CREATING A TRADING PLAN PART 3
Trading Goals
Setting goals is an essential part of your trading plan as they provide you with a beacon to work towards, the ability to track your progress and the motivation required to get the job done. Try to define your goals in terms of your development as a trader, as opposed to purely financial goals. If you focus on becoming a proficient trader, the financial rewards are sure to follow just as night follows day. Then decide how you will achieve these goals and how you will reward yourself once you do. The rewards should reflect the scale of the achievement as well as being specific and meaningful to you. For example, the reward of a night out should name both the venue and the people you intend to take with you.
Annual trading goals:
This looks at the big picture, think of the knowledge and the skills you want to have in a years time.
An example will be: My annual trading goal is to . . . (develop my trading ‘edge’ in order to tip the balance of probabilities in my favour. At the moment, this comprises three separate elements, namely:
1. I receive coaching from _____ ________, who is one of the best practitioners of the strategies that I employ.
2. I model the best trading practices, including having a written, clearly laid out trading plan.
3. My strategies are well developed, tested and monitored comprehensively to ensure that they remain tradable, market sensitive and profitable). I expect to achieve these goals because . . . (in addition to the coaching, I read xyz magazine and study the words of wisdom from the more experienced members of Forex Factory. When I achieve my goal, my reward will be . . . (a two week family holiday in Japan).
Monthly trading goals:
An example will be: My monthly trading goal is to . . . (achieve consistent profitability every month, with a Success ratio of 2:1 or more. I expect to achieve these goals because . . . (I review my performance on a daily / weekly / monthly basis and quickly spot any problems, should they occur). When I achieve this, my rewards will be . . . (a celebratory meal out with my partner / family in a porch restaurant).
Weekly trading goals:
We need to zoom in closer on the details now.
An example will be: My weekly trading goal is to . . . (trade every day of the week in accordance with my trading plan. This will entail taking my stops instantly; sticking to my risk and money management strategies; following my exit criteria and devoting most of my time to searching for new trades and choosing only the very best setups). When I achieve this goal I will pat myself on the back by . . . (having my favorite wine and cigar at Wine Connection in town).
Daily trading goals:
We are zooming even closer into the details. Every day what do you what to achieve?
An example will be: My daily trading goal is to . . . (trade according to my plan. Today I will stick to my plan because it is detailed, specific, tested and profitable. I am confident that I have the self discipline to adhere to it which, in turn, will ensure that my weekly, monthly and annual goals are met). Assuming that I stick to my plan, I will pat myself on the back by . . . (Watching my favorite drama for an hour)
What markets are you going to trade
You have a choice on which market to trade, it could be currencies, stocks, index, oil....the list goes on. Every trader has a reason on why he wants to trade that particular instrument. You will need to list down the reasons why you want to trade this currency pair or this stock. Also list down the number of instruments you are looking at.
An example will be: The instruments that I will trade are . . . (U.S. stocks in the evening after work because good opportunities exist in the 7-9pm session. They also provide excellent liquidity, volatility, tight spreads, fast fills and low commissions). The currency pairs I am looking at is ….... because........
What time frame will you be trading in?
By now you would have decided what kind of trader are you or would like to become (swing, intraday or position trader). After deciding on what kind of trader you are, you have to focus on the time frame you will be trading in. You must be clear in how many time frames you will be trading in any why you will be using them.
An example will be: As a swing trader, I will use . . . (daily charts to determine the trend; 10 minute charts to enter and exit positions and 60 minute charts to monitor my open positions).
Wednesday, July 22, 2009
Wednesday, July 15, 2009
CREATING A TRADING PLAN PART 2
CREATING A TRADING PLAN PART 2
Look at the man in the mirror.
Let get to business now. “Your mental state is key in trading successfully” Peter Crown. You have to be right in the mind before beginning to trade. What we are going to do now is set the foundation, to answer questions most traders are afraid to ask themselves. By asking yourself these questions and answering them truthfully, you will find that you become grounded and you will have a goal for trading. Please add this into your trading plan.
Why do you want to become a trader?
Normally the first answer that pops into the mind is to make money. That is true, but you would have to dig deeper. There are other easier ways to make money, and making money in trading is very hard work.
