Forex

Trading profitably? ? Most likely you will FAIL

So you’ve probably read many blogs, forums, websites, books in which you are now in a sublime state of happiness in regards to trading the financial markets?

Perhaps you’re an optimistic individual and honestly believe you can double your money in the financial markets? Yes you probably could. Some traders enjoy muted levels of volatility and some just can’t get enough of high volatility environments. What does it matter? Whatever tickles your fancy, one thing is for certain – You will lose money trading the financial markets.

If you can’t handle that then please look away from trading now and find yourself another hobby.

Of course the area of trading is subjective but no doubt trading will give you a losing trade, perhaps even 15 losing trades in a row, a big loss, wipeout your account or could even make you bankrupt. Not liking the cynical angle of this article? Well at least it offers some sense of pragmatism.

You could have one losing trade and blow your account in one hit – Yes you can start with $250 and blow the lot! Or perhaps your account size can be a thousand times larger and AGAIN one trade will be enough to blow the lot.

This of course brings us to the boring but imperative topic of Money Management. Yes you’ll have noticed how this topic has been discussed to the Nth degree and with it many others topics have also been ignited, such as stop losses! Frankly if your money management traits are bad in the real world then expect them to most likely remain absurd in the trading world. If you are looking towards trading to pay off your $7000 Credit Card Bill then maybe your mindset is not clear enough to trade the financial markets?

Many ingredients need to exist within a good trader. Are entrepreneurs born or bred? A question, which is widely discussed but perhaps the same question should be readdressed towards traders. Are traders born or bred?

The likes of Jesse Livermore amassed a fortune of over $100 million in 1929 but was declared bankrupt by 1934! So yes you can double your money in the financial markets, take a punt or trade consistently well but at some point or another you will incur a loss or two!

Maybe you’ll start your trading in a disciplined manner and get burnt from the outset or perhaps you will start by simply taking a punt or two and strike it lucky from the outset? The latter will likely finish your rendezvous and maybe the disciplined style will also kill off your dealings. Not enjoying the pessimism? Numerous factors can cause your trading mortality making you part of the majority but yet the FOREX turnover continues to grow year on year?

As the global population increases and the Internet becomes more widespread the financial market phenomena keeps reaching new pinnacles regardless of bull or bear markets!

The truth is your capital provided to the money markets could grow but will likely vanish.

‘’Markets can remain irrational longer than you can remain solvent’’ – John Maynard Keynes.

Handling emotions is a big part of trading but by no means is it the only needed attribute.

In fact the unison of a number of attributes is required to increase your chances of success but in most cases even obtaining the trading version of the Holy Grail will simply not be enough.

A fine-tuned trading system, a disciplined approach to money management and some trading experience should place you in good spirits. However, at some point in your trading career you may experience a range of emotions, which will likely throw your account off track.

Lets now assume you have equipped yourself with good knowledge of technical analysis and with this you have a system or set of rules, which you can confidently follow. If your system and style of trading has made you fall in love with 15minute charts and the system itself gives you good evidence to feel confident about your trading rules then surely that is good for you. If it is daily charts you enjoy then that’s also excellent or perhaps you cannot work without your 4-hour charts? Either way your defined rules are in place.

Experience is now under your belt and your account balance is rising nicely. If you get that untouchable feeling then no doubt your discipline, trading system or rules are about to be broken. The 2% per trade is now about to become 5 or 10% per trade? The professionals in time REDUCE the allocation for each trade but the novice is now feeling like a pro that should increase the percentage allocation for each trade. Your loss or disaster will likely be around the corner.

Trading requires accountability. The biggest blunders occur when you personally have no control of your own accountability. When your mindset is lost and the emotions of trading have left you feeling clueless but yet you feel like a pro. Humble benevolence is required but you feel indestructible. Every trader takes a hit/loss but this is the time when you must stick to your principles and abide by your trading rules/system. However, you felt untouchable but now the big loss or losing streak has left you feeling broken. Want to quit trading? Or perhaps it is the System, which you now don’t believe in? No doubt you’re on the search for something else? Maybe you now need a new indicator?

