selves through "puppy stress". This is real stress that can kill you. When you stand a real chance of being killed or maimed every day that is real.

Fear.
This is one of the biggest emotions that will hold you back. and will have a negative impact on your results living with fear in however you decide to attract income will effect.

If you live with the constant fear that the position will go against you, you are committing a cardinal sin of trading. Before long, fear will paralyse your every move. Trading opportunities will be lost and losses will mount. To help deal with your fear, keep in mind what fear is:

Confidence.
This is a belief that all great traders have in abundance market, business or market. Great traders do not worry about their positions or dwell on short-term losses because they know they will win over the long term they use very effective self-hypnosis to create the reality that they desire. They do not just think they will win they know they will.

Learning how to use your own mind to direct and manifest the realities you desire is one of the best moves in your business or personal life that you can make, and you now have the opportunities to make it so. Hypnosis NLP and EFT will allow you to gain better and consistent results with your confidence in your business life.

Acceptance and Responsibility
One of the biggest differences between successful businesspersons traders and the wealthy is that they accept full and total responsibility for there worlds. There health, relationships, business, income, debts, life-style and there emotional states. All successful people except responsibility for themselves. No Blame.

Awareness & Instincts
In business instincts and awareness do play a crucial role.
There is apart of your brain that you can program to always be on the look out for what you need to know. Many business people have a gut instinct about what to do and with training you too can also learn how to turn your intuition and awareness on to serve you so much better than it has been in the past.

You can learn to fully developing and trust your instincts. Once again, your subconscious mind will do this for you.

So if you are in business a trader or just want to get the success and wealth that you know you deserve.

Call Me Today
01926 332935
realsmart-hypnosis

Metaphors for Trading

2006-12-08T18:48:00.000-08:00

Creation of empowering metaphors is one more tool you can use to enhance your trading. The metaphors you use regarding your trading have a direct impact on your approach to trading and consequently on your profitability.

Usually we don't choose metaphors consciously and yet they're in the back of our minds guiding our interpretation of what's happening and our expectations of what will occur. Sometimes they support us and sometimes they don't. A metaphor is a comparison of one thing to another. "My love is a red, red rose." wrote the poet. Well, his love was not actually a red, red rose but he likened her to a red, red rose with it's beauty, it's fragrance, it's vulnerability, and so forth.

Life's a bowl of cherries, say some. Life's the pits, say others. Life's a bitch and then you die. Or, Life's a bitch and then you marry her. It's a jungle out there. Life's a ball! A delicious smogasboard. A picnic. A contest. Life's a game.

The Myth of Sisyphus tells the story of an extended life metaphor. Sisyphus was condemned for eternity to push a giant rock up a mountain and watch it roll down. Only to push it back up again. Try that as a metaphor for your life or your trading and notice how you feel. Now try saying that life or your trading is a sacred gift. And notice what that feels like.

Metaphors are symbols and as such carry mythic power. They liken one thing to another and in so doing cause us to assume - quite unconsciously -- that what is true of one part of the comparison is also true of the other. Now, of course, if we addressed it logically and consciously we might say it wasn't so.

A metaphor can bring instant beneficial power and can also bring nagging and persistent limitation. A limiting metaphor can be toxic to your life or trading. On the other hand, an ennabling metaphor can work wonders for you even while you sleep. Metaphors are subtle and as such, they can have a profound effect upon how we view ourselves, our lives, our trading, our work, our relationships with others.

A metaphor is a symbolic representation of a belief and like a belief it's usually selected without conscious awareness. Sometimes a metaphor is simply part of the culture. It may or may not support us, so it's important to consciously review and consciously choose and use only helpful metaphors. These metaphors will be your behind the scenes nurturing guides.

Think about the metaphors you use to describe living in general. Do you have one prevailing reference, in other words a primary or dominant metaphor for life? Or do you have a bunch of them? If so, are they all pretty much the same? These metaphors could be organizing your life, so ask yourself, "Do these thoughts support me?" If not, choose others.

Let's look at some metaphors that traders and the trading culture as a whole use to depict and explain trading.

Common metaphors for trading involve sports and warfare. Trading is perceived as a contest between two sides. I win. You lose. You win. I lose.

Combat metaphors are rife. Think about how many times you have read or heard traders referring to trading as a battle. If thinking of trading as a combat enables you to trade more effectively, all well and good. But warfare demands that you bring up all of your resources. It's an all or nothing affair, involving ambush, pillage, rape, scorched ground, wounding, life and death, victory and defeat. A trader goes out each day to do battle with the market. He is at war with the market. No wonder he or she is exhausted at the end of a trading day or week!