An example of an answer: I want to be a trader because . . . (I am excited by the challenge to be successful in a discipline that is notoriously difficult and where, allegedly, 90% of participants fail). My primary objective in wanting to be a trader is to . . . (generate sufficient annual income of $______ in order to support my family). My secondary objective is to . . . (spend more time with my family and enjoy the freedom of being able to trade from anywhere in the world). These objectives are important to me because . . . (they provide purpose and direction to my life and enable me to lead a more balanced one). I believe I can achieve my objectives because . . .
What kind of trader are you?
Are you a technical or fundamental trader? Are you a discretionary or a mechanical trader? Are you looking for short term or long term trades? Are you a position, swing or day trader?
An example of an answer: I am a discretionary trader and my style is very . . . (aggressive - which makes me suited to scalping intraday or, alternatively, conservative – which makes me suited to swing trading end of day (E.O.D.)). I understand that I cannot predict the future and I accept that I cannot control the markets. However I can control myself, which I will do by . . . (adhering strictly to my trading plan that is detailed, specific, tested and profitable).
What are your strengths and weaknesses?
You will have to list all your strength and weaknesses in trading and you will have to elaborate on how it will help or hinder you in your trading experience. If you have trouble answering this question, paper / demo trade for sometime and note if you are doing something wrong or right. Do this until a pattern emerges which should reveal to you your strength and weakness.
An example of an answer: My primary strength is . . . (allowing my profits to run and closing trades in accordance with my exit strategy. This contributes to ‘my edge’ and helps me towards my goal of being consistently profitable in the markets). My secondary strength is . . .
My primary weakness is . . . (wanting to recoup a loss quickly which, almost inevitably, results in increased losses). The following aspect of my trading plan will help to control this weakness and prevent losses from spiralling out of control . . . (I have a pre-defined daily stop. If it is hit, I stop trading
for the day). My secondary weakness is . . .
Are you in the right frame of mind to trade?
Like it was mentioned before, your mindset is the key in trading successfully. Ask yourself, have you slept well, are you fit, healthy and mentally alert, are u calm and relaxed or tired and distracted my things happening around you?
An example of an answer: I will only trade on days when . . . (I am rested, relaxed and not distracted by work or family etc. I will be guided by my trading plan and I will adhere to it rigidly. It will help to prevent me from making trades that are poorly conceived and executed; i.e. trades that are based on gut feeling and motivated by fear and/or greed).
I will not trade on days when . . . (I am feeling off colour, hung over, particularly tired or when
I am mentally distracted by other events in my life).
What kind of income are you looking at or hoping to get?
We all want to make money in trading, that's a given. It is important to know what kind of income you are looking at? But there's a catch, if you have a 10k account, don't expect to make it into a 100k account in a month. Be realistic. Only by testing the systems will you have an idea of what kind of income you are looking at. Don't wish for the sky because it could crash on your head.
An example of an answer: My financial targets are . . . (to achieve a return of X% per year, which equates to an annual income of $______ without the drawdown on my account exceeding a maximum of Y%. This equates to an average monthly income of $_____, an average weekly income of $____ and an average daily income of $___. Therefore, I have a daily target of Z% of my total equity).
I think I will stop here for today and get back to trading. The next part will setting trading goals. A trading plan takes time to make, but to be frank with you, the trading plan has saved me from loosing my head many times and it's worth the effort to create one. The trading plan will have everything, your whole thought process, and these questions and answers should be in the trading plan, it helps to create a foundation where you know who you are.
Look at the man in the mirror.
Let get to business now. “Your mental state is key in trading successfully” Peter Crown. You have to be right in the mind before beginning to trade. What we are going to do now is set the foundation, to answer questions most traders are afraid to ask themselves. By asking yourself these questions and answering them truthfully, you will find that you become grounded and you will have a goal for trading. Please add this into your trading plan.
Why do you want to become a trader?
Normally the first answer that pops into the mind is to make money. That is true, but you would have to dig deeper. There are other easier ways to make money, and making money in trading is very hard work.
An example of an answer: I want to be a trader because . . . (I am excited by the challenge to be successful in a discipline that is notoriously difficult and where, allegedly, 90% of participants fail). My primary objective in wanting to be a trader is to . . . (generate sufficient annual income of $______ in order to support my family). My secondary objective is to . . . (spend more time with my family and enjoy the freedom of being able to trade from anywhere in the world). These objectives are important to me because . . . (they provide purpose and direction to my life and enable me to lead a more balanced one). I believe I can achieve my objectives because . . .
What kind of trader are you?
Are you a technical or fundamental trader? Are you a discretionary or a mechanical trader? Are you looking for short term or long term trades? Are you a position, swing or day trader?
