How To NOT Blow Up Your Trading Account

By Nial Fuller   Posted in Forex Trading Blog

So, you’ve been studying the markets for two years now, you’ve read all the books, taken numerous home-study courses and even attended a trading seminar, your demo trading results seemed pretty good, then you went live and lost 50% of your account in two weeks. You decided to go back to the drawing board and learn a different system, because you figured it must be your trading system’s fault that you lost all that money so fast; you just need to find the ‘perfect’ trading system…

Sound familiar? For many traders, this story is all too familiar. The majority of the people who come into the markets end up blowing up their trading account at some point, and many traders blow it up multiple times. Trading can almost seem “rigged” at times, because it seems so easy and effortless when your demo trading or when you’re not in the market and you’re just observing. But, the minute you enter the market with real money it seems like the whole game changes and someone changes all the rules to keep you from making money. I know it seems that way, I’ve felt like this before too, every trader goes through the same trials and tribulations while learning how to trade successfully. Some give up, some never change and just continue losing money without trying to make a real change in their trading habits, and some traders push through to the other side and become consistently profitable. In today’s lesson, we are going to discuss how you can become one of the profitable traders and how you can stop blowing up your trading account.

The typical journey of a Forex trader…

There are different stages in the journey of learning how to trade the markets. The stages consist of approximately the same elements and traders tend to progress through these stages in a similar sequence. Some traders progress through each stage quickly whilst some get stuck in one stage for months or even years. Let’s take a look at the 6 general stages of a Forex trader…

Stage 1:

Problem - You hear about Forex trading from a family member, a friend, a colleague, a T.V. commercial, the internet etc. It seems like a legitimate and exciting way to make money. You get dollar signs in your eyes and dreams in your head. You can’t wait to learn all about trading so that you can tell your boss to “shove it” and live the life you’ve always wanted. Case in point, you’re interest switch has been turned on and your gas tank is full of rocket fuel…you are chomping at the bit to absorb everything you can about trading, open an account and watch the money pile up.
Solution – While there’s nothing wrong with being excited and interested in the potential lifestyle to be lived by being a full-time Forex trader. You should be cautiously optimistic at this stage rather than planning to put all your eggs in the Forex trading basket and dreaming of life styles of the rich and famous. Trading is anything but a ‘get rich quick scheme’; it takes discipline, dedication, organization, logic, and patience, if you think it’s a way to some ‘fast and easy’ money, then you’d better think again. If you want to build a sustainable Forex trading career you’ve got to be realistic and understand from the beginning that developing the proper trading habits is what determines whether you become a successful Forex trader or fall to the wayside like most traders.

Stage 2:

Problem - You start doing some research on the internet, Googling everything you can think of regarding Forex trading. There are a lot of different options for trading systems, trading strategies, trading software, trading courses, seminars, and the like. You decide to learn the basics of Forex by taking a good free forex beginners course like mine or another. After this, everything is making sense to you, you are excited about the opportunity in Forex and now you just need to decide on what trading strategy you will use. After a lot of research and thought, you finally decide on a trading method that you feel confident will help you trade the market successfully. The problem with this stage is that many traders start out by learning a trading system or strategy that’s far too complicated. They’ve got Elliot Waves, MACD’s, Stochastics, expert advisors, and other indicators plastered all over their charts. These things are not conducive to developing and trading from a relaxed and confident Forex trading mindset.
Solution – Instead of learning about a million different indicators or purchasing expensive trading software, you should begin by learning how to trade off the raw price action of the market. I’m not only saying this because I teach price action trading, but also because you really do need to know how to read the raw price action of a market, no matter what trading method you eventually end up using. I suggest you stick with pure price action trading strategies, like the ones I teach and trade, but whatever method you end up using, you will trade it better by understanding the price dynamics occurring on the chart below it.

Stage 3:

Problem - Whilst the first two stages discussed above are pretty consistent amongst most traders, stage 3 is where traders’ paths might diverge. At this point, most traders are trying to learn a trading system, a trading strategy, they’ve purchased a Forex trading robot or they are trying to trade with a bunch of different indicators. Most traders tend to demo trade for very little time, if any, on their first attempt at learning to trade. It seems to be human nature to want to jump into the markets as soon as possible and start risking our hard-earned money.
So, at stage 3 most traders have spent a little (too little) time learning some trading method and then after they see one or two instances of it working out they open a  live account and begin trading with real money. Typically, traders make stupid trading mistakes like entering the wrong lot size or buying when they wanted to sell, etc. These are mistakes that are the result of not taking the time to properly learn about your trading platform and how it works. In stage 3, traders typically blow out their first trading account, or lose such a large portion of it that they take a break from trading for a while, at least until they learn another trading system. (Note, some traders do avoid ever blowing out a trading account, and it’s typically because at this stage they begin trading with proper trading habits and they never waver, they stay on track and don’t give into the temptations of trading like a gambler).
Solution – Whatever system or strategy you decide to start learning how to trade from, BE SURE TO DEMO TRADE IT FIRST. Many traders seem to think they don’t need to demo trade, or they don’t do it for long enough. You need at least one or two months of demo trading the exact same strategy or system you are planning on trading live with, if you don’t do this you’re a fool. Remember, this is your hard-earned money you’re risking, waiting two or three months to start trading with it is not going to hurt you, especially if you consider that doing so will allow you to become more familiar and confident with your trading method, which will ultimately cause you to trade much more effectively.  Demo trading your trading strategy and the trading plan you’ve built from it, will increase your odds of not blowing out your trading account dramatically.
Most of the time, traders blow out their first account by getting too excited and too anxious; they skip demo trading, they have a mediocre grasp on their trading method, and let’s face it, they really just want to get in the markets and throw some money around because it’s fun at first. Well, I assure you that blowing out your trading account that you worked 6 months or a year to save up for will not take you 6 months or a year to blow out, and the fun and thrills you felt when first starting to trade live will end very quickly once you realize you have no idea what you’re doing and the market is eating your money like a hungry Great White Shark. So, make sure you have MASTERED your trading strategy and that you have demo traded it for at least two months or more before you even think about risking your real money in the markets.

Stage 4:

Problem – In this stage, most traders begin a frantic search for a ‘better’ trading method than the one they were using. There are so many options for trading systems and strategies on the internet these days that it can be nearly impossible to not get tempted into buying one of the ‘too good to be true’ sounding ones… and there are plenty of those. This is the stage where traders really try to find that “Holy-Grail” trading method that they ‘know’ must be out there…after all, someone is making money in the markets so there must be some ‘ultimate’ trading system out there (or so they think). In this stage, traders end up dropping some serious money on some Forex trading systems or other trading products that they feel will help them correct their previous trading mistakes.
Solution – This solution is pretty straight forward; if it sounds too good to be true…it probably is. The Forex industry is FILLED with trading systems, strategies, courses, books, and you name it that sound really great; they make trading seem easy. Truth is, trading is not easy, and it’s a battle against your own emotions that only you can overcome. Yes, the strategy that you use matters, a lot, but it is not true that more expensive trading systems or more complicated and fancy sounding ones work better than plain old price action trading strategies. In fact, I can tell you from experience that they don’t. I’ve tried them all, in my early trading days I too set out on the “Holy-Grail” trading system quest. Eventually, through trial and error, logic and commonsense, I realized the markets were best traded by just analyzing the naked price action of the charts that had been staring me in the face the whole time.

