It is common knowledge that most traders fail to make consistent money in the forex market. There are many reasons for this, but they all can be classified under the family of emotional trading mistakes. There is no magic trading system or indicator that will make you consistent money in the markets, despite what you may have read or seen on the internet. Those traders who make money consistently in the markets have discovered how to overcome the errors caused by emotional trading, usually through persistence and trial and error.
When learning how to trade forex and make money doing it, it is imperative that you do not fight against the forex market. Instead of attempting to vainly control the forex market you must learn how to trade in harmony with it . There is simply no conceivable way to control the market, yet many traders try to do exactly that by trading based off how they feel about the market instead of using logic and objectivity. If you have a strong desire to make money trading forex than you must predefine all aspects of your trading activity, as this is the only truly effective way to inhibit emotional trading mistakes.
If your aim in trading is to make money in forex, and it surely is, than you must learn to think in a contrarian fashion. So much of trading success depends upon your ability to overrule your irrational primitive impulses and instead operate from a perspective of clarity and objectivity. This perspective is partially a result of having a simple yet effective trading strategy, but also a result of predefining your trading activities and treating trading as a business. Making sure each aspect of your trading is predefined will lead you to treat it like a business instead of a trip to the slot machines, if you don’t predefine all of your trading activities you will most certainly end up gambling with your trading account at some point .
Making money in the forex market is also a function of learning that less is sometimes more. Many traders make the mistake of sitting in front of their computer screen for hours watching their trades move or trying to over analyze a million different market variables. By defining all of your trading activity before you enter a trade you are putting the odds of making money trading forex in your favor. Most traders do the exact opposite however; they put the odds against them by not having a trading plan and adjusting their trading parameters on the fly, as the trade unfolds. Such behavior is simply not how to trade forex and make money, if you cannot swallow the fact that you need to have a concrete trading plan that accounts for all situations you might encounter, you will not make consistent money in the markets. So, in order to make money trading forex, you must start with a defined trading plan, if you do this you will be well ahead of the competition.
Continue Reading
This is one of the most intense questions argued in academic circles and trading groups for years . The situation is a rather simple one and goes as follows:
1. The academic economist camp is deeply rooted in efficient market theory whose primary tenants include the opinion that price action in the marketplace is primarily random. Since movement in the market is random, this would preclude the majority of the primary assumptions of technical theory, which states that there are identifiable patterns and formations that form in the market and can be identified .
2. A growiong number of traders are devoted believers in technical analysis and rely upon this system to trade, especially day traders. Technical traders believe the market exhibits repeating formations, trends, and other factors that are identifiable and nonrandom. As you can see, technical theory is exactly opposite the basic assumptions of the efficient market theory and thus at odds with the beliefs of academia.
There is very little room to reconcile in this particular argument, as both sides of the discussion firmly believe in the method they employ. Historically, academics have viewed technical theory and technical trading as voodoo trading and accorded the method little respect . To be sure, I may even be understating the view of academics towards technical trading. Traditionally, there has simply been no room in academic thought for the tenants of technical trading; they dismiss this style of trading as something akin to heresy.
On the other side of the argument , it’s risky to find a exact definition for technical theory and technical trading as there are dozens of flavors of the method of trading . Some portions of technical theory are fairly traditional and easy to assimilate and others press the edges the absolutely bizarre. To further confuse matters, there are dozens of mutations that fall somewhere between the exact opposite absolutes of technical trading. And I think that’s a portion of the problem , because it’s nearly impossible to quantify exactly what technical trading theory truly states because of the differing range of variants in its implementation. To make matters more complicated , most adherents to technical theory are as devoted to the theoretical underpinnings of their beliefs as the academics are devoted to efficient market theory.
It is truly a classic standoff.
While there are variants of efficient market theory, the basic assumptions run through most versions of efficient market theory. Technical theory, on the other hand, is a assemblage of wildly divergent and wide-ranging trading methods that are difficult to assimilate under a single umbrella. So that leaves me with the discordant job of sifting through technical methodologies and categorizing the varying theories and their probabilities. Of course, these views are based upon my own personal experience and belief .
1. Support and resistance, pivot points, and trend lines: in my three these three mainstream technical indicators can be of great use. I use a portion of my trading upon implementation, in varying degrees, of these technical tools.
2. Chart formations: these would include the classic formations like head and shoulders formations, banners, and double and triple tops. This is one area academia has spent a great amount of time and effort to discredit. My experience has not been in any way positive when trading using chart formations, though I have found them to be of limited use.