An example of an answer: I am a discretionary trader and my style is very . . . (aggressive - which makes me suited to scalping intraday or, alternatively, conservative – which makes me suited to swing trading end of day (E.O.D.)). I understand that I cannot predict the future and I accept that I cannot control the markets. However I can control myself, which I will do by . . . (adhering strictly to my trading plan that is detailed, specific, tested and profitable).
What are your strengths and weaknesses?
You will have to list all your strength and weaknesses in trading and you will have to elaborate on how it will help or hinder you in your trading experience. If you have trouble answering this question, paper / demo trade for sometime and note if you are doing something wrong or right. Do this until a pattern emerges which should reveal to you your strength and weakness.
An example of an answer: My primary strength is . . . (allowing my profits to run and closing trades in accordance with my exit strategy. This contributes to ‘my edge’ and helps me towards my goal of being consistently profitable in the markets). My secondary strength is . . .
My primary weakness is . . . (wanting to recoup a loss quickly which, almost inevitably, results in increased losses). The following aspect of my trading plan will help to control this weakness and prevent losses from spiralling out of control . . . (I have a pre-defined daily stop. If it is hit, I stop trading
for the day). My secondary weakness is . . .
Are you in the right frame of mind to trade?
Like it was mentioned before, your mindset is the key in trading successfully. Ask yourself, have you slept well, are you fit, healthy and mentally alert, are u calm and relaxed or tired and distracted my things happening around you?
An example of an answer: I will only trade on days when . . . (I am rested, relaxed and not distracted by work or family etc. I will be guided by my trading plan and I will adhere to it rigidly. It will help to prevent me from making trades that are poorly conceived and executed; i.e. trades that are based on gut feeling and motivated by fear and/or greed).
I will not trade on days when . . . (I am feeling off colour, hung over, particularly tired or when
I am mentally distracted by other events in my life).
What kind of income are you looking at or hoping to get?
We all want to make money in trading, that's a given. It is important to know what kind of income you are looking at? But there's a catch, if you have a 10k account, don't expect to make it into a 100k account in a month. Be realistic. Only by testing the systems will you have an idea of what kind of income you are looking at. Don't wish for the sky because it could crash on your head.
An example of an answer: My financial targets are . . . (to achieve a return of X% per year, which equates to an annual income of $______ without the drawdown on my account exceeding a maximum of Y%. This equates to an average monthly income of $_____, an average weekly income of $____ and an average daily income of $___. Therefore, I have a daily target of Z% of my total equity).
I think I will stop here for today and get back to trading. The next part will setting trading goals. A trading plan takes time to make, but to be frank with you, the trading plan has saved me from loosing my head many times and it's worth the effort to create one. The trading plan will have everything, your whole thought process, and these questions and answers should be in the trading plan, it helps to create a foundation where you know who you are.
CREATING A TRADING PLAN PART 1
CREATING A TRADING PLAN PART 1
What is a trading plan?
A trading plan is a document that governs everything in a traders life. A trading plan by itself will not make a trader successful, but it will increase the odds in favor of the trader. It will force the trader to engage the market in a organized and methodical way. Most new traders do not have a trading plan and they end up trading by feeling, gut instinct or in a haphazard manner, in doing so will jeopardize the account. At the heart of a good trading plan is the money management rules that minimize the losses that will incur so that the trader can last longer in the game then those traders who do not have a trading plan.
With a trading plan, a trader can have a good idea on his performance and can make interventions if he feels that there is something wrong. There's an old Chinese saying “When you die, you need to know why you died”. With a trading plan you will know if your trading systems are not making money. Some traders don't have a clue that their systems are not performing and continue to make huge losses thinking it's a draw down and not that their systems are lousy.
This quote sums up why a trading plan is vital. “While a plan cannot predict the future, it can lay down how you react to the possible outcomes. This is why a plan is essential. It is a list of strategic responses to events beyond your control. You control the only thing you can control – yourself” Alpesh B. Patel.
Some people have told me that a trading plan is the same as a trading system, but in actual fact a system is a part, a small part, of a trading plan. A trading plan is a holistic approach to trading, a trading lifestyle that governors every aspect of a traders experience. While a trading system will just tell a trader when to enter and exit the markets. In the overall picture, a trading system makes up only about 20% of the whole trading plan. When I share with people about a trading plan, I tell them that a system must be a part of a trading plan, but a trading plan can have any system. In my case I have a few systems running in my trading plan.