Stage 5:

Problem - This is the stage where traders feel they have found the ‘perfect’ trading system or strategy and they are ‘finally’ ready to start making money in the markets. Typically, in this stage, a trader will either develop good or bad trading habits and this is also the first stage where some traders have a real shot at going on to make consistent money in the markets. However, what happens to most of them is that they aren’t properly prepared with a Forex trading plan, trading journal, and a concrete trading routine. Instead, they are all hopped up over their new trading system and they start trading with it without any sort of organized structure or plan behind them. This typically leads to over-trading, risking too much, and for most traders it starts them down another path to blowing out their trading account, again.
Solution – Don’t fall off track. Many traders get excited about doing the right things in the market. They have a trading plan, they have a trading journal, and they know what they are looking for in the markets. Then after a few losing trades they seem to forget about their trading plan and they start ‘winging it’ a little more, they’ve also stopped filling out their trading journal, etc. You see, it’s REALLY REALLY easy to stop being discipline and to get out of control in the markets. In fact, it’s far easier to trade in an undisciplined manner than it is to remain disciplined and patient and develop the proper trading habits. The trick is that the longer you remain disciplined, organized, and patient, the easier it will become, and eventually you will enjoy trading the right way because you will have forged these things into positive habits. You’ve got to stick it out long enough and endure some ‘pain’ to see the long-term reward. Nothing worth doing in life is easy, trading is no different. If you give in to what you ‘feel’ like you want to do in your trading, rather than what you know you should do, it will only be a matter of time before you blow out your trading account.

Stage 6:

Problem - At this stage, you’re either on the right track because you’re remaining disciplined, organized and patient, or you blew out your account in stage 5 because you got too excited and emotional. Having blown out two or more accounts at this point, you are really starting to feel depressed about your trading, you think it’s ‘impossible’ to trade successfully and that you just don’t ‘have it’. You fall into a ‘downward spiral’ of losing money because you feel like you’ve lost so much to this point that you start to feel like you don’t care if you lose anymore, so you start taking bigger risks and trading more frequently, in other words, you’re gambling in the markets now.
Solution – Time to take some time off. Stop trading real money, and if you need to, stop demo trading and forget about the markets for a month or two. They will be here when you return. The best medicine for ending a period of emotional trading is to simply remove yourself from the markets for a while. If you feel like you’ve reached this stage, and you really need some help, then I suggest you simply stop trading for a while. Come back later after you’ve got some trading education and you’ve demo traded for a while. There’s no rush. In fact, the more you rush and try to ‘force’ money out of the markets, the more the money you so badly desire will elude you.
In closing,
I hope today’s lesson has helped to open your eyes to the fact that you are NOT ALONE as a trader who has committed emotional trading mistakes or who has blown out a trading account or two (or three or four). It happens to all of us, it’s part of the game. You either figure out that what you were doing before wasn’t working and try to fix it in a logical and straight-forward manner like we’ve discussed here today, or you continue on in your old gambling ways, or you give up trading all together. Those are really the only 3 things that can happen to you from here.
I trust that because you’re on my website and you’ve read this whole article, you’re committed to righting your trading wrongs in a logical and no-nonsense manner. If that’s the case, I suggest you check out my Forex trading course and members’ community for further training and fellowship with like-minded traders who are committed to learning how to trade with simple, logical and effective price action trading strategies. If you have any questions or feedback, please feel free to contact me.
 

How To Remove Your Fear Of Losing Money When You Place Trades

By Nial Fuller   Posted in Forex Trading Education Articles
 

If you’re going to be a trader, you’re going to lose money at some point, and in case you are still in the phase of trying to avoid all losing trades and searching for a “Holy-grail” trading system with a 75% strike rate, you should forget about all that right now. As cliché as it may sound, losing really is part of winning as a trader; the two are inseparable. If you don’t learn how to lose properly you will never make consistent money as a trader.

Reality check…ALL pro traders lose money, and they understand that it’s just part of the “game”. Sadly, for many traders, every trade is accompanied by a tremendous FEAR of losing money and sometimes intense emotional attachment.

Some of the key reasons why traders become fearful about losing their money include the following:

1. They don’t understand that mathematically, over a series of trades, a trader can lose a majority of their trades and still be widely profitable, simple math proves this.

2. They are simply fearful of losing money in general.

3. They are trading positions that are too big (risking more than they really should be), causing fear, sleepless nights and huge emotional swings.

In the rest of this lesson I’m going to provide you with some insight into the fear of losing money in the markets and how to conquer it. This is some pretty powerful stuff so make sure you actually read the whole article and re-read it if you have to. What you learn here should give you the power to eliminate your fear of losing money in the markets and will help you develop into a confident and emotionally collected trader.

Fear of losing money can be a good, natural emotion, but we need to transform its focus.

Fear of losing money is a good emotion to have in many areas of life, if we did not have it there would be even more chaos in the world and in the markets. Humans are protective of their acquired wealth and property, and rightly so; they worked hard for it.
However, in trading, this natural energy to be defensive and emotional with money needs to be transformed and refocused into a different mental state…
Instead of being fearful of losing your money when trading, embrace the control you have on each trade; a trader has complete control over the risk management of every trade via stop losses and position sizing, [and for more advanced traders, derivatives and hedging mechanisms (not discussed here)]. These risk management tools are your way of being in control of your money/funds, and instead of being “fearful” about losing money, you should feel empowered and confident because you can predetermine how much you are comfortable with potentially losing BEFORE you enter a trade by using these tools.
However, just using these tools to control your risk per trade is not quite enough to totally remove the fear of losing.

Ask yourself some serious questions

If you feel fear or any emotion at all when you place a trade, you need to “slap” yourself in the face and ask yourself 3 big questions (and answer honestly):
1. Do I really have the knowledge and confidence to be trading with real money in the first place?
If you’re trading your hard-earned money in the markets but you don’t know what your trading edge is and you don’t have 100% confidence in your ability to analyze and trade the markets…you probably should not be trading. One of the biggest reasons traders become afraid to lose their money is because they aren’t confident in their own ability to trade! It seems silly I know, but it’s very true; many traders simply don’t have a trading strategy mastered, they don’t have a trading plan, trading journal, etc…they simply aren’t prepared to risk real money in the markets yet…thus they feel fear when they trade.

2. Am I trading a position size that’s too large for my personal risk profile / per-trade risk tolerance?
If you don’t know what your per-trade risk tolerance is, then you need to figure that out first. It’s basically just the dollar amount that you feel like you are 100% comfortable with potentially losing on any trade; because you CAN lose on any trade…remember that. You have to take into account your overall financial situation and then determine how much money you should realistically and honestly have at risk in the market on any one trade…be honest with yourself here. You’ve got to think of yourself as a risk manager and as someone who is managing funds, rather than just a small-time guy trying to get lucky; your trading mindset will directly influence your trading results.
3. Do I truly understand the math’s behind trading?
When I say the “maths behind trading” I am mainly referring to risk reward and how it relates to your overall winning percentage. For example, on a series of 20 trades, you are likely to lose at least 35 to 45% of the trades, and most traders who are successful lose anywhere from 40 to 50% of the time, some even up to 60% of the time. But, through the power of risk reward you can lose more than you win and still come out very profitable. We will expand on this below.

Embrace the belief that losing is OK

Losing is good if you’re cutting your losses quickly and understand that by doing so you’re simply preserving capital and that your winning trades will pay for your losing trades with profit left over. This is the power of your average risk reward ratio over a series of trades coming into play; we will see this in action below…
Even very profitable traders typically lose more than they win, to prove this point let’s take a look at a case study showing 14 trades with a just a 43% win rate. To be clear, that means you are losing 57% of the time and winning just 43% of the time. It can be hard to associate “losing” the majority of your trades with making money, but as I discussed in one of my recent articles, you don’t have to be right to make money trading.
This image shows us that profitable traders can lose more trades than they win and still come out very profitable over a series of trades. Thus, losing money on any one trade should not concern you:

Trust your strategy and Trust the maths

As we can see in the hypothetical track record above, the math shows us that even while losing 57% of our trades, if we let our winners run to around 2 to 1 or better and cut our losses at -1R or less, the profits will take care of themselves. It’s worth noting we included a couple of 1.5R winners, because sometimes it will make more sense to take a reward of slightly less than 2R, depending on market conditions. The average risk reward in this example was 1:1.75, and if you can aim for an average risk reward of around 1:1.5 or 1:2, over the long run you should come out ahead. The “secret” is keeping ALL your losers at 1R or less and ONLY trading when our price action trading edge is truly present.
If you follow an actual plan, losing is easier to accept, because at least you had a plan and a roadmap as to what you were trying to do; the brain then sees it as more logical and thus you’re less likely to experience apprehension or fear. The set and forget concept I always talk about will assist with training your brain into accepting losses. You will also avoid interfering with a lot of your trades which can produce unnecessary losses.