Exhaustion is the least of the difficulties. Thinking of trading as warfare could cause you to overtrade or undertrade. Attack and retreat. Such a metaphor could cause you to lose money trading.

If you are at war, who is the enemy? Are you at war with other traders? Are you fighting the market? Is the enemy yourself? Or is it a nameless, faceless enemy? If you are at war with the market, you have an unequal contest.

The market is much bigger than you are. The market has more battle intelligence in the sense of information and certainly more forces. No matter how big a trader you are, you're puny compared to the market. Even if you're George Soros! Same thing if the enemy is the other traders. You against all the other traders? I hope not.

Some market gurus urge the trader to take a Samuria approach to trading. I think that's great, but it still presupposes that trading is war. I read one article where the author urged the trader to approach trading as the samurai releasing fears and trading in an egoless state having made peace with a future outcome---so far so good, but he went on to say---because you are willing to die. Willing to die? I thought. Isn't this conceding the possibility of total wipeout? And speaking of total wipeout, how many times have you said to yourself, "I got killed in the market." Or, "If I do that, I'll get killed!"

These things are subtle and even if the conscious mind can make sense of it, please remember that the unconscious mind interprets whatever you say literally. To illustrate this, let me tell you a story. A woman came to see a hypnotist colleage of mine because she continually ran a low grade fever. Medical doctors could find no cause for it, and she was literally buring herself up. In trance they discovered that after surgery, she had been in the recovery room when a nurse said, "Keep her warm or she'll catch her death." Fortuantely, together they were able to resolve the problem. He gave the unconscious new instructions.

When you say you'll get killed or you're willing to die, what does your literal unconscious mind think? No wonder so many traders hesitate before entering the market and jump out of trades well before they should.

Now I'm well aware that I am a woman in a male dominated field, so for a long time I never challenged the metaphors of war. Your trader is a hunter-warrior. A good friend of mine, Julian Snyder, wrote a book for traders called The Way of the Hunter Warrior. Recently I asked him about the use of such a metaphor for trading, and he conceded that it's total nonsense in the light of what he now knows. "You have to trade without ego, and any contest elevates ego," he said.

I'm more of a nurturer gatherer. Trading to me is more like harvesting. Researching and preparing to trade are more like tilling the ground and planting the seeds. Over the years as I've worked with traders, I find myself shifting their metaphors away from warfare, life and death struggle, to something more cooperative, less intense, and it works for them. They become more comfortable in the market, less fearful, less overly aggressive.

I tell my clients to think of the market as a river of opportunities, constantly flowing. Also I tell them to think of trading itself as an arena as abundant with wealth as the ocean is with water. Sure there are waves and tides and you can ride these, but you always know the low tide will be followed by the high tide and back again, and that there will continue to be wave after wave after wave. I also say the ocean doesn't care whether you go to it with a bucket or a teaspoon. There's just so much.

"Try thinking of the market as a friend or a business partner." I say. If the market is your partner, you can work together. You can want what the market wants. You are in a win-win situation with the market. If the market is your partner, it will show you what it's doing. It will tell you what it's doing. You'll feel it's direction. You'll have agreements on how to succeed. Clients tell me it's much easier to trade thinking of the market this way.

Sometimes I suggest that traders think of trading as a dance. Together you're responding to the beat of the music. I also suggest that they let the market do the leading in this dance..

One very successful trader I work with describes the market as a friend he drifts in and out of contact with. He also thinks of the market as a many forked river that flows while he drifts down looking at the eddies and the rocks, exploring for interesting forks he can take. He also looks at trading as an abstract painting that he doesn't know just how it will look when he's finished, but he knows it will come out all right. His metaphors manifest his confidence and ease in his relationship with the market, and support him in his trading.

If you like sports metaphors, think of trading as a game you're good at, a game you like to play. Don't think of it as an all important contest that you're afraid you'll lose! Think of it as fun! Think of it as sport. Think of it as play.
If you like basketball, you can think of each trade as but one point in a game, and each trading day as but one game in a series. If you like tennis, for goodness sake don't think of each trade as match point. In other words, realize that your trading is truly a series of probabilities, a string of events, no one trade makes or breaks you.

