Global Forex Market

Have a Healthy Time Horizon

One of the biggest problems new traders have is that they think they will make a

large amount of money right away. They think they will get rich quick. This type

of reasoning is very similar to the short-term thinking in American business in

general, usually managing for the current quarter’s profits, focusing on short-term

earnings at the expense of long-term investment and profit growth.

TRADE FOR PROFITS OVER TIME

Traders tend to get wrapped up in current market conditions, the news of the day

and the current trade, usually at the expense of the big picture and profits over

time. My grandfather used to have a saying, “You can’t go broke taking profits.”

He was very wrong. You can go broke taking profits. If you take profits before

the market tells you to, or you succumb to fear and close out the trade before its

time, you are focusing on the short-term and forgetting how to make money over

the long haul. Close out no trade before its time.

GIVE YOUR TRADING STRATEGY ENOUGH TIME TO WORK

We tend to be impatient, and we sometimes think that we should get instant

gratification. This will not work in trading. The only way you will really know

whether you are a successful trader is to be successful over time. A week or a

month will not be enough time to tell you how you are doing. You should be

trading with the objective of making money in the long run, consistently, and with

the confidence that your strategy will make money given enough time.

One of the benefits of trading with a strategy is that having done the requisite

historical testing, you should know how long it should take you to start making

money. You should have an idea as to the length of time that the strategy has lost

money in the past, how much money it has lost, and how long it will take the

strategy to become profitable. If the strategy has proven profitable historically, it

should be profitable in the future. You just need to give it the necessary time to do

its work.

Understand the Psychological Keys of Trading

There are many people who teach the psychology of trading. There have been

many books written and effort spent on seminars trying to teach the discipline

needed for trading. I don’t think trading is that complex. I have developed a few

simple psychological rules for myself, and once you accept them, they should

greatly enhance your ability to trade effectively.

ACCEPT LOSSES AS A COST OF DOING BUSINESS

Most successful traders will tell you that the most difficult thing about trading is

accepting the losing trade. We all have the desire to be to be right, to be correct all

of the time. For novice traders, the losing trade means that something is not

working and that you have somehow made a mistake. For experienced traders,

losses are just a cost of doing business.

Some of the best traders in the world lose money on more than half of their

trades. If you look at the performance results of the best traders and money

managers, you will see that they all have a large percentage of losing trades. If you

trade, I guarantee you that you will have losing trades. Learn to love losing trades.

They should be your friend because you will be spending a lot of time with them.

USE HISTORICAL STATISTICS

I don’t think anyone has ever traded without first looking at historical statistics.

Even some traders who deny they are strategy traders have used historical data.

And before EasyLanguage and TradeStation were available, most good traders

developed a strategy’s history by hand. I can remember countless hours pouring

over charts spread out on the kitchen table, writing down trades by hand. Before I

would trade it, I absolutely insisted on knowing what the strategy’s personality was

and how much money it would have made.

Using historical statistics gives you great peace mind, particularly in learning to

love losing trades. Knowing the history of a trading strategy can give you

tremendous psychological comfort during those tough periods of losing trades

and drawdown. Historical statistics tell you how much money the strategy has lost

in the past, how many losing trades it has had in a row, and the largest losing trade

the strategy has experienced. This is very important information if you are learning

to accept losing trades. Comparing historical data with the current string of losses

and drawdown can give you much comfort that what you are experiencing now is

not unusual and has happened before. Maybe not in exactly the same manner, but

it has happened before.

LET THE MARKET AND STRATEGY DETERMINE THE PROFITS

Don’t have an opinion, don’t try to predict the market, and don’t try to second-

guess your strategy. It’s human nature to have an opinion about things, but this

opinion can become a stumbling block if we let it affect our trading. One of the

alluring aspects to having an opinion on the market is the exhilaration of being

right. Even though we know that the chances of being right are slim, we

nonetheless want to prove our intellectual prowess by being right.

Your trading strategy is ultimately a little business. You have developed and tested

the product and are now operating the business in the real world. Let the strategy

be the strategy. Let it make the money you know that it can. And know that if the

market doesn’t move in the manner that will allow the strategy to make money, it

won’t make money. Ultimately, the market determines the profit through its

movement. If it doesn’t make that move, there will not be profits.

Put the responsibility of making money on the strategy and the market. When they

work together, you will have a profitable business.

Don’t Trade for the Money

I have met many successful people, and the one thing that they have in common

is that they love what they do. Many have told me they can’t believe that they

actually get paid for doing what they do. They have so much fun they feel guilty

taking money for doing it. Many successful people will tell you that they would do

what they do even if they weren’t paid at all.

SUCCESSFUL PEOPLE DON’T WORK FOR THE MONEY

Work hard and love what you are doing and the money will follow. Successful

people work first and count the money later. Sometimes they don’t ever count it,

and some don’t even know (or care) how much they have. They just know that

they have enough to allow them to continue what they are doing; working hard

and having fun.

LOVE TRADING FOR ITS OWN SAKE

I know that many individuals want to trade because they think that they can make

a lot of money easily and quickly. Because of the low start-up costs for trading as

compared to other businesses, they think that trading should be the easy road to

riches. Their goal is to make a lot of money fast. These are the people who come

to seminars and want an indicator that will guarantee profits. They don’t want to

learn the ins and outs of the business; they want the magic indicator that will get

them the money they desire. They are doomed to failure.

I remember a guy named John walking into a seminar I was about to teach. He

threw up his hands and said, “Ah, Traders! I am glad to be home.” This individual

was a successful trader. John loved going to seminars, not so much for the

techniques and indicators, but for the camaraderie. He loved being around traders,

talking with traders, analyzing trading strategies and techniques, and learning

about the latest and greatest trading technology. He loved learning the latest

features added to TradeStation and finding out a new way to use EasyLanguage.

He loved designing new indicators, and spent countless hours working on new

and different ways to exit the market. He was excited about getting up early in the

morning to monitor the overnight market information and checking what the S&P

was doing in London. He looked forward to calling his broker and putting in his

orders. He loved watching his strategy run on TradeStation. He was exhilarated

when he had to call his broker and give him a lot of grief for the latest bad fill. He

even loved losing trades. Even when he had to take a losing trade, he was still

doing what he loved to do—trade.

John is a successful trader. He loves what he is doing. And as long as he can keep

on trading, he will be happy. The money he makes is secondary, but he makes a

lot of it. He can’t believe that he can have all of this fun and make money as well

Concentrate on Execution

All of your market and strategic analysis should be done before the markets open.

The strategy design should be clear in your mind. You should have the historical

Performance Summary of your strategy at your fingertips to remind you of the

personality of the strategy, how much money it has made over time, and what its

largest string of losses in a row has been. You should know what kind of orders

you are going to place, and how you are going to communicate this to your

broker.

The last thing you should have to worry about during market hours is where the

market is going, and whether to be long or short. Your strategy will tell you all of

this. You should not be concerned about the news, or even if you are making or

losing money. You should not be concerned with analyzing the market, always

reserve this for when the market is closed.

The only thing you should be doing during market hours is concentrating on

effectively executing your strategy. If you can’t execute your strategy effectively,

there really is no point in trading. There are two sides to trading, strategy

development and trading execution. During market hours is when you should

concentrate on execution and nothing else.

Global Forex Market

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