The “Sleepless night test”

Everything we said above is accurate and important, but there really is one simple “fear test” that I have found to be very effective for most traders. That test is simply to gauge how you feel at night before you go to bed while you have a trade on. If you find that you can’t stop thinking about your trade(s) or you are glued to your computer screen while you should be sleeping, you are still experiencing fear of losing. So here’s a very simple test for you:

One simple rule…if you can’t go to sleep at night feeling comfortable and at ease with the trade(s) you have on…
1) You’re either trading too big of a position size / risking too much at your stop level
2) Or, you have no idea what you’re doing and lack confidence in your trades

Conclusion:

The fear of losing money or of losing a trade can be crippling to a trader, causing them to miss out on high-probability trade setups, second-guess themselves constantly and it can even cause them to be unable to sleep. Clearly, if we are to succeed at trading we have to conquer this fear. Conquering the fear of losing money and trades starts with acceptance; we have to first accept that we are going to lose money and have losing trades, even if we try to avoid them. Thus, there is no sense in “trying” to avoid losing trades, instead we have to learn to roll with them and contain them. We do this by following through with the concepts we discussed above, so let’s sum them up briefly:
• Mastering our price action trading strategy and “trusting” it: master it, own it and believe in it.
• Manage your money and employ solid risk management; this means cutting losses at 1R or less and aiming for a decent risk reward of about 1:2 on each trade. We also need to try and let some winners run to get larger risk rewards like 1:3, 1:4 or more.
• Trust the math: remember the example track record above and that even a 40% win rate can make very good money with an average risk reward ratio of approximately 1:1.5 or more.
To learn more about the above concepts and to get on the track to conquering your fear of losing money in the markets, checkout my Forex trading course and members’ community.
Good trading, Nial Fuller

The “Four Horsemen” That Are Killing Your Forex Trading

By Nial Fuller   Posted in Forex Trading Education Articles

You’ve probably heard of the “Four Horsemen of the Apocalypse”, while I’m not going to give you a “sermon” today, I am going to talk to you about the “Four Horsemen” of your trading account “apocalypse” and how to defeat them. They are the four emotions that influence most trader’s decision making in any market: Greed, Fear, Hope and Regret, and if you don’t thoroughly understand them and keep them under control, they will KILL your trading account, in shall we say an “apocalyptic” manner…
Let’s take a closer look at the “Four Horsemen” of your trading account’s “apocalypse” and how they work to influence your decisions in the market and how to control them instead of being controlled by them…

GREED

Greed is something we are all familiar with; it is the excessive desire for money and wealth (or other things). However, as it relates to trading, it can be more specifically defined as expecting an unrealistically large or quick profit from a trade.
Risking more than you know you should on a trade is the perhaps the most obvious way that greed negatively affects traders. You need to define the 1R dollar risk per trade that you are comfortable with potentially losing on any given trade, and never exceed that amount. If you start ratcheting up the amount you’re risking, you are being greedy, and it only takes one losing that you’ve risked too much on to do serious damage to your trading account.
When traders get greedy they may not even be aware of it. It often manifests as looking at your open profit on a trade and thinking about how much you’ve made and about how much more you ‘could’ make by keeping the trade open. Here’s the danger with this line of thinking: Open profit is just that, “open”, and you have not secured any profit from a trade until the position is closed. Unless you have closed a profitable position out, you really have nothing but the potential for profit. Traders often confuse the feeling that they get by looking at their open profit on a trade as ‘real’ money that they already have ‘in the bank’. Ignoring the fact that open profit is much different than ‘secured’ profit is the root cause of why traders do things like move their original profit target further away as price approaches it, which typically results in a much smaller profit than their original target would have brought them, or no profit at all. If you are greedy in trading, it has the ironic effect of making profits harder to obtain.
If you had a predefined profit target set at a 1:2 or 1:3 risk reward ratio, but as price gets close to that target you move it further away because you “think” price will keep going for an even bigger gain…that is greed, and it will almost always result in you making LESS than you would have if you just exited at your predetermined profit target. It can be difficult to exit a trade when it “looks good” and is in your favor, but most of the time, that is precisely when you should be exiting. Many traders hold trades too long, move their targets further out or set unrealistically large profit targets. All of these things are the result of GREED and they will all result in you making less money than if you weren’t greedy.
Greed can help you amass money in some areas of life, like if you are a “cheap” person who doesn’t like to spend much money…while this personality trait obviously has other negative consequences, it will help you grow your bank account over time. However, greed in the currency markets or in any investment / trading market will work against you most of the time and it’s something you must consciously be aware of and fight if you want to have a chance at long-lasting trading success.

FEAR

Many traders struggle with fear at some point, and they also get abused by it. Let me explain…
Fear can be both good and bad in trading, unlike greed which is essentially always bad for a trader. Fear is an extremely powerful emotion, perhaps THEE most powerful of all emotions we experience. Fear of death and other consequences keeps us (most of us) from doing stupid things like driving drunk or trying to wrestle a crocodile. Fear is essentially a survival response, and this can be good if you were a caveman trying to escape certain death from a saber-toothed tiger. However, in modern day financial markets, fear can cause all kinds of problems for traders…
First off, fear of losing money can be both good and bad, you just need to find the right balance and not have too much fear. Fear of blowing out your trading account will cause you to place stop losses on all your trades, thus, in this regard fear is good for the trader. But, fear can work against us too, by causing us to not enter a good price action trade setup only because we are “afraid” of losing money, perhaps because we’ve just had a series of losing trades. The other main reason traders become afraid to trade is because they have been risking too much money per trade and have just lost more than they can stomach. Thus, there are two main points to be aware of that can help you curb the negative effects of fear:
1) Your last trade has no effect on your next trade. If you are following your trading strategy, you will have winners and losers scattered about in a random distribution. Thus, you should not let your previous trade results (good or bad) influence your next trading decision.
2) You must find a dollar amount that you are comfortable with risking per trade. If you are risking too much money and gotten burned a couple times doing so, it will quickly cause you to be afraid of the market.
YOU have the power to control your own fear in the market. You should be a little bit afraid, because you can lose all your money if you let the market take it. But, the great part is that if you are aware of this and act accordingly, by properly managing your money and sticking to your trading strategy, you can find the right amount of fear and not let excessive fear derail your trading efforts.
Also, listening to news and economic reports (fundamental analysis) can induce fear into traders’ minds. News can cause traders to rationalize why they should close a trade or enter a trade, regardless of what the price action is saying. This is very wrong. The price action is all that really matters, and anything that can affect a market will be reflected in its price action, so following news reports and analyzing them is really a waste of time that can easily cause you to become fearful for no reason.