A trading plan has several different parts or components. These parts can be interchanged with other parts from different traders. Let me give you an example, Let say you and I have our own trading plan and when I look at your trading plan I like your money management rules. I can actually take my money management rules and replace it with yours without changing the other parts of my trading plan and the trading plan should be able to work.
I have been asked this question, who needs a trading plan? In my humble opinion, everyone that trades / engages the market needs a trading plan. “If you fail to plan, you plan to fail”. Before trading I was running several businesses . Before starting a new business, I always made a business plan, this plan guides me in the business. A trading plan is the same thing, it will guide a trader so he does not get lost and become prey for the other traders.
A trading plan will make trading easier, it will stop you from “thinking” about where the market will go and all you have to do is to execute the plan. In trading all “thinking” should be done outside of the market, during the weekend or your off day from trading. “Thinking” should not be done when your “in” the market. When you are “in” the market, you should be just doing (following the trading plan), not thinking.
It will also make it easier for you to keep account your progress and it will let you know if you have gone off track and how to get back on and it will also keep you discipline, thus keeping your emotions in check so you would make hasty decisions.
I hope to go thru everything I know on how to make a trading plan so that new traders can start making one. To me a trading plan, a good trading plan, is the Grail in trading. When you look at the pros, you will realize that the outcome of the trade is not important, following the trading plan to the letter is the most important thing.
What is a trading plan?
A trading plan is a document that governs everything in a traders life. A trading plan by itself will not make a trader successful, but it will increase the odds in favor of the trader. It will force the trader to engage the market in a organized and methodical way. Most new traders do not have a trading plan and they end up trading by feeling, gut instinct or in a haphazard manner, in doing so will jeopardize the account. At the heart of a good trading plan is the money management rules that minimize the losses that will incur so that the trader can last longer in the game then those traders who do not have a trading plan.
With a trading plan, a trader can have a good idea on his performance and can make interventions if he feels that there is something wrong. There's an old Chinese saying “When you die, you need to know why you died”. With a trading plan you will know if your trading systems are not making money. Some traders don't have a clue that their systems are not performing and continue to make huge losses thinking it's a draw down and not that their systems are lousy.
This quote sums up why a trading plan is vital. “While a plan cannot predict the future, it can lay down how you react to the possible outcomes. This is why a plan is essential. It is a list of strategic responses to events beyond your control. You control the only thing you can control – yourself” Alpesh B. Patel.
Some people have told me that a trading plan is the same as a trading system, but in actual fact a system is a part, a small part, of a trading plan. A trading plan is a holistic approach to trading, a trading lifestyle that governors every aspect of a traders experience. While a trading system will just tell a trader when to enter and exit the markets. In the overall picture, a trading system makes up only about 20% of the whole trading plan. When I share with people about a trading plan, I tell them that a system must be a part of a trading plan, but a trading plan can have any system. In my case I have a few systems running in my trading plan.
A trading plan has several different parts or components. These parts can be interchanged with other parts from different traders. Let me give you an example, Let say you and I have our own trading plan and when I look at your trading plan I like your money management rules. I can actually take my money management rules and replace it with yours without changing the other parts of my trading plan and the trading plan should be able to work.
I have been asked this question, who needs a trading plan? In my humble opinion, everyone that trades / engages the market needs a trading plan. “If you fail to plan, you plan to fail”. Before trading I was running several businesses . Before starting a new business, I always made a business plan, this plan guides me in the business. A trading plan is the same thing, it will guide a trader so he does not get lost and become prey for the other traders.
A trading plan will make trading easier, it will stop you from “thinking” about where the market will go and all you have to do is to execute the plan. In trading all “thinking” should be done outside of the market, during the weekend or your off day from trading. “Thinking” should not be done when your “in” the market. When you are “in” the market, you should be just doing (following the trading plan), not thinking.
It will also make it easier for you to keep account your progress and it will let you know if you have gone off track and how to get back on and it will also keep you discipline, thus keeping your emotions in check so you would make hasty decisions.
I hope to go thru everything I know on how to make a trading plan so that new traders can start making one. To me a trading plan, a good trading plan, is the Grail in trading. When you look at the pros, you will realize that the outcome of the trade is not important, following the trading plan to the letter is the most important thing.
TO BE IN THE SAME LEGUE AS THE BEST TRADERS IN THE WORLD
TO BE IN THE SAME LEGUE AS THE BEST TRADERS IN THE WORLD
“We are what we repeatedly do. Excellence therefore is not an act but a habit.” Aristotle
How does one become a great successful trader? How does one be in the same league as the great traders?