Handling these emotions and remaining accountable within trading is what will guide you through the losses and keep you profitable over time. You may encounter 7 losing trades but it is no secret that the 3 winning trades will see your account grow year after year. In fact the markets really do not have any secrets – in this sense they are transparent. The only secret is YOUR conscience not telling you how you are simply failing within the markets.

Fundamentals definitely change within all economies but it can be difficult to ascertain how these changes impact markets from time to time.

Technical Analysis allows price to appear transparent. Volatility increases and decreases but the price of markets always remains visible for all to see.Balancing your own emotions within trading will also allow you to see the emotions of other market participants especially when using longer-term timeframes. Volatility factors may differ, sums of money may differ, prices of markets may differ BUT human emotion will always control the financial markets with or without computers.

You may not utilize contrarian style trading but being aware of words such as herd mentality, asset price bubbles and the notion of fear & greed will at least keep you well equipped to understand the market dynamics involved within Credit Crunches, Great Depressions and dotcom bubbles!

Don’t get caught in the sentiment that is being painted to the wider audiences. Trading profitably is a profession for the minorities and if you want to succeed in it then now is not the time to get caught up in what the financial media maybe trying to portray.

Concluding example.
Below we have a daily chart of the Euro showing the action for 2011.

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2011 was surely about which Euro nation was about to go bust. Markets started to fall of a cliff but now stock markets have mostly recovered? The Euro was at the center of financial media attention and with all the hype, news and panic do any of you know what really happened to the currency in 2011? We started with four months of rallying followed by four months range trading finishing the year with four months of declines. All in all with so much stigma attached to the Eurozone, the currency itself finished the year practically flat for 2011.

Throughout trading if you want consistent profits over the long-term, no doubt realism will be required to help your chances of success.

James King can be contacted at Bear Bull Markets

James’s trading experience started from the very young age of 17. Having traded widespread instruments from Lumber and Pork Bellies, to stocks and commodities, there isn’t much he hasn’t traded. With just over a decade of experience in trading he believes the Trillion-dollar market is the place to be - Yes Forex is the most liquid market in the world and its still growing!

He believes that technical analysis of price action is the only fundamental tool required in trading. News is simply noise in which every market move has to be documented with, in order to create maximum hype within trading.

James feels everyone should utilize ‘The KISS approach’ – ‘keep it simple & stupid’ and is more important then ever for todays trading world. With thousands of systems, indicators, markets and brokers, it is easy to fall into the trap of information overload. Media also brings most moves into the limelight in which the contrarian should mostly tend to look the other way.

Any market can only move in the directions; up or down (and of course sideways). With this in mind, primarily you can flick a coin and the outcome of up or down will have a 50.50 chance. Why make the process more difficult by suffocating these probabilities with a hundred indicators or a thousand possible news outcomes?  "simplicity" is key.

James’s trading experience started from the very young age of 17. Having traded widespread instruments from Lumber and Pork Bellies, to stocks a...

Bint_Crusher

Established member
728 33
Starts out well but then dives into the Eurononsensesphere. Amateurs scaling into trades whilst pros scale out, great stuff but finish the article next time please.
 

NVP

Legendary member
36,411 1,814
The Article discusses much but Ideally needs more depth

"Experience is now under your belt and your account balance is rising nicely. If you get that untouchable feeling then no doubt your discipline, trading system or rules are about to be broken. The 2% per trade is now about to become 5 or 10% per trade? The professionals in time REDUCE the allocation for each trade but the novice is now feeling like a pro that should increase the percentage allocation for each trade. Your loss or disaster will likely be around the corner".

Yep - the first part of the statement is part of the Newbie learning curve....but are you sure of the second statement here.....why would a winning pro reduce their stake.......scaling out is not reducing your (initital) stake..... its just a more sophisticated Exit Strategy....

N