HOPE

Hope is dangerous for traders. It can be hard to understand this one, because ‘hope’ is usually thought of as a very good thing, and it is in most instances, just not in trading.
Hope is essentially the expectation that something will happen or a strong desire for it to happen. When traders trade with “hope”, they often ‘hope themselves’ right of making money. Hope can cause traders to move their stop losses further away or delete them all together because they think the market will turn around in their favor, allowing them to avoid the losing trade. Hope works in tandem with greed when traders hope for an unrealistically large profit and move profit targets further out. This typically ends up with the trader taking a very small profit because they never take the profit when it’s at a decent dollar amount in their favor, because they “hope” it will keep going and going.
Hoping that every trade you take will be a winner is foolish. When a trader “hopes” for a winning trade they are also expecting a favorable outcome, and this sets them up for whole host of emotional trading errors because when you expect something to happen and it doesn’t, it typically makes you sad, angry or regretful. It is much better to simply take a realistic view on every trade, and that means understanding that whilst you might have an effective trading strategy, that does not mean every trade will be a winner. You will have a mixture of winners and losers, and hopefully, over time if you manage your money properly and do not over-trade, you will see the “edge” that your trading strategy gives you, pay off. Thus, it would make far more sense to “hope” for a profitable trading year IF you follow your strategy and implement consistent discipline in your money management, rather than “hoping” that every trade is a winner, because then you are hoping for something that is not realistic.

REGRET

Regret is the feeling that traders often feel after a losing trade or a missed trading opportunity or perhaps after not making as much money as they hoped they would on a trade…possibly due to greed and fear, as we discussed above. Regret can slowly destroy your trading account……
From the emails I read each day, I know that many traders focus too much on past trades and “what if” scenarios. Something that you need to understand is that NO two moments in the market are exactly the same, thus it’s mostly a waste of time to stew over lost trades or that you didn’t make as much money as you could have. You can’t change what happened on your last trade, all you can do is evaluate what happened and try to take a little something away from it and move on. It is far more important to be focused on the “now” of the market rather than the past, because the market is constantly ebbing and flowing and it does not care how much you made or lost on your last trade.
Regret also causes traders to “chase” trades by jumping in the market after a setup has already triggered. This gives them a far worse risk reward potential on the trade which makes it a lot harder to turn a profit on the trade, chasing trades is not how a skilled and patient trader behaves. Instead of being regretful over missing a trade setup, the professional trader will simply remain calm and observe the market, learn a little something, and keep his or her hands in their pockets until the next trade comes along. Chasing trade setups is a VERY slippery slope to forgetting about your trading plan and kicking off the process of trading randomly or gambling in the market.

Conclusion: How to defeat the “Four Horsemen”

Since we are human, we are all susceptible to the same types of emotional trading mistakes, and the ones I’ve discussed in today’s lesson are the most common. To effectively battle them, the first step is being aware of them and their implications, which you’ve learned here today. The next step is to catch yourself “in the moment” and consciously become aware that you are being greedy, afraid, hopeful or regretful, and then quite frankly, kicking the emotional enemy in the ass.
Tackling your emotional trading enemies takes effort and patience; there’s no ‘free lunch’ in trading, and being unaware of this fact is perhaps why a lot of people fail it. If you make an effort to become more self-aware as you trade and gauge how you are feeling and consciously try to control how those feelings affect you, you will be far ahead of most traders. I cannot force you to do these things or pay attention to what I’ve said here today, but I can promise you that if you work to fight these “Four Horsemen” that are killing your trading, and combine that battle with effective trading strategies like those I teach in my price action trading course, you will avoid a trading account “apocalypse” and put yourself on the road to a successful trading career.

How To Develop A Profitable Forex Trading Mindset

By Nial Fuller   Posted in Forex Trading Education Articles

 In today’s lesson I am going to help you develop a profitable trading mindset.

It’s an unavoidable reality that your forex trading success or failure will  largely depend on your mindset. In other words, if your Forex trading psychology is not right, you aren’t going to make any money! Unfortunately, most traders ignore this important fact or are unaware of how critical having the proper mindset is to Forex trading success. If you do not have the correct trading mindset, it doesn’t matter how good your trading strategy is, because no strategy will ever make money if it’s used by a trader with the wrong psychology.

Note: I would love to hear how you plan on using the points discussed here to improve your Forex trading mindset. Please leave me your comments and feedback below after reading today’s lesson!

A lot of people seem to be unaware of the fact that they are trading with a mindset that is inhibiting them from making money in the markets. Instead, they think that if they just find the right indicator or system they will magically start printing money from their computer. Trading success is the end result of developing the proper trading habits, and habits are the end result of having the proper trading psychology. Today’s lesson is going to give you the insight you need to develop a profitable trading mindset, so read this lesson carefully and don’t dismiss any of it, because I promise you that the reason you are struggling in the markets now is because your mindset is working against you instead of for you.

Step 1: Have realistic expectations

The first thing you need to do to develop the proper Forex trading mindset is have realistic expectations about trading. What I mean is this; don’t think you’re going to quit your job and start making a million dollars a year after 2 months of trading live with your $5,000 account. That’s not how it works, and the sooner you ground your expectations in reality, the sooner you will begin to make money consistently. You need to accept that you cannot over-trade and over-leverage your way to trading success, if you do those two things you might make some quick money temporarily, but you will soon lose it all and more. Accept the reality of how much money you have in your trading account and how much of that you are willing to lose per trade. Here are some other points to consider:
• Only trade with disposable ‘risk’ capital – Disposable capital is money you don’t need for any life expenses, including retirement or other long-term things.  If you don’t have any disposable or risk capital,  then keep demo trading until you do, or stop trading all together, but whatever you do, do not trade with money you are going to become emotional about losing.  Always assume you could lose whatever money you have in your account or in a trade…if you’re truly OK with that, then your good to go, just make sure you don’t lie to yourself…REALLY BE OK WITH IT.  Trading with ‘scared’ money (money you can’t afford to lose) will lead to severe emotional pressure and cause ongoing losses.
• Make sure you can still sleep at night !– This is related to the above point about disposable capital. But the difference is that you need to ask yourself before EVERY trade you take if you are 100% neutral or OK with potentially losing the money you are about to risk. If you can’t sleep at night because you’re thinking about your trade, you’ve risked too much. No one can tell you how much to risk per trade, it depends on what you’re personally comfortable with. If you trade 4 times a month you can obviously risk a little more per trade than someone who trades 30 times a month…it’s relative to your trade frequency, your skills as a trader, and your personal risk tolerance.
• Understand each trade is independent of the previous one – This point is important because I know that many traders are way too influenced by their previous trade. The fact of the matter is that your last trade has absolutely ZERO to do with your next trade. You need to avoid becoming euphoric or over-confident after a winning trade or revengeful after a losing trade. The fact of the matter is that every time you trade it should just be seen as another execution of your trading edge; if you just had 3 consecutive winners you need to avoid risking more than usual on your next trade just because you are feeling very confident, and you need to avoid jumping back into the market right away after a losing trade just to try and “make back” what you lost. When you do these things you are operating 100% on emotion rather than logic and objectivity.
• Don’t get attached to your trades – If you follow the 3 points we just discussed you should have little chance of becoming too attached to your trades. Don’t take any trade personally, just because you lose on a few trades in a row doesn’t mean you suck at trading, likewise if you win on 3 trades in a row it doesn’t mean you are a trading “God” who is immune to losing. If you don’t risk too much per trade and you aren’t trading with money you need for other things in your life, you probably won’t get too attached to your trades.