3. Wave patterns, Gann lines, Elliott wave and other predictive tools: I believe these tools to be a very limited value and scientifically spurious . There are many studies in the mainstream that would seem to completely disprove the value of these technical tools. I should also point out there are a great number traders who claim to successfully trade using these trading techniques.
4. Fibonacci retracement: when used properly Fibonacci retracements can be very effective and useful . However, in my opinion Fibonacci theory has been used to justify dubious conclusion to ptove to a variety of situations. The scientific evidence on the effectiveness of Fibonacci retracement is sketchy at best, and most academics dismiss them as hocus-pocus forms of trading. I disagree with this assessment.
As you can see, I use some of the technical tools available and use the ones that I feel are effective . Even though academics have discredited some of the technical tools that I use, I have found their accuracy to be contrary to the claims of some scientific study. I can explain no cause for the disparity in the scientific claims versus my actual experience. However, as a trader I am much more interested in what works than whether the scientific and academic communities assess these technical techniques as effective . I suppose you could sum up my experience with technical trading as a mixed bag, and I pick and choose carefully which technical techniques to implement in my day trading.
I teach a course on e-mini day trading with a remarkable level of success. The tenants of the course are technically based and I pride myself on offering the course as an inexpensive day trading course for beginners.
Continue Reading
There is a common idea that some gifted souls are born to trade. In my working career , after working alongside scores of traders, I have never met a trader who could naturally trade without any extensive trading education . I will readily admit that some traders are better equipped than others to learn the primary precepts of day trading , and I would also admit that a few traders have a hard time learning even the most basic principles of trading. After all, we are all endowed with distinct skill sets , and we are not all set up to be futures traders.
This differs sharply with some different occupations . For example, I have an acquaintance who is a gifted golfer. For as long as I have known him he could hit a golf ball long and straight . He can shoot even par no matter what the weather conditions. He can even shoot par when he is intoxicated , which in itself is a miracle. For whatever reason , this naturally gifted phenomena does not hold true in futures trading . Perhaps it is because of the natural illogic of trading methods , or perhaps trading does not necessarily lend itself to natural ability. I don’t have the answer to this dilemma .
I am an hopeless optimist, and believe that most individuals who are able to put a certain amount of book work, a lot of practice, and dogged determination can learn to trade very profitably . I must add one caveat, however: I have met several people, a very small percentage, who simply were unable to trade, and it became noticeable very early in their training that trading was not going to be their profession . Again, this is a very small group of individuals .
It is my opinion that profitable traders are trained, seasoned and combine years of experience before they become truly leading floor traders. Unfortunately, trading on Wall Street is a very stressful field of endeavor and most traders retire the trading game before they realize their potential. Most leading investment bank trading rooms are filled with young traders, with a experienced veteran supervising operations of the trading room. I am 52 years old, and my time limit for trading is about six hours. My mind tires and my concentration wanes , but the trades I execute are typically well thought out and years of experience keep me out of the lousy trades and help me to recognize the good trades.
And that is the rub. As a beginning trader you are going to initiate some bad trades, it’s part of the learning process and it is okay, if you learn from your miscues . On a given day, there are a variety set-ups that look enticing , but there may be one factor that keeps that trade from being successful . Your ability to discern that single negative factor is what will make you a competant trader.
I want to make one extremely important point, though. You don’t have to be a great day trader to make money in the market. If you have learned a good system, have the proper self-discipline, and can execute your system with a high degree of accuracy…you can be very profitable in your trading endeavor . You don’t have to be the best , just good. On the other hand, if you stay with trading for an extended time period you have the potential to be great. The downside to this situation is humorous, though. You will be the only person who knows you are great. Unless you are trading for a large investment bank, you will have to be content with knowing you are a great trader and leave it at that. But who really cares? As long as your futures trading account reflects the profitable results you are enjoying, isn’t that enough?
In summary, learn your trading methodology inside and out. In my trading, I also learn a number of alternative systems inside out. Practice the self-discipline required to make your trading profitable . Avoid entering trades based on emotion. Further, always strive to improve your trading, keep a journal of your trades, and review the trades that did not work out so you don’t repeat them. And most importantly, be persistent and dogged in your approach to trading, strive for perfection, even though perfection is nearly impossible. We all have the potential to be great a day trader, but most don’t reach deep enough to realize their potential. Be one of the few that reaches his potential.
I am still a full time e-mini day trader and educator and enjoy the profession as much as ever.