When I started my trading career, I wanted to become the best trader in the world. While learning trading, both technical and fundamental analysis, one of my broker friends told me that about 95% of traders who start trading lose money in the end, blow their account.
This really got me thinking about how I should go about learning the art of trading. Think about it, most people will say that you need to become a 'guru' in technical analysis and or most people will say that you need to become a 'guru' at fundamental analysis to become successful at trading, but here's the kicker, most people fail.
What is needed then to become successful in a place where so many great men have failed. I then turned my attention and my learning efforts to learn from the remaining 5% of the traders. Just as I focused my attention to learn from the greats, the 5%, I was waiting for a flight to Australia, I went into a book store looking for something read and came across a great book, “Winning Investment Habits of Warren Buffett & George Soros” by Mark Tier. This book propelled my mind to search what the pros did to become better than the rest of the other mortals to achieve godlike status.
No doubt the pros know what is needed to trade (eg. Technical and Fundamental analysis), then what makes them different from the rest? The answer, in my humble opinion, is in the quote and book title above, it's in their habits. The definition of habit in the dictionary is “an acquired behavior pattern regularly followed until it has become almost involuntary ”. To me this boils down to the following of the trading plan.
A trading plan is more than a trading system, is a lifestyle, a trading lifestyle. I take trading very seriously and I will do whatever it take to get ahead. A trading plan is more than just telling you when to buy or sell or where to place your stop loss (risk). It will tell you when to wake up, sleep, watch tv, eat, exercise, got to and from the office, when and what to trade, just to name a few example.
I have traded with good traders and learned from the best and all of them have something in common, a trading plan. Whether we realize it or not, we have all have systems / plans for everything in our lives; from bathing to tying your shoe lace to wearing your clothes. If you observe / realize how you take a shower you will know what I am talking about. Some people start with the head first then move down. Others start with the legs then arms then body; the list of different ways goes on, everyone has a different way.
Think about it, our life is full of systems, trading is also like that. After years of trading, I realize that it's all about following the trading plan to the letter and executing the plan is more important that the outcome of the trade. Thinking about where the market is going to go is what most newbies do when they start the trading journey, but they don't realize that this is a futile exercise and the pros don't really care where the market is going, they only care about following the trading plan to the letter.
I will be starting a series about creating a trading plan as time will permit. To build a trading plan is much harder that most people think; it's more than a system, it has several key components.
“We are what we repeatedly do. Excellence therefore is not an act but a habit.” Aristotle
How does one become a great successful trader? How does one be in the same league as the great traders?
When I started my trading career, I wanted to become the best trader in the world. While learning trading, both technical and fundamental analysis, one of my broker friends told me that about 95% of traders who start trading lose money in the end, blow their account.
This really got me thinking about how I should go about learning the art of trading. Think about it, most people will say that you need to become a 'guru' in technical analysis and or most people will say that you need to become a 'guru' at fundamental analysis to become successful at trading, but here's the kicker, most people fail.
What is needed then to become successful in a place where so many great men have failed. I then turned my attention and my learning efforts to learn from the remaining 5% of the traders. Just as I focused my attention to learn from the greats, the 5%, I was waiting for a flight to Australia, I went into a book store looking for something read and came across a great book, “Winning Investment Habits of Warren Buffett & George Soros” by Mark Tier. This book propelled my mind to search what the pros did to become better than the rest of the other mortals to achieve godlike status.
No doubt the pros know what is needed to trade (eg. Technical and Fundamental analysis), then what makes them different from the rest? The answer, in my humble opinion, is in the quote and book title above, it's in their habits. The definition of habit in the dictionary is “an acquired behavior pattern regularly followed until it has become almost involuntary ”. To me this boils down to the following of the trading plan.
A trading plan is more than a trading system, is a lifestyle, a trading lifestyle. I take trading very seriously and I will do whatever it take to get ahead. A trading plan is more than just telling you when to buy or sell or where to place your stop loss (risk). It will tell you when to wake up, sleep, watch tv, eat, exercise, got to and from the office, when and what to trade, just to name a few example.
I have traded with good traders and learned from the best and all of them have something in common, a trading plan. Whether we realize it or not, we have all have systems / plans for everything in our lives; from bathing to tying your shoe lace to wearing your clothes. If you observe / realize how you take a shower you will know what I am talking about. Some people start with the head first then move down. Others start with the legs then arms then body; the list of different ways goes on, everyone has a different way.