Step 2: Understand the power of patience

I think one of the biggest realizations that allowed me to turn the corner in my own trading was that I didn’t have to trade a lot to make a decent monthly return. Think about it, most people consider a 6% annual return very good for a savings account, and if you average 12% a year on your retirement fund you are pretty happy. So why is it that most traders expect to make 100% a month or some other unrealistic return? What’s wrong with making 5 or 10% a month? That’s still exceptional over the course of one year. Whilst I can’t imply you will make a certain percentage per month, if you just understand that slower and more consistent gains are the way to long-term success in the markets, you will be far better off at the end of each trading year. Here are some other points to consider about patience:
• Learn to trade on the daily charts first – By learning to trade on the daily chart time frames first, you will naturally take a bigger-picture approach to the markets and you’ll avoid most of the temptation to over-trade that the lower time frames induce. Beginning traders especially need to slow down and learn to trade off the daily charts first. Daily charts provide the most relevant and practical view of the market. YOU DO NOT HAVE TO TRADE EVERYDAY to make a solid return each month.
• Quality over quantity – I consider myself a “sniper” of the market; I wait and I wait and I wait, sometimes for days or even 1 week without trading, then when I see a price action setup that triggers my “this one is a no-brainer” alarm…I pull the trigger with ZERO emotion. I am always fully prepared to lose the money I have risked on any one trade because I do not trade unless I am 100% confident that my price action trading edge is present.
• User your ‘bullets’ wisely – To really hammer-home the power of patience in developing the proper trading mindset, you need to understand that being patient will work to instill positive trading habits within you. Patience reinforces positive trading habits, whereas emotional trading reinforces negative ones. Once you begin to trade patiently you will see how using your “bullets” wisely works…you only need a few good trades a month to make a respectable return in the markets, after you achieve this via patience, you will learn to enjoy NOT being in the markets…because it’s then that you are “hunting your prey”. This in contrast to the frazzled and frustrated trader who is staying up all night staring at the charts like a trading zombie who just will not accept that they need to trade less often.

Step 3: Be organized in your approach to the markets

You NEED to have a business trading plan, a trading journal, and you need to plan out most of your actions in the market before you enter. The more you plan before you enter the higher-probability you will have of making money long-term. You are ALWAYS going to interpret the market more accurately whilst you’re not in a trade…so pre-planning everything increases your odds of making money since you will be working more on logic than emotion.
• Have a trading plan – I know it can be boring, I know you might think you don’t “need” to make one, but if you don’t make a trading plan and actually use it and tweak it as you learn, you will start trading on an unorganized and probably emotional path. A trading plan doesn’t have to be a very dry and boring document; you can get creative with it. You’re trading plan could be that you write your own weekly commentary before each week begins, plan out what you will do and look for in the upcoming week…just make sure you have a “plan of attack” before you enter any trade.
• Keep a professional trading journal – You need a track record, you need to record your trades, you need to do this in a forex trading journal. This is a critical component to forging the proper Forex trading mindset because it gives you a tangible document that you can look at and instantly get raw feedback on your trading performance. Once you start keeping a journal of your trades it will become a habit, and you will not want to see emotional results staring back at you in your trade journal. Eventually, you will look at your trading journal as something of a work of art that proves your ability to trade with discipline as well as your ability to follow your trading plan. This is something any serious investor will want to see if you plan on trading other people’s money.
• Think BEFORE you ‘shoot’, not after – All of the planning and preemption that I just discussed is analogous to thinking before you shoot. A gun is a very powerful weapon, we all know that we need to think before we shoot one, even if we are just hunting or shooting at a gun range. Likewise, the markets can be very powerful “weapons” in regards to making or losing you money. So, you want to do as much thinking before you enter a trade as you can, because after you enter you are going to naturally be more emotional and you don’t want to put yourself in a position of constantly entering regrettable trades. If you plan your actions before you enter, you should not regret your trades, even when you have losing trades. I never regret any trade I take because I don’t trade unless my edge is present and I’m always comfortable with the amount of money I have risked on any one trade.

Step 4: Have no doubt about what your trading edge is

Finally, don’t start trading with real money if you aren’t really sure how to trade your edge. You are obviously not going to develop the proper trading mindset if you jump into trading a live account without being 100% confident in what you’re looking for. Whatever your edge is, make sure you’ve found success trading it on a demo account for at least 3 months or more before you go live. Don’t just “dive in head first” without being totally comfortable in your approach…this is what most traders do and most of them lose money too.
• Have 100% confidence in your edge – I have 100% confidence in my price action trading strategies…that’s not to say that I am foolish enough to believe EVERY trade will win, but I am totally confident that every time I trade my edge is truly present. I don’t compromise my trading edge by taking setups that look they are “almost” good enough…I simply don’t trade in that case. I only take price action setups that I feel in my gut are high-probability valid representations of my edge. Therefore, I am never fearful or worried about any trade I enter, even if it ends up losing.
• Don’t gamble – There are skilled traders, and then there are people who gamble in the markets. If you take a calm and calculated approach to your trading and wait patiently for your trading edge to appear, like a sniper, then you are a skilled trader. If you just “run and gun” and veer off course from your trading plan, you are a gambler. So, are you a Forex trader or a gambler?
• Price action trading helps develop the proper trading mindset – My trading edge is price action, and I fully believe that the simplicity of price action trading helped me develop and maintain the proper Forex trading mindset. We don’t need tons of messy indicators on our charts and we don’t need Forex trading robots or other expensive software. All we need is the raw price action of the market and our magnificent human minds to interpret it; it’s up to us to harness this power.
The price action of the market gives us a map to follow, and a pretty obvious one at that, if we can ignore the emotional temptations that arise in our minds we will have no problem profiting off of this price action map. I trust today’s lesson has provided you with some insight into how you can develop the proper mindset and ignore the emotions and break the habits that destroy your trading success. If you want to learn more please check out my price action Forex trading course.

The Lazy Man’s Guide to Forex Trading; Let the Market Do the ‘Work’

By Nial Fuller   Posted in Forex Trading Education Articles

When we think of a “lazy person” we typically imagine someone laying around at home watching TV on the sofa with a bag of potato chips in one hand and a cheap beer in the other. One thing that we almost never associate with a lazy person is success or wealth; in fact we usually imagine them as being poor, dirty and disorganized. However, today I am going to challenge these beliefs because I feel that in our modern society there’s an over-emphasis on doing “more” and being some workaholic control freak who simply lives for their job and little else.

The word “lazy” is often associated with negativity in most social circles, but depending on what you’re being lazy about, it can actually be a good thing. Saying someone is a “lazy person” is usually a gross generalization. You could be an athlete or a super fitness freak, but you might be lazy when it comes to investing, money and business; many people are lazy in some areas of life and the exact opposite in others. There’s nothing wrong with this, and it’s actually quite normal to be lazy at some things in your life. When it comes to trading or investing, it could even be said that being “lazy” or relaxed can actually increase your chances of success.

The lazy trader concept I am using for today’s lesson is simply a metaphor for trading in a manner that is relaxed and unemotional, but the theory behind it makes sense. Remember, I have been doing this for over 10 years and I have witnessed thousands of traders and the different ways they trade; I know what attributes make good traders and being lazy is probably in the top 5 essential attributes in my opinion. Relaxed, stress-free personalities tend to make more money in trading and investing, whereas the serious over-thinkers and obsessively dedicated personalities tend to lose!!!

Lazy traders aren’t glued to their charts all the time

The best traders I know don’t bother analyzing the market or watching their charts all the time. They know they can’t change where the market is headed, so they just set orders/alerts when certain prices are reached or they look at the market in the morning and in the evening briefly. Successful traders take a relaxed and no-stress approach.
The most profitable traders and investors don’t addictively watch their positions all night while they should be sleeping. They make a decision and let the market determine the outcome without interruption or interference. Some might call this “lazy”, I call it “smart” because it works and it’s the foundation of the set and forget mentality that I believe in.
To be a good trader, we almost have to do the opposite of everything that feels “right”. It feels “right” to sit there and watch the markets and watch your trades tick away. But this really accomplishes nothing except making you more likely to do something stupid like enter another position, close your position before it really gets moving, etc. It seems like you need to sit there and “analyze” the market for a long time, and especially after you enter a trade, but you don’t need to do this, actually you really need to do the opposite. Just leave your computer, be “lazy” about your trades and forget about them for a while, this way you really give your trading edge a fair shot to play out.