If you like golf, think of yourself focusing on a tight target as you imagine the ball arching up gracefully to go to your target, or seeing the ball roll along a path on the green to drop into the cup as you hear it drop, and then imagine your trades going in the direction of the probabilities right to your target as you pick up the phone and place the order.

If you like baseball think of yourself swinging at each high probability trade forcefully and easily, always keeping your eye on the ball.

Some people think of trading as hunting. The hunter goes out knowing exactly what he's hunting whether it's big game, or rabbits, or pheasant. He goes where the game is. He's got the right equipment. He quietly and patiently waits for his prey. When he sees the prey, carefully he lifts his gun and shoots. No hesitation. Just like a cat waiting for hours until the moment is right and then pouncing on it's prey.

Others think of trading as fishing. Here you manifest patience. Or you go searching for the fish , looking for the birds, and casting into schools of jumping fish.

I like to think of trading as sailing. Here you harness the forces that are there. You take into account the wind direction and velocity, the currents, and your destination. You've got your charts to guide you and you constantly adjust to nature's forces, sometimes pointing into the wind, sometimes running before the wind, sometimes tacking, but always in partnership with your boat, your crew, the wind, and the currents. Sure, storms can come up, but you can always let down the sail and anchor and wait out the storm. You work with the forces that are there, the forces that are much bigger than you, but you enjoy the journey, the day, the sport, and you're confident you can get to your destination, your port, your safe harbor.

Try out different metaphors and experience which ones feel the best. Maybe you are aggressive and like to work in a treacherous arena. Then by all means keep the combat metaphors. Or maybe you'd rather just go fishing. It's purely personal and certainly up to you. How do you install a new metaphor? Simply by thinking about it. It's that easy.

Author: Ruth Barrons Roosevelt

2006-12-04T01:52:00.000-08:00

Trading Psychology: Mistakes in a Trading Environment

2006-12-03T21:34:00.000-08:00

When it comes to trading, one of the most neglected subjects are those dealing with trading psychology. Most traders spend days, months and even years trying to find the right system. But having a system is just part of the game. Don’t get us wrong, it is very important to have a system that perfectly suits the trader, but it is as important as having a money management plan, or to understand all psychology barriers that may affect the trader decisions and other issues. In order to succeed in this business, there must be equilibrium between all important aspects of trading.

In the trading environment, when you lose a trade, what is the first idea that pops up in your mind? It would probably be, “There must be something wrong with my system”, or “I knew it, I shouldn't’t have taken this trade” (even when your system signaled it). But sometimes we need to dig a little deeper in order to see the nature of our mistake, and then work on it accordingly.

When it comes to trading the Forex market as well as other markets, only 5% of traders achieve the ultimate goal: to be consistent in profits. What is interesting though is that there is just a tiny difference between this 5% of traders and the rest of them. The top 5% grow from mistakes; mistakes are a learning experience, they learn an invaluable lesson on every single mistake made. Deep in their minds, a mistake is one more chance to try it harder and do it better the next time, because they know they might not get a chance the next time. And at the end, this tiny difference becomes THE big difference.

Mistakes in the trading environment
Most of us relate a trading mistake to the outcome (in terms of money) of any given trade. The truth is, a mistake has nothing to do with it, mistakes are made when certain guidelines are not followed. When the rules you trade by are violated. Take for instance the following scenarios:

First scenario: The system signals a trade.
1. Signal taken and trade turns out to be a profitable trade. Outcome of the trade: Positive, made money. Experience gained: Its good to follow the system, if I do this consistently the odds will turn in my favor. Confidence is gained in both the trader and the system. Mistake made: None.

2. Signal taken and trade turns out to be a loosing trade. Outcome of the trade: Negative, lost money. Experience gained: It is impossible to win every single trade, a loosing trade is just part of the business; our raw material, we know we can’t get them all right. Even with this lost trade, the trader is proud about himself for following the system. Confidence in the trader is gained. Mistake made: None.

3. Signal not taken and trade turns out to be a profitable trade. Outcome of the trade: Neutral. Experience gained: Frustration, the trader always seems to get in trades that turned out to be loosing trades and let the profitable trades go away. Confidence is lost in the trader self. Mistake made: Not taking a trade when the system signaled it.