Think about it, our life is full of systems, trading is also like that. After years of trading, I realize that it's all about following the trading plan to the letter and executing the plan is more important that the outcome of the trade. Thinking about where the market is going to go is what most newbies do when they start the trading journey, but they don't realize that this is a futile exercise and the pros don't really care where the market is going, they only care about following the trading plan to the letter.
I will be starting a series about creating a trading plan as time will permit. To build a trading plan is much harder that most people think; it's more than a system, it has several key components.
Monday, June 29, 2009
AUD/USD DAILY UPDATE
This is our daily outlook for the AUD/USD for the 29th June '09. Looking for enrty on a lower timeframe to short the AUD/USD. Will update this blog how this trade pans out.
Wednesday, June 17, 2009
ART OF WAR
ART OF WAR
“Know thy self, know thy enemy. A thousand battles, a thousand victories.”
Sun Tzu quotes (Chinese General and Author, b.500 BC)
I love and use this quote very often when I share with people on how to trade. I regard myself as a general, to be more specific, I consider myself a Spartan general / warrior in battle commanding my soldiers (my account / funds) into battle . Why a Spartan you might ask, because as retail traders, no matter how big the account size (even with millions), we are fighting a war / battle with a few soldiers against an enemy with hordes of troops with an invincible armada.
Know thy self. What does that mean? What's there to know about our self? Knowing yourself is knowing your limitations, the size of your account, your knowledge of the markets, the amount of time you can devote to trading, the trading environment you are working in, the type of hardware and software you have and other constraints that you might have.
Know thy enemy. In the markets there are two enemies; the first yourself, which I personally find is the worst to overcome, the second is the market (and it's participants). As I post more often, I will go through in more detail about the first enemy and how to overcome it.
As in war we will look the “big boys”, the ones who is said by many to move markets. Who are the “big boys”, they are the Governments / central banks, banks, fund managers, big brokers and institutional investors. What do they have in their arsenal? Let me break it down for you.
1.FUNDS: They control / manage billions of dollars. Although the forex market is vast, if they work together, and they do at times, committing billions each, they can move the forex markets to a certain extent to go stop hunting, the process of forcing some traders out of their positions thus making the trader to loose money.
Almost all retail traders don't have funds even near that amount.
2.MANPOWER: They employ the best minds of the financial world, individuals who specialize in specific areas. For example they have people who specialize only in technical analysis, others is fundamentals, others in specific counters / instruments, example EUR/USD or XAU/USD (gold).
Most retail traders, who I am sure are smart people in general or are a specialist their respective
fields, example doctors, lawyers and accounts, do not posses the same knowledge level as a professional trader / analyst.
3.24 HOURS TRADING DESK: They have traders trading 24 hours a day (with shifts) trading all the markets around the world.
I am a full time trader trading for a living, at the most, I trade for about 16 hours a day. Most retail traders have other commitments, like a job and family and can't trade 24 hours a day.
4.SOFTWARE: They have access to professional charts and news feed. They have access to very fast news, as fast as when the news hits the wire they will get it.
Most retail traders are using free or cheap, cheap as in they pay a low fee, for charting software. For myself, I use several charting services, about half of the software I pay a monthly fee for. In software terms, our access cannot be compared to them.
5.HARDWARE: They have the best hardware / computers that money can buy. The fastest computers in the world are at their disposal.
We, being normal mortals do not have the ability to buy such expensive computer systems. We have to stick with what most of the world is using.
6.COST: They have little or no cost, or what in the business calls spread. Every time they enter the market, their spread is practically nothing.
Because of the volume / size of the account and the amount of funds committed to the position, the spread is higher for retail traders. Allow me to give an example, most brokers charge 2 PIPS(points) for a EUR/USD trade, the cheapest broker I use, charges 0.5 – 0.9 PIPS. Although this is relatively low, the spread for the “big boys” are cheaper. This might sound like a small difference, in the long run, this savings add up to a lot of money.
I know how this all sounds, how does a normal person go up against such odds. You now know about yourself, you know the enemy, now what? Let me now share with you a glimpse of how a normal retail trader can beat the odds by showing you the week points of the “big boys”.