Lazy traders have bigger winners

How many times have you entered a valid trade setup from the daily chart time frame and then began watching the 4 hour or 1 hour chart after your trade was live? I’ll bet you’ve done this a lot, and I’ll bet it’s led to more than a few occasions where you exited that perfectly good daily chart setup only because you saw the market moving against you on the intra-day charts.
Lazy traders don’t sit there and watch their trades after they are live, thus they are not looking at every up and down move during the intraday session, and thus they eliminate most of the temptation to interfere with their trades. This leads to bigger winners and a higher overall risk reward return over the long run. The reason is simply because they are not being influenced and hypnotized by the short-term fluctuations in price that tend to cause traders to make emotional trading errors. The lazy trader is down at the beach having a  beer or spending time with his family, while the obsessed trader is crouched over his computer panicking and stressing over his open positions…which one do you think is more likely to make a stupid emotional trading mistake?

The Lazy trader goes to sleep whilst the obsessed trader is sleep deprived

Lazy traders are relaxed and calm; they get a good night’s sleep and let the market do its thing. When they wake up in the morning they turn on the computer and look at the overnight price action for a few minutes and then carry on with their lives.
The obsessed coffee-addicted trading junkie is sleep deprived because he has been up watching the market until 4a.m. crouched over his trading terminal…he is ultimately creating his own failure by taking trading way too seriously and over thinking every single decision. The longer you sit there and “think” about the markets and your trades, the more likely you are to make a stupid / emotional trading mistake.

Lazy traders develop confidence in their trading ability

One of the things that I see from the emails I get every day is that there are basically two types of traders; those traders who are happy trading around their current job and schedule and those who look at trading as their only option for income and put all their eggs in the trading basket right from the start. What this means is that one trader is starting from a point of no pressure or emotion and another trader is already putting pressure and emotion into the mix before they even make their first trade.
Putting pressure on yourself to make a lot of money from your trading right out of the gate is going to flood your mind and body with emotion and adrenaline which is naturally going to cause you to do stupid things like over-trading and over-leveraging your account. Whereas, if you take a lazy trader approach and just check the market before and after work each day, you will slowly but surely gain confidence and also have better longer-term results since you will have largely eliminated emotion from the mix.
The “true” market picture can easily be seen after analyzing the price action on the charts for just a few minutes at the close of each trading session. (end of day chart analysis).  However, when obsessed traders sit there and continue to analyze the market, they inherently make up all kinds of things that “could” happen and they manifest patterns and trade setups that are nothing more than low-probability random price movements. Thus, trading in this obsessive manner works to tear down your confidence as a trader and just makes you frazzled and frustrated in the end. The lazy trader develops a better “gut feel” for the market because he is just looking at what’s there and then moving on, rather than sitting there manifesting different combinations of things that could happen.

Lazy traders develop positive trading habits

The lazy trader flicks open a EURUSD chart, looks for something obvious to trade and either trades or passes on the opportunity. He is not worried about news events or what the media is saying; he is not over-thinking it and he does not care if he enters a trade or not. Trading in this manner develops positive trading habits because you are reinforcing a minimalist trading approach.
I am a minimalist myself and I keep things simple and clean when it comes to trading. I can’t stand being stressed or worried about what the market is doing, I can’t stand the thought of analyzing the market for hours on end, or anything for that matter. I don’t listen to financial news and I don’t over-think what I am doing in the market or in life. I would much rather be relaxing reading a book/magazine or watching a movie or entertaining my 3 year old son.
In fact, I would much prefer to do ANYTHING else but stress out about a trade or a trading decision.
It is often the case that the more serious and obsessed traders typically develop addictive and self-destructive personalities, or they already have these personalities when they start trading and they aren’t willing to change. They actually believe that they can influence or change what the market is going to do by focusing almost their whole life on the markets; however this couldn’t be further from the truth!

The key to lazy trading

Now that we’ve discussed a lot about why being a “lazy trader” can improve your trading, let’s talk about how to actually become a lazy trader…
Simply put, you have to genuinely not care about the outcome of any one trade and you have to eliminate the “itch” to be in the market all the time. The easiest way to really not care if you’re in the market or about the outcome of any one trade is to be sure you are totally OK with the money you are risking per trade and the money you have risked in your trading account. You should only be risking an amount that allows you to forget about the trade, when traders start risking more than they are comfortable with losing per trade they put themselves at a very high risk of becoming over-attached to their trades…and this is not the lazy trader approach, this is the obsessive / addictive approach that never works.
You also have to be confident in your trading edge and your ability to trade it. If you don’t really have a trading strategy or you don’t know what you’re doing, you aren’t going to be confident enough to just glance at the market a couple times a day briefly. Instead, you’re going to sit there for hours trying to manifest a signal simply because you aren’t really sure what you’re looking for in the markets. So, be sure you’ve mastered an effective trading edge like price action strategies and that you fully know how to trade it.

Lazy = better trading and a better life

Me and thousands of my followers who have made the transition to my “keep it simple” and minimalist trading philosophy, know firsthand its immense power. Not only do trading results improve by adopting the “lazy man” trading attitude…our life ultimately becomes less stressed and less cluttered with counter-productive thoughts, and then doors start opening in all areas.
Whether it’s business, trading, relationships or life in general, we often destroy them by trying too hard, doing too much, over-thinking, over-analyzing and simply stressing ourselves or others to death.
Do yourself a favor…start being a lazy trader! If you’re already a lazy trader, good for you! To the people who are not yet converted to “lazy trading tactics”… you need to stop trying so hard, relax and enjoy your life and you may find your trading will actually improve, not to mention your happiness level. It does not have to just be about trading, if you’re in business try removing the stress and stop thinking so much!
Don’t lock yourself in the office or in your trading room and think that the more hours you put in the better the outcome will be, that kind of thinking will destroy you, blow up your trading account and possibly destroy your relationships with others. Your wife/partner will probably notice a huge change in your personality if you make the commitment to be more relaxed.
If anything I have discussed in today’s article has turned on a light bulb in your head…I encourage you to pursue a change in your trading & life. It’s time to undo the damage you have already caused yourself and turn over a new leaf. Some people never wake up to the idea that they should be living a stress-free, relaxed and “lazier” trading life. Hopefully I have “saved” some of you today!
To learn more about my lazy-man’s trading tactics and how to trade stress free and get your life back…do yourself a favor and check out my price action trading course, it’s bound to help.
Good trading, Nial Fuller
 

Why Most Traders Choke When Trading Real Money

By Nial Fuller   Posted in Forex Trading Blog

If you’ve done very well on your demo account and then saw all your trading success crumble to pieces when you started trading live, today’s lesson is for you.
There is growing evidence from scientists that the reason why we tend to choke ‘when it really counts’, is simply because we are thinking too much. As discussed in the ABC news article Why We Choke When All Is On The Line, “Psychologist Sian Beilock of the University of Chicago calls it ‘paralysis by analysis.’ Beilock, author of the book, ‘Choke: What the Secrets of the Brain Reveal About Getting It Right When You Have To’, contends that too much thinking at the wrong time can lead to ‘logjams in the brain’.”
As traders, we are perhaps more susceptible to these “logjams in the brain” than almost any other profession. Having around the clock access to the market on our laptops, smartphones and tablets, along with the massive amount of economic data circulating around the internet each day, makes it extremely easy to fall into the destructive habit of thinking too much and over-analyzing our trades. Thus, as a trader, you have to consciously work against over-analyzing the market or you will very likely end up sabotaging your own trading success as a result of trying to analyze too many variables and from simply thinking too much. Let’s discuss how you can avoid the over-analysis bug and make a successful transition from demo to live account trading…

