Part 4: Smart Ways for FX Traders to Avoid Losing Money

by Trader_001 | Aug 21, 2016 | Bullish, Forex

Check out Part 1 Here, Part 2 Here, and Part 3 Here.
 
Too Many Indicators
If you have read any of my previous articles here on LinkedIn then you may have noticed that I poke at technical analysis a bit because I personally have found success day trading the fundamentals and sentiment and I only use technicals as a timing tool, not a decision making tool.
I get a lot of struggling traders come to me looking for some help to get them trading profitably.  When I ask these traders to describe their current trading strategy I get one of 2 responses:
 

1. They have no strategy and smash in and out of the market on nothing more than gut feel.
2. They go off on an incomprehensible rant: to have a trade setup they wait for a harmonic wave pattern to form on the 4h chart and close outside the 2.3 standard deviation Bollinger bands.  But in order to get a confirmation they need the parabolic SAR to be below price, the 47 exponential moving average to cross above the 183 simple moving average on the 17 minute chart, the Ichimoku cloud floating below price, but if the 6 stochastic and MACD are not oversold and turning up then the trade is off........

 
This is about the time I flip the desk over and walk out.  You might as well cook a nice spaghetti bolognese and instead of enjoying your delicious dinner throw it at your computer screen.  Try it out, you might notice the resemblance to your charts if this is how you trade.
Imagine your frustration with wasting your nice meal like that.  Now imagine trying to trade for a living like that.  Ridiculous.
If you’re trading with more than 2 indicators then you need to clean house. Having many indicators stifles trading and finds reasons not to trade.  A setup and a trigger in line with the fundamentals is all you need.
 
Quality Trading Time
 
3 hours a day of quality focused trading time should be enough to get you well on your way to gaining plenty of trading experience.  When you’re trading being 100% focused is essential, half way doesn’t work.  Just because you sit and stare at the charts for 8 hours a day doesn't mean that you are gain proper quality experience discovering why prices move the way they do.
Time spent in front of the computer has no correlation to profitability as a trader.  Spend less time but when your trading be 100% focused on trading and fully tune into the market.
Even more important is the time that you spend after the trading session is over.  This is things like going over your trades objectively while not in the battle, finding the mistakes you made by not following your plan and making your purpose to not repeat those same mistakes tomorrow.  I can't tell you how many traders I come across that have no tracking plan for their results they are getting.  They literally have no idea is they are actually following their plan or not.
 
Simulated Results
 
This is another trap I see a lot of traders fall into.  Look out for “black box” systems.  These are trading systems that don’t divulge how the trade signals are generated.  The vast majority of them are absolutely nothing more than simple systems that will not deliver what the seller is promising.  Many use dangerous Martingale system in order to achieve the high returns.   They show you a track record of extraordinary results that may or may not be fabricated.
If you think about if you build a trading system with half a dozen filters using the benefit of hindsight you too could come up with a great system.  Of course going forward is an entirely different story.  They fit the system to the past data which of course typically does not work in forward markets.  High-speed number crunching capabilities allows for building great hindsight trading systems that don’t perform going forward.  Beware of the too good to be true scenario.
This is not to say that all automated systems do not work because there are definitely some that do.  I just say think twice about it if someone is selling an algo that produces 1,000% returns monthly for $50.  I promise you that if I had that I would not sell it to you for even $10,000,000.
 
This concludes my 4 part series on smart ways to avoid losing money.  I hope that you may have found something of use in here.
 

Part 3: Smart Ways for FX Traders to Avoid Losing Money

by Trader_001 | Aug 14, 2016 | Bullish, Forex

Check out Part 1 Here and Part 2 Here.
 
Lack of Courage to Take a Loss
 
There is nothing macho or gutsy about riding a loss, just stupidity and cowardice.  It takes guts and intelligence to accept your loss and wait for the right opportunity to try again.  It also takes practice.  That's right, practice taking your losses.  With time it gets easier.
I know that financial loss is one of the scariest things for humans to accept but at some point if you are going to succeed as a trader you need to make the decision that you will define your maximum loss per trade.  If price gets to your max loss point then you need to start learning what it feels like to take that loss and preserve your precious trading capital.  Over time the pain will lessen and it will become automatic.
I know the above seems hard for some to digest but think about this for a moment.  Back in the day when I was prop trading it was pretty common for me to trade 2-5 millions shares per day, in and out, foaming at the mouth high frequency manual trading all day long.  I literally took hundreds of losses per day!  The major thing that made it work for me was refusing to take a larger loss than my plan allowed.  Learn to take your losses intelligently!
 
Rationalizing
 
This is an absolute Killer of traders and complimentary to the above point.
Put your trade on and let it run.  If it hits your reasonable pre-determined stop then your trade is over.  If you have to walk away from the computer and compose yourself then do it but don't for a second remove your stop and start rationalizing that the market will come back for any reason whatsoever.
If we use the analogy of thinking of your trading self as a fighter.  Your stop loss just got knocked out.  Moving your stop to make it larger is like getting up after being crushed with a knockout blow and trying to fight some more.  It’s pointless and things will only get worse.  Come back the next day and try again.  A small loss will not ruin you but a catastrophic loss will both emotionally and financially.
 
Mixing Apples with Oranges
 
Have you ever done this?  You see the EURUSD start aggressively trading higher so you go an buy another  USD pair such as GBPUSD because it hasn't moved yet thinking that the US dollar is going to be weak across the board.   This is a mistake.  The reason the GBPUSD hasn’t moved yet is likely because of something external such as early morning economic news that was bearish.
Also, think about the implications of EUR going up.  This means that it will actually be putting upside pressure on ERUGBP which could have a weakening effect on GBP on other pairs because the EURGBP is a major currency pair (in my opinion at least).
Don’t mix apples and oranges, if EURUSD looks like it’s being bid up aggressively then look for an intelligent spot buy EURUSD.  Make sure to confirm with the news feed that there is a good sentiment or fundamental reason for the move as this is what will sustain the aggressive buying and give you conviction to hold for better profits.
 
Part 4 to follow shortly!