Firstly the “big boys” are too big, because of their trade size they can't go in and out of the market like retail traders without making some kind of price movement or attract attention from other market participants. Secondly we being individual traders, have the luxury of not trading on any particular day, the “big boys” do not. They must trade or at least be in a position at any one time. We, the small fish, being small, can weave in and out of the market with easy, the “big boys” cannot.
Although this two advantages seem small, if understood correctly can be a tremendous advantage. Let me elaborate, for example the “big boys” can't enter the market so frequently, they tend to look at a bigger time frames when trading, example the day or weekly charts. Not only can the normal trader look at the bigger charts, they can also look at the smaller one, ranging from 1 min charts to the 4 hour charts. This from experience, is an extreme advantage. The normal retail trader can “get in” early, with lower risk, in a new trend relatively early compared to the “big boys”.
To become successful in trading, you will have to know what you are up against, and knowing is half the battle won. There are many more things to be understood, as I share more, I hope to give you a better understanding on how to be successful in trading or at least not to blow your account.
“Know thy self, know thy enemy. A thousand battles, a thousand victories.”
Sun Tzu quotes (Chinese General and Author, b.500 BC)
I love and use this quote very often when I share with people on how to trade. I regard myself as a general, to be more specific, I consider myself a Spartan general / warrior in battle commanding my soldiers (my account / funds) into battle . Why a Spartan you might ask, because as retail traders, no matter how big the account size (even with millions), we are fighting a war / battle with a few soldiers against an enemy with hordes of troops with an invincible armada.
Know thy self. What does that mean? What's there to know about our self? Knowing yourself is knowing your limitations, the size of your account, your knowledge of the markets, the amount of time you can devote to trading, the trading environment you are working in, the type of hardware and software you have and other constraints that you might have.
Know thy enemy. In the markets there are two enemies; the first yourself, which I personally find is the worst to overcome, the second is the market (and it's participants). As I post more often, I will go through in more detail about the first enemy and how to overcome it.
As in war we will look the “big boys”, the ones who is said by many to move markets. Who are the “big boys”, they are the Governments / central banks, banks, fund managers, big brokers and institutional investors. What do they have in their arsenal? Let me break it down for you.
1.FUNDS: They control / manage billions of dollars. Although the forex market is vast, if they work together, and they do at times, committing billions each, they can move the forex markets to a certain extent to go stop hunting, the process of forcing some traders out of their positions thus making the trader to loose money.
Almost all retail traders don't have funds even near that amount.
2.MANPOWER: They employ the best minds of the financial world, individuals who specialize in specific areas. For example they have people who specialize only in technical analysis, others is fundamentals, others in specific counters / instruments, example EUR/USD or XAU/USD (gold).
Most retail traders, who I am sure are smart people in general or are a specialist their respective
fields, example doctors, lawyers and accounts, do not posses the same knowledge level as a professional trader / analyst.
3.24 HOURS TRADING DESK: They have traders trading 24 hours a day (with shifts) trading all the markets around the world.
I am a full time trader trading for a living, at the most, I trade for about 16 hours a day. Most retail traders have other commitments, like a job and family and can't trade 24 hours a day.
4.SOFTWARE: They have access to professional charts and news feed. They have access to very fast news, as fast as when the news hits the wire they will get it.
Most retail traders are using free or cheap, cheap as in they pay a low fee, for charting software. For myself, I use several charting services, about half of the software I pay a monthly fee for. In software terms, our access cannot be compared to them.
5.HARDWARE: They have the best hardware / computers that money can buy. The fastest computers in the world are at their disposal.
We, being normal mortals do not have the ability to buy such expensive computer systems. We have to stick with what most of the world is using.
6.COST: They have little or no cost, or what in the business calls spread. Every time they enter the market, their spread is practically nothing.
Because of the volume / size of the account and the amount of funds committed to the position, the spread is higher for retail traders. Allow me to give an example, most brokers charge 2 PIPS(points) for a EUR/USD trade, the cheapest broker I use, charges 0.5 – 0.9 PIPS. Although this is relatively low, the spread for the “big boys” are cheaper. This might sound like a small difference, in the long run, this savings add up to a lot of money.
I know how this all sounds, how does a normal person go up against such odds. You now know about yourself, you know the enemy, now what? Let me now share with you a glimpse of how a normal retail trader can beat the odds by showing you the week points of the “big boys”.
Firstly the “big boys” are too big, because of their trade size they can't go in and out of the market like retail traders without making some kind of price movement or attract attention from other market participants. Secondly we being individual traders, have the luxury of not trading on any particular day, the “big boys” do not. They must trade or at least be in a position at any one time. We, the small fish, being small, can weave in and out of the market with easy, the “big boys” cannot.