How your brain is “getting in the way”…

Many traders are simply creating “logjams” in their brains once they switch from demo trading to live trading because they begin to over-analyze everything. The culprit behind this sneaky account-destroyer is primarily the increased awareness that there’s a lot more on the line now because your real money is at risk. This is really not much different than a basketball player being more aware that his free throw shots are much more critical in a close game with 30 seconds left. In the case of both the trader and the basketball player, the individual begins to let their brain areas “responsible for planning, executive function and working memory” override what was previously a near automatic and stress-free process.
You probably can relate to what I’m talking about if you’ve demo traded for a while before switching to a live account. When the pressure is not on the line as with a demo account, you are not thinking too much and you are acting much more on “auto-pilot”, in such a way that allows you to be almost “in the zone” with your trading (trading in harmony). The only thing that is different between demo trading and live trading is that the money is real on a live account, but this fact clearly causes all kinds of new mental process to kick in for most traders, and it is largely these unnecessary mental processes (thinking too much) that causes many traders to self-destruct shortly after starting to trade live.
Here are some very common “traps” that many traders fall into after having success on their demo account upon switching over to a live account:
1) They simply begin watching the charts much more than they were on demo. This causes them to over-trade and deviate from the successful trading behavior they exhibited on their demo account.
2) Where they had no problems sticking to their trading strategy on demo, many traders seemingly throw everything out the window once they start trading live. They change from disciplined, skillful chart technicians to over-trading, gambling trade-aholics.
3) Many traders start slapping on tons of confusing and messy indicators onto their charts after trading live. They begin to change their previous simple and successful trading strategy into a “Frankenstein” trading method that would make absolutely no sense to anyone in a “logical” frame of mind.
4) Traders begin trying to “avoid” taking losses once they start trading live. On demo, they didn’t think twice of a losing trade, because there was no money on the line and they were not feeling any “pressure”. Live account trading, especially when you’ve risked too much on a trade, induces traders to begin thinking of all kinds of ways they can “avoid” losses; hedging and not using stop losses are the main ones. Unfortunately, no matter how hard you try, you cannot avoid losing trades, thus, you need to deal with them and accept them, not try to avoid them.
5) Many traders start following economic news reports after they start trading live. On their demo account, they didn’t care at all about NFP, GDP or Retail Sales, now they can’t seem to stop reading about them and about how they “might” affect the markets. This is over-analysis at its finest, or perhaps I should say at its “poorest”.
These are only a handful of the ways that over-thinking and over-analysis manifest themselves when traders switch from demo to live account trading. There are many more. Your job as a trader, is to work to stop yourself from thinking too much about your trading once you start trading live, sounds easy I know, but it’s not. We will discuss how to defeat this trading problem at the end…

You’re not alone

Whilst choking under pressure is certainly a bad thing, you can take some comfort in the fact that it affects almost everyone at some point and does not discriminate across professions. From the article discussed above on Why We Choke When All is on The Line:

“Choking under pressure is even more conspicuous in professional golf. It’s not uncommon to see a pro drive the ball around 300 yards and then miss a one-foot putt. Just two years ago, golfer Jason Dufner blew a four-stroke lead with four holes to play, losing the prestigious PGA Championship in a devastating demonstration of choking under pressure. “
Indeed, it is not just traders who choke when ‘it really counts’; professional sports players deal with this on a regular basis, you may have even dealt with it in a friendly recreational game of golf or basketball with your friends. It clearly is the over-use of the brain that causes professional sports players to choke as well as traders.
Giving a speech in front of an audience is something that gives many people trouble, despite having recited the same speech perfectly many times before getting up in front of an audience. You can find examples of “choking” under pressure and over-thinking in almost everything, from sports, to jobs, even to relationships; people have a tendency to make things much more difficult than they need to be, and especially in trading.
The researchers who ran the studies discussed in the article above came to some interesting but maybe not-so-surprising discoveries about exactly WHY people tend to choke when it counts:
“Researchers generally concentrate on two different explanations for why experts choke. Chicago’s Beilock believes it boils down to two opposing theories: Either the person worries so much even a well-practiced talent can fail, or he or she concentrates so much on the task at hand that the brain overrides the well-trained muscles.”
The above explanation also explains why traders tend to fail when they switch from demo to live accounts. They begin to worry about their trades and over-think them, even if they are a very talented and skilled price action analyst, over-thinking can quickly destroy their trading account. Also, trying too hard causes you to do things you weren’t doing on demo. You probably were not forcing trades on demo, you had a very care-free approach, because nothing was really on the line as with your live account. What you need to do then, is trade your live account with the same relaxed trading mindset that you had on your demo account. Here are some tips to help you do this…

How to stop choking on your live account…

OK, here’s the “meat” of today’s lesson, read the following points closely because if you really understand what I’m saying and ACT on it, YOU will begin to experience less stress and struggle in your trading, and more success:

1) The first and perhaps easiest thing that you can do to stop over-thinking your live account trading, is to back off your dollar risk per trade. In other words, experiment with the dollars per trade that you risk until you get it down to an amount that allows you to focus on other things. If you’re staying up all night glued to your charts because you have a big position on, it’s too big. Your risk per trade is 100% within your control, and if you do not control it, it will get out of hand and stir up all kinds of emotions within you, mostly ones that hurt your chances at making money on a trade. If you do not control your risk, it will “control” you by making you feel like you have to watch the charts and like losing on a trade is a terrible thing you must avoid.
2) As I mentioned in last week’s trading lesson: Snowball Your Trading Success and Stop Losing Money, many professional traders essentially make sure that they are “distracted’ from the market, and this helps them to avoid over-thinking and over-analyzing their trades. If you put a trade on and then go play 18 holes of golf or go do basically anything besides sitting around watching your trade, you are going to end up much further ahead than the trader glued to their trading platform either on his computer or on his smartphone every free second he or she has.
The article I discussed at the beginning of today’s lesson concluded with this: “Chicago’s Beilock says it may help to just figure out a way to distract yourself. Maybe instead of thinking so hard about making that free throw, Shaq should have hummed a little tune.”, in regards to NBA player Shaquille O’Neal consistently missing free throws in close games. This technique works almost the same in trading…if you distract yourself by doing things OTHER than sitting around watching and thinking about your trades, you will be SIGNIFICANTLY  less likely to over-think, over-analyze or over-trade, and thus your chances of making money consistently will increase DRAMATICALLY.
3) Finally, if you really want to give yourself the best shot at avoiding the over-thinking bug that so often infects many traders as they switch from demo to live trading, it will be critical that you trade with a simple and clear trading method. It’s almost impossible to not think too much when you’re staring at 10 different indicators on your charts whilst watching CNBC and reading the latest economic news on Bloomberg. All of that “stuff” is wasteful and unnecessary to successful trading. I want you to take on a minimalist approach to trading, as that is what has worked for me and I know it can work for you if you try it. I have no stress in my trading anymore, even when I have the inevitable losing trade.
This minimalist approach to trading really is the ONLY trading approach in my opinion, because the very nature of risking your hard-earned money in the market is something that makes us humans extremely prone to stress and over-thinking / anxiety. If you do not work to contain these things, they will very quickly destroy your trading account. To learn more about my minimalistic trading approach you might like to check out this lesson – The Minimalistic Guide To Forex Trading and Life.

 

 

 

How The 80/20 Rule Applies To Forex Trading

By Nial Fuller   Posted in Forex Trading Education Articles

  Have you ever noticed that most of the money in the world is held by a relatively small minority of people? Or, how about that most people tend to work in short spurts of intense productivity followed by larger periods where they are less productive? There’s an underlying principle that can be used to describe such occurrences, it’s known as the Pareto principle, or the ’80/20 Rule’.
Some of you might be familiar with the ‘80/20 Rule’, some of you might not be. For those of you who haven’t heard of it before or need a refresher, according to Wikipedia, “it is named after Italian economist Vilfredo Pareto, who observed in 1906 that 80% of the land in Italy was owned by 20% of the population; he developed the principle by observing that 20% of the pea pods in his garden contained 80% of the peas”
The 80/20 rule is popular in business studies, sales, economics and many other fields. However, today we are going to discuss how the 80/20 rule applies to trading and the significant positive impact the “80/20 mentality” can have on your trading performance.