4. Signal not taken and trade turns out to be a loosing trade. Outcome of the trade: Neutral. Experience gained: The trader will start to think “hey, I’m better than my system”. Even if the trader doesn't think on it consciously, the trader will rationalize on every signal given by the system because deep in his or her mind, his or her “feeling” is more intelligent than the system itself. From this point on, the trader will try to outguess the system. This mistake has catastrophic effects on our confidence to the system. The confidence on the trader turns into overconfidence. Mistake made: Not taking a trade when system signaled it

Second Scenario: System does not signal a trade.
1. No trade is taken Outcome of the trade: Neutral Experience gained: Good discipline, we only need to take trades when the odds are in our favor, just when the system signals it. Confidence gained in both the trader self and the system. Mistake made: None

2. A trade is taken, turns out to be a profitable trade. Outcome of the trade: Positive, made money. Experience gained: This mistake has the most catastrophic effects in the trader self, the system and most importantly in the trader’s trading career. You will start to think you need no system, you know better from them all. From this point on, you will start to trade based on what you think. Confidence in the system is totally lost. Confidence in the trader self turns into overconfidence. Mistake made: Take a trade when there was no signal from the system.

3. A trade is taken, turned out to be a loosing trade. Outcome of the trade: negative, lost money. Experience gained: The trader will rethink his strategy. The next time, the trader will think it twice before getting in a trade whe the system does not signal it. The trader will go “Ok, it is better to get in the market when my system signals it, only those trade have a higher probability of success”. Confidence is gained in the system. Mistake made: Take a trade when there was no signal from the system

As you can see, there is absolutely no correlation between the outcome of the trade and a mistake. The most catastrophic mistake even has a positive trade outcome, made money, but this could be the beginning of the end of the trader’s career. As we have already stated, mistakes must only be related to the violation of rules a trader trades by.

All these mistakes were directly related to the signals given by a system, but the same is applied when getting out of a trade. There are also mistakes related to following a trading plan. For example, risking more money on a given trade than the amount the trader should have risked and many more.

Most mistakes can be avoided by first having a trading plan. A trading plan includes the system: the criteria we use to get in and out the market, the money management plan: how much we will risk on any given trade, and many other points. Secondly, and most important, we need to have the discipline to follow strictly our plan. We created our plan when no trade was placed on, thus no psychology barriers were up front. So, the only thing we are certain about is that if we follow our plan, the decision taken is on our best interests, and in the long run, these decisions will help us have better results. We don’t have to worry about isolated events, or trades that could had give us better results at first, but then they could have catastrophic results in our trading career.

How to deal with mistakes

There are many possible ways to properly manage mistakes. We will suggest the one that works better for us.

Step one: Belief change. Every mistake is a learning experience. They all have something valuable to offer. Try to counteract the natural tendency of feeling frustrated and approach mistakes in a positive manner. Instead of yelling to everyone around and feeling disappointed, say to yourself “ok, I did something wrong, what happened? What is it?

Step two: Identify the mistake made. Define the mistake, find out what caused the mistake, and try as hard as you can to effectively see the nature of that mistake. Finding the mistake nature will prevent you from making the same mistake again. More than often you will find the answer where you less expected. Take for instance a trader that doesn’t follow the system. The reason behind this could be that the trader is afraid of loosing. But then, why is he or she afraid? It could be that the trader is using a system that does not fit him or her, and finds difficult to follow every signal. In this case, as you can see, the nature of the mistake is not in the surface. You need to try as hard as you can to find the real reason of the given mistake.

Step three: Measure the consequences of the mistake. List the consequences of making that particular mistake, both good and bad. Good consequences are those that make us better traders after dealing with the mistake. Think on all possible reasons you can learn from what happened. For the same example above, what are the consequences of making that mistake? Well, if you don’t follow the system, you will gradually loose confidence in it, and this at the end will put you into trades you don’t really want to be, and out of trades you should be in.

Step four: Take action. Taking proper action is the last and most important step. In order to learn, you need to change your behavior. Make sure that whatever you do, you become “this-mistake-proof”. By taking action we turn every single mistake into a small part of success in our trading career. Continuing with the same example, redefining the system would be the trader’s final step. The trader would put a system that perfectly fits him or her, so the trader doesn’t find any trouble following it in future signals.

Understanding the fact that the outcome of any trade has nothing to do with a mistake will open your mind to other possibilities, where you will be able to understand the nature of every mistake made. This at the same time will open the doors for your trading career as you work and take proper action on every mistake made.

The process of success is slow, and plenty of times it is attributed to repeated mistakes made and the constant struggle to get past these mistakes, working on them accordingly. How we deal with them will shape our future as a trader, and most importantly as a person.

