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Lessons from the Pros - Forex

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Start as You Mean to Go On

Tue, Oct 27 2009, 10:28 GMT
by Sam Evans

Online Trading Academy

One of the most rewarding aspects of instructing for Online Trading Academy is getting to work with new students. As well as teaching in the ongoing XLT program with various graduates of Online Trading Academy, I also have the pleasure of welcoming new students to the world of Forex trading when I teach in the classroom from time to time. This has been one of those weeks in London where I have been teaching the Forex Trader course and as usual, my students arrived on the very first day, each with their own reasons for being there and open to new ideas on how to tackle the market on a day-to-day basis. Just like every other time I have taught a course, I detailed to them that before they consider which currency pairs they will trade, before they look at a chart and well before they even implement a strategy for their trading plan, it is vital to understand what it really takes to become a consistent trader. In my opinion, if one does not prepare themselves for the task at hand, then they really are decreasing their odds for success well before they even click a button. It is vital for every new trader to fully understand the disciplines required and more importantly, why they are required, right at the very start. In this newsletter, I am going to share the three key areas to focus on which will not only ground you in the reality of trading but also help you to achieve your goals effectively.

Stage 1 - Education

Education is where the journey starts and without the right knowledge, you are likely to quickly find yourself time and time again on the wrong side of the market. Many new traders forget that trading is a skill which needs to be honed and developed. It is a profession just like anything else and it deserves respect accordingly. Much like a doctor trains at medical school or a lawyer trains at law school, successful traders have also been trained and educated in a very similar fashion. To learn how to do a job well, one needs to be instructed by someone who is already doing that job and who can do it effectively. However, many hopefuls decide early on in their trading career to skip the education process and jump right in. Ask yourself an honest question: What are the chances of this working? If trading was as easy as just diving in with very little understanding or guidance from a professional, then everyone would be doing it and making more money than they ever dreamed of!

The stark reality, though, is that the vast majority of speculators out there end up failing. The facts don't lie, yet many choose to ignore this prospect and think that things will be different for them. The alluring thing about the market is that it tempts the newcomer with dreams of easy money and wealth, and with humans being the emotional creatures they are, these temptations usually end in frustration. One of the many pitfalls of trading is that it is also accessible and anyone can get online and open an account in a matter of minutes. Does this mean then that we should take this route? It's almost like believing anyone could perform open-heart surgery after reading a book about it...not likely. 

Stage 2 – Discipline

Once we have received the right education, we now have the tools to do our job but this does not mean that it's smooth-sailing from the very start. Consistent success is gained from a consistent set of actions and rules. There are a variety of techniques which can be used in the market and each trader needs to decide which tools are the right ones for them. Will they be a Swing trader or will they focus on Intra-day trading? Which technical indicators will be used and how will they go about protecting their capital? All of these questions need to be answered as the last thing anyone needs is doubt in their strategy when they are live in the market. A sound trading plan needs to be adhered to from the very start and the rules have to be in place. As a trader gains more experience in the markets, they will no doubt develop their skills to new levels and evolve their strategy, but from the very start the rules need to be set. It takes discipline to adhere to stop losses, to know why you are buying or selling and to repeat the process over and over again.

In fact, trading actually becomes boring after a while but doesn't any job? The difference with trading is that it takes up far less time than most other careers! Once again, like in any profession, there are ways to do it and many ways not to. Sure it can take time to find the style and strategy you are happy with, but it is only after taking the time to test these techniques that you can be sure of what works and what doesn't. One of the many traps I have seen new traders fall into is when they try out a particular setup and it works a few times, only to then fail one or twice, leading the trader to then bin the strategy in search of another with a higher hit rate. This is a dangerous approach, as it can lead to a game of holy-grail chasing which often ends with further upset and torment for the newbie. If you can have the discipline to accept that no one strategy will work all the time and enforce the fortitude to test it over a sustained period of time to ascertain its real potential, then and only then will you have a chance at sustained market gains. After all, following a set of rules shouldn't be that hard. Let's be honest, we have all been following rules since birth so we should be pretty good at it by the time we get to the Forex market! 

Stage 3 – Patience

Now with the proper education and discipline we would think that our job is done, but not quite. The final piece of the puzzle comes from having the patience to let time do its work. I remember when I completed my first training course very clearly. After having spent a week in the classroom learning a variety of new skills from a world-class Online Trading Academy instructor, I felt confident that I was ready to test my new abilities in the market. I made the mistake of being a little too eager to pull the trigger the minute I sat down at my PC and ended up clicking buttons a bit too frequently. I, like many others, thought that just because I had taken the time to educate myself, I had the ability to immediately start making money! Obviously, I soon calmed myself down and got back to the plan at hand but the eagerness to get things moving quickly can often be a hindrance. It is an easy mistake to make but we do need to be realistic with our trading goals and remember that Rome wasn't built in a day. It's very much like taking your driving test: The minute we pass doesn't automatically mean we are ready to get behind the wheel of a Formula One car. We have to nurture our new skill and take some time.

In trading, I always tell my students to ease themselves into the market and take things one day at time. It is often the case that sometime the best trade you take is the one where you just sit on your hands. It's all well and good if you have the plan and rules but you still have to wait for the right time to execute. If the market doesn't present you with the trade, then simply move on and patiently wait for the right one to come along. With time and experience in the market, a trader learns to develop this patience and comes to realize that there is no such thing as a missed opportunity. You may even discover that if you don't rush for success, then it may actually come to you much sooner than you may have first expected.

Just like baking a cake, you need the key ingredients of eggs, flour and sugar to form the foundation of it and once these are in place, you can add a variety of other things to give it some personality; but without the basics, you will never end up with a cake. Education, discipline and patience form the solid foundation of any consistent trading career...when these are in place, then and only then can you make it your own.

Published on  Tue, Oct 27 2009, 10:29 GMT