How the 80/20 rule applies to your trading

Quick note: These are my personal observations over my 10+ years in the market. The 80/20 rule is not an ‘exact’ science, but it does give you a very effective way to make sense of many aspects of trading and how they all fit together. Also, all ‘80/20’ ratios discussed below should be thought of as “approximate” ratios, meaning they could actually be 75/25 or 90/10, etc.
As Yaro Starak points out in his blog post on the 80/20 Rule and Why It Will Change Your Life:

“By the numbers it means that 80 percent of your outcomes come from 20 percent of your inputs. As Pareto demonstrated with his research this “rule” holds true, in a very rough sense, to an 80/20 ratio, however in many cases the ratio can be a lot higher – 99/1 may be closer to reality.”

I wanted to start off with the above quote by Yaro Starak because in trading, the 80/20 rule is more like 90/10 or sometimes even 99/1 as he says.
How often have you heard “90% of traders fail while only about 10% make consistent money”? Often, I am willing to bet. Whilst the exact ratio of traders who make money vs. those who lose money is obviously almost impossible to pinpoint, it probably is somewhere between 80/20 and 95/5. Have you ever thought to yourself “why is trading apparently so difficult that 80 or 90% of people fail at it?” I’m willing to bet you have, and here is my answer to this pervasive question:
Trading is the ultimate “less is more” profession, but it’s also extremely difficult for most people to come to grips with this fact by accepting the following:

• 80% of trading should be simple and almost effortless, 20% is more difficult
• 80% of profits come from 20% of trades
• 80% of the time the market is not worth trading, 20% it is
• 80% of the time you should not be in a trade, 20% you can be
• 80% of trades should be on the daily chart time frame, 20% can be other time frames
• 80% of trading success is a direct result of trading psychology and money management, 20% is from strategy / system

Let’s delve into each of the above points a little deeper and see how you can start applying them to your trading, and hopefully start improving it, significantly.

80% Simple, 20% Difficult

This one is easy. Most of what we do as traders is sit in front of our computers and look at prices going up or down or sideways. This is not by anyone’s standards “hard” to do. Hell, you can put a 5 year old in front of a chart and ask them which direction they think it will go next and they will probably get it right more often than not. The point is this; determining market direction and finding trades is not hard, people make it hard.
I teach price action as you probably know (honestly, if you don’t know that by now you need to checkout this article right now: price action trading introduction), and it’s not simply some strange coincidence that I teach this particular form of trading, I also personally trade with price action…because it is simple (and effective). The trading strategy you use doesn’t need to involve complex computer algorithms, counting ‘waves’ or interpreting heaps of indicators. In fact, most traders get bogged down with trying every trading method under the sun until they either give up or figure out that they were simply over-complicating what should be a very simple process.
The difficult part of trading is controlling yourself via not over-trading, not risking too much per trade, not jumping back into the market on emotion after a big win or a loss, etc. In short, controlling your own behavior and mindset, as well as properly managing your money are the hardest parts of trading, and traders tend to spend less of their time & focus on these more difficult aspects of trading, probably about 20%, when they should be spending about 80% of their time on them.

80% of profits come from 20% of trades

If you have followed my blog for a while, you know that I am strong proponent of “sniper trading” and waiting patiently for high-probability trade setups, rather than the high-frequency trading style that tends to put so many traders ‘out of business’, so to speak.
It’s absolutely true that most of my trading profits come from a small percentage of my trades. I like to keep all my losing trades contained below a certain 1R dollar value that I am comfortable with, and if I see what I consider an “obvious” price action signal with a lot of confluence behind it, I will go in strong and make a nice chunk of change on the trade if it goes in my favor. Because I trade with such patience and precision, the winning trades I have typically double or triple the 1R risk I gave up on any of my losers. This way, even if I lose more trades than I win, I can still make a very nice return at year’s end.

80% of the time I am not trading, 20% of the time I ‘might’ be

I might trade 4 times per month on average, quite simply because I am a very picky trader. I don’t like to risk money on a setup that isn’t ‘screaming’ at me or what I like to say is “damn obvious”. Most traders like to trade a higher-frequency trading style, and it’s not a coincidence that somewhere around 80 to 90% of them lose money. They are losing money because they are trading way too much and not being patient or disciplined enough to wait for their strategy to really come together and give them a high-probability entry signal.
Do you see the connection between the fact that most traders lose money (around 80%) and about the same amount of time the market is really not worth trading? Markets chop around a lot, and a lot of the time the price action is simply meaningless. As a price action trader, our job is to analyze the price action and have the discipline to not trade during the choppy (meaningless) price action and wait for the 20% or so market conditions that are worth trading.
This point is the most important in this whole article: I get a lot of emails from beginning and struggling traders and I know for a fact that the main thing that separates the professionals from the amateurs in this business is patience and not over-trading. Traders tend to negate their trading edge by trading during the 80% of the time when the market is not worth trading. Instead of waiting for the 20% of the time when it is worth trading, they simply trade 80% to 100% of the time with very little discretion or self-control, like a drunk guy at a casino. Don’t let this be you, remember the 80/20 rule ESPECIALLY as it pertains to trading vs. not trading. If you think you are trading about 80% of the time, you need to evaluate your trading habits and make it more in-line with trading only 20% of the time and 80% of the time should be spent observing and keeping your hands in your pockets (not trading).

80% daily chart trades, 20% other time frames

The daily chart time frame is my “weapon of choice” as far as chart time frames are concerned. I would say it’s pretty accurate that just about 80% of my trades are taken on the daily chart time frame. I won’t get into all the reasons about why focusing on the daily charts is so much better than lower time frames, but you can click the link above to find out more.
However, I would like to point out that there is also a direct connection between the fact that most traders get caught up trading lower time frame charts and most of them lose money. This fits well with the 80/20 rule in that probably only about 20% of traders really focus on higher time frame charts like the daily chart and somewhere around 20% to 10% of traders actually make consistent money. People tend to be drawn to the “play by play” action on the lower time frame charts, almost like they are mesmerized by the moving numbers and flashing colors…unfortunately, this turns into somewhat of a trading addiction for many traders, that quickly destroys their trading accounts.

80% of trading success is psychology and money management, 20% is strategy

In the article I wrote that detailed a case study of random entry and risk reward, I showed how it is possible to make money simply through the power of money management and risk reward. To be clear, I was not and am not saying that you can make a full-time living as a trader without an effective trading strategy. I am simply saying that money management and controlling your mindset is far more important than finding some “perfect, Holy-Grail” trading system that simply does not exist.
You should be focusing about 80% of your trading efforts on money management and controlling yourself / being disciplined (psychology), and about 20% on actually analyzing the charts and trading. If you do this consistently, I can guarantee you that you will see a very positive change in your trading profits, or lack thereof.
Using an effective trading method that is also easy to understand and implement will give you the mental clarity and time to focus 80% on money management and discipline whilst only needing about 20% of your mental energy for analyzing the markets and finding trades. A lot of traders never even get to this point because they are still trying to figure out how the heck to make sense of their trading system.

 Where to go from here with the 80/20 rule…

If you look back over your trading account history from January 1^st until now, ask yourself how many of the trades you lost money on where actually valid occurrences of your trading strategy (edge) versus random gambling-type trades that you entered out of emotion or impulse. I’m willing to be that the ratio of emotional trading losses to losses that were the result of a normal statistical losing trade, is about 80/20…surprise, surprise.
The implication here is clearly that you can eliminate about 80% of your trading losses by avoiding emotional or impulsive trading. The first step to trading with an ‘80/20 mindset’ is to master a simple trading strategy like the price action strategies I teach in my trading courses. As I said earlier, if you do this it will give you the foundation you need to focus more of your time on the real “money makers” in trading, which are money management and your own mental state. Thus, the 80/20 rule in trading is best applied by combining a simple trading strategy and a strong focus on money management and psychology, the synergy of this combination is a very potent force for making money in the market.