By Raul Lopez
http://www.eforexcurrency.com

The Trend is your Friend

2006-11-29T21:27:00.000-08:00

The Trend is your Friend
TRADERS’ BIGGEST PROBLEM

Trading is likely the most exciting way to make a living and/or accumulate a fortune. You are your own boss and your own worst enemy. You alone must deal with the frustration of your own choices. If you lose, there is no one else to blame. You made the losing decision, even if that decision was to let someone else make your decision or to follow someone else’s approach. On the other hand, if you win, don’t have to say “Thank you” to anyone. You are not obliged to anyone but yourself. There is no politics nor anyone to whom you must cater. You are truly “sliding down the razor blade of life.”

But here is the problem. Most of the time, the market goes nowhere. Only 25 to 40 percent of the time does the market trend, during the remaining 60 to 75 percent of the time the market goes nowhere. Most professional traders make nearly all of their profits in a trending market.

Here is our problem: we don’t want to spend out time entering and exiting a market that is going nowhere. If the market is going nowhere, then the opportunity is NO-WHERE. We want to change that to opportunity is NOW-HERE.

The Trend is your Friend

TREND AND TRADING RANGE

Traders try to profit from changes in prices: Buy low and sell high or sell short high and cover low. Even a quick look at a chart reveals that markets spend most of their time in trading ranges. They spend less time in trends.

A trend exits when prices keep rising or falling over time. In an uptrend, each rally reaches a higher high than the preceding rally and each decline stops at a higher level than the preceding decline. In a downtrend each decline falls to a lower low than the preceding decline and each rally stops at a lower level than the preceding decline and each rally stops at a lower level than the preceding rally. In trading range most rallies stop at about the same high and declines peter out at about the low.

A trader needs to identify trends and trading ranges. It is easier to trade during trends than in trading ranges.

PSYCHOLOGY OF TRENDS AND TRADING RANGE

An uptrend emerges when bulls are stronger than bears and their buying forces prices up. If bears manage to push prices down, bulls return in force, break the decline, and force prices to a new high. Downtrends occur when bears are stronger and their selling pushes markets down. When a flurry of buying lifts prices, bears sell short into that rally, stop it, and send prices to new lows.

When bulls or bears are equally strong or weak, prices stay in a trading range. When bulls manage to push prices up, bears sell short into that rally and prices fall. Bargain hunters step in and break the decline, bears cover shorts, their buying fuels a minor rally, and the cycle repeats.

Prices in trading ranges go nowhere, just as crowds spend most of their time in aimless mulling. Markets spend most of their time in trading ranges than trends because aimlessness is more common among people than purposeful action. When a crowd becomes agitated or excited, it surges and creates a trend.

THE HARD RIGHT EDGE

Identifying trends and trading ranges is one of the hardest tasks in technical analysis. It is easy to find them in the middle of the chart, but the closer you get to the right edge, the harder it gets.

Trends and trading ranges clearly stand out on old charts. Experts show those charts on seminars and make it seem easy to catch trends. Trouble is your broker does not allow you to trade in the middle of the chart. He says you must make your trading decisions at the hard right edge of the chart!

The past is fixed and easy to analyze. The future is fluid and uncertain. By the time you identify a trend, a good chunk of it is already gone. Nobody rings a bell when a trend dissolves into a trading range. By the time you recognize the change, you will lose some money trying to trade as if the market was still trending.

Most people cannot accept uncertainty. They have a strong emotional need to be right. They hang on to losing positions, waiting for the market to turn and make them whole. Trying to be right in the market is very expensive. Professional traders get out of losing trades fast. When the market deviates from your analysis, you have to cut losses without fuss or emotions.

THREE IMPORTANT TRENDS

You may be asking yourself the question, "What is a trend and how long does it last?" There are countless numbers of trends, but before the advent of intraday charts, there were three generally accepted durations: primary, intermediate and short-term.

The main or primary trend, is often referred to as a bull or bear market. Bulls go up and bears go down. They typically last about nine months to two years with bear market troughs separated by just under four years. These trends revolve around the business cycle and tend to repeat whether the weak phase of the cycle is an actual recession, or if there is no recession and just slow growth.

Primary Trend

Primary trends are not straight-line affairs, but are a series of rallies and reactions. These series of rallies and reactions are known as intermediate or medium term trends.

The intermediate or medium term trend can vary in length from as little as six weeks to as much as nine months, or the length of a very short primary trend.