Although this two advantages seem small, if understood correctly can be a tremendous advantage. Let me elaborate, for example the “big boys” can't enter the market so frequently, they tend to look at a bigger time frames when trading, example the day or weekly charts. Not only can the normal trader look at the bigger charts, they can also look at the smaller one, ranging from 1 min charts to the 4 hour charts. This from experience, is an extreme advantage. The normal retail trader can “get in” early, with lower risk, in a new trend relatively early compared to the “big boys”.
To become successful in trading, you will have to know what you are up against, and knowing is half the battle won. There are many more things to be understood, as I share more, I hope to give you a better understanding on how to be successful in trading or at least not to blow your account.
Monday, June 15, 2009
WHO AM I?
I am a money manager and have been trading forex and equities for more than 4 years. Before I began my trading career, I owned and ran several businesses ranging for transportation to import export. I was looking for other business opportunities when I stumbled onto an advertisements advertising on courses on trading forex.
Like so many people blinded by the romance of trading, I too coughed out thousands to learn the skill / art of trading. After a weekend course, I thought I knew everything about trading, so I opened my first trading account, funded it with thousands and prepared my coffers for the tones of money that was about to pour into my trading account. I was even thinking about getting a boat with a bar, so I can be mixing drinks with one hand and trade with the other.
Like so many people, my account blew up, not in a good way. Instead of alchemy, turning lead into gold, my gold turned into lead.
That was one of the major turning points in my trading career. From that moment I decided on two things, I will not pay for anymore courses from the “gurus” and I will not blow up another account.
I did two main things when this happened, one was to go back to basics and start from scratch. I realized that learning from the best traders in the world was key. So I spent a lot time reading and researching on the different methods, trading plans and the mental aptitude of the worlds best traders.
The second was to sell / give up all my businesses. I figured that if I could loose this much money that fast, I thought I could make as much with the same amount of time. So like the Generals of old, as my troops moved forward to face the enemy, I burned the bridges and sank the ships. Looking back, it was much easier to loose money, and although there's a lot of money to be made, it's not the same ratio as loosing money, it takes much longer and more effort to make money than loosing money in the markets.
I strongly believe trading is easy and everyone with the right attitude and guidance can make a decent and realistic profit. I created this blog to give back what I got for free. A lot of people are looking to make profits in trading thinking it is effortless, I want to show people that losing is so easy if one is not careful. “How to fail in trading forex” is aimed at showing new traders that there are so many ways to fail, but with this knowledge, one can gather what it takes to succeed in one of the most unforgiving environments in the world.
As I have little spare time, I will update this blog at least once a week with trading ideas and what I think is needed to survive.
Like so many people blinded by the romance of trading, I too coughed out thousands to learn the skill / art of trading. After a weekend course, I thought I knew everything about trading, so I opened my first trading account, funded it with thousands and prepared my coffers for the tones of money that was about to pour into my trading account. I was even thinking about getting a boat with a bar, so I can be mixing drinks with one hand and trade with the other.
Like so many people, my account blew up, not in a good way. Instead of alchemy, turning lead into gold, my gold turned into lead.
That was one of the major turning points in my trading career. From that moment I decided on two things, I will not pay for anymore courses from the “gurus” and I will not blow up another account.
I did two main things when this happened, one was to go back to basics and start from scratch. I realized that learning from the best traders in the world was key. So I spent a lot time reading and researching on the different methods, trading plans and the mental aptitude of the worlds best traders.
The second was to sell / give up all my businesses. I figured that if I could loose this much money that fast, I thought I could make as much with the same amount of time. So like the Generals of old, as my troops moved forward to face the enemy, I burned the bridges and sank the ships. Looking back, it was much easier to loose money, and although there's a lot of money to be made, it's not the same ratio as loosing money, it takes much longer and more effort to make money than loosing money in the markets.
I strongly believe trading is easy and everyone with the right attitude and guidance can make a decent and realistic profit. I created this blog to give back what I got for free. A lot of people are looking to make profits in trading thinking it is effortless, I want to show people that losing is so easy if one is not careful. “How to fail in trading forex” is aimed at showing new traders that there are so many ways to fail, but with this knowledge, one can gather what it takes to succeed in one of the most unforgiving environments in the world.
As I have little spare time, I will update this blog at least once a week with trading ideas and what I think is needed to survive.
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