Intermediate trends typically develop as a result of changing perceptions concerning economic, financial, or political events. It is important to have some understanding of the direction of the main or primary trend because rallies in bull markets are strong and reactions are weak. On the other hand, reactions in bear markets are strong and rallies are short, sharp, and generally, unpredictable.

If you have a fix on the underlying primary trend, you will be better prepared for the nature of the intermediate rallies and the reactions that will unfold.

In turn, intermediate trends can be broken down into short-term trends, which last from as little as two weeks to as much as five or six weeks.

Market Cycle Model

As an investor, it is best to accumulate when the primary trend is in the early stages of reversing from down to up, and liquidate when the trend is reversing from up to down. Second, as traders, we are better off if we position ourselves with the long side in a bull market since that is when short-term uptrends tend to have the greatest magnitude. By the same token, it does not usually pay to short in a bull market because declines can be quite brief and reversals to the upside unexpectedly sharp. If you are going to make a mistake, it is more likely to come from a counter-cyclical trade.

If you're an intraday trader, you may think all of this does not apply to you, but really, it does. It is important to remember that even on intraday charts, the predominant trend determines the magnitude and duration of the shorter moves. You may not feel a three-hour rally is closely related to a two-year primary bull market move, but it is just as related as a five or six-day trend.

Charles Dow, the author of the venerable Dow theory, stated at the turn of the century that the stock market had three trends. The long term trend lasted several years, the intermediate trend lasted several months and anything shorter than that was a minor trend. Robert Rhea, the great market technician of the 1930s, compared the three market trends to a tide, a wave and a ripple. He believed that traders should trade in the direction of the market tide and take advantage of the waves and the ripples to time your entry and exit.

CONFLICTING TIMEFRAMES

Most traders ignore the fact that markets usually are both in a trend and in a trading range at the same time! They pick one time frame such as daily or hourly and look for trades on the daily charts. With their attention fixed on daily or hourly charts, trends from other time frames, such as weekly or 10 minute trend keep sneaking up on them and wrecking havoc with their plans.

Markets exist in several time frames simultaneously. They exist on a 10 minute chart, an hourly chart, a daily chart, a weekly chart, and any other chart. Traders often feel confused when they look at charts in different time frames and they see the markets going in several directions at once. The market may look for a buy on a daily chart and a sell on the weekly chart, and vice versa. The signals in different time frames of the same market often contradict one another. Which of them will you follow? Most traders pick one time frame and close their eyes to others – until a sudden move outside of “their” time frame hits them.

A FACTOR OF FIVE

When you are in doubt of a trend, step back and examine the charts in a timeframe that is larger than the one you are trying to trade. A factor of 5 links all timeframes. If you start with the weekly charts and proceed to the dailies, you will notice that there are five trading days to a week. As your timeframe narrows, you will look at hourly charts – and there are approximately 5 to 6 trading hours to a trading day. Intra day traders can proceed even further and look at 10 minute charts, followed by 2 minute charts. All are related by a factor of five. The proper way to analyze any market is to analyze it in at least two time frames. If you analyze daily charts, you must first examine the weekly charts and so on. This search for greater perspective is one of the key principles of the Traders Edge Multiple Time Frame Trading System.

METHOD AND TECHNIQUES

There is no single magic method to identifying trends and trading ranges. There are several methods and it pays to combine them. When they confirm one another, their message is reinforced. When they contradict one another, it is better to pass up the trade.

Analyze the pattern of highs and lows. When rallies keep reaching higher levels and declines keep stopping at higher levels they identify an uptrend. The pattern of lower lows and lower highs identifies a downtrend, and the pattern of irregular highs and lows points to a trading range.

Draw an uptrendline connecting significant recent lows and a downtrendline connecting significant recent highs. The slope of the latest trendline identifies the current trend A significant high or low on a daily chart is the highest high or lowest low for at least a week. As you study charts, you become better at identifying those points. Technical analysis is partly a science and partly an art.

The direction of a slope of a moving average identifies the trend. If a moving average has not reached a new high or low in a month, then the market is in a trading range.

Several market indicators, such as MACD and the Directional system help identify trends. The Directional system is especially good at catching early stages of new trends.

CONCLUSION

Markets change, new opportunities emerge, and old ones melt away. Good traders are successful but humble people – they always learn. The primary purpose of the market is to find immediately the exact price where there is an equal disagreement on value and an agreement on price. Speculators get paid for buying what nobody wants when nobody wants it and selling what everybody wants when everybody wants it. Remember there is no such thing as a bad trader. There is only a well trained or badly trained trader.