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  • Trading Philosophy

    I thought it would be a good idea to share thoughts based on my personal experiences. I'm sure some of what I think will differ from others viewpoints, and thats fine since each of us will have had different experiences... I'll be adding my "two pips" to this post as I have time.


    The "Holy Grail"

    What better place to start than with the "Holy Grail"!

    We have all at one time or another dreamed of discovering a method of trading that leads us to unimaginable wealth with little risk. Sadly that "Holy Grail" does not, and never will exist. Reward will always be in direct proportion to risk. Consistent returns of say 50% per month are not realistic. Consider this, 50% compounded monthly returns on a 10K starting account would make you a TRILLIONAIRE...not billionaire, in under 5 years. Imagine Bill Gates and Warren Buffet asking if you could spare a few bucks! 10K starting at just 20% per month compounded makes you the wealthiest person on earth in under 7 years. Last I checked nobody has pulled that off. So what is "realistic"?

    I personally feel that 10-15% per month is achievable and sustainable, with some DD in between. 200-300% annual returns on small accounts (Say under $5M) are rare but doable even with DD's. My "model" account is currently +256% in about 10 months trading, with "major" DD's of 60, 20 and 10% along the way and I feel I have much room for improvement in my trading. I can realistically grab 500+ pips on a good month using only 2:1 leverage on any single position using my current trading method. That translates to about 10% monthly return. If I want to pump up the leverage then I can do better, but I risk more as well.

    For me, the Holy Grail is finding that optimal "sweet spot" between risk/reward, and win/loss ratio and being a consistent trader. When this can be achieved you will see a steady rising equity curve with modest DD.

    Setting Goals

    One of the biggest mistakes I feel traders make is to set weekly, monthly or yearly profit goals. We all do it or have done it. So you might say "Joe, you have to set a goal. If you don't know where you want to go, how can you get there". To that I agree, you should set a goal. But your goal should be this: To plan your trade and trade your plan on each and every trade. That's it. Do that and the market will give you what it wants to give you. Planning your trade and trading your plan IS THE ONLY THING YOU HAVE TOTAL CONTROL OVER. You cannot will the market to do what you want it to do. In Mark Douglas' book "Trading in the Zone", Mark states that in trading, there are 5 fundamental "truths":

    1) Anything can happen
    2) You don't need to know what will happen to make money
    3) There is a random distribution between wins and losses for any given set of variable that define an edge
    4) An edge is nothing more than an indication of a higher probability of one thing happing over another
    5) Every moment in the market is unique

    Given the fact that (1) anything can happen and (2) there is a random distribution between wins and losses, how can we possibly expect to know what we may be able to earn in a week, month or year? Setting goals leads to trading errors, at least for me. When you fall short of your "goal", it causes you to feel like you failed, which in turn causes you to "push" to earn profit. More often than not, this will lead to holding onto losing trades or cutting winners short...or worse, letting a winner become a looser.

    I strongly recommend Trading in the Zone to anyone that is serious about being a self-directed trader. This is the one book I keep on my desk and pick up a read every single day. I actually have a "back up" copy of this book...it's that important to my trading!

    Set a goal to plan your trade and trade your plan. The pips will take care of themselves...:-)

    Market Bias

    Having a bias for market direction can be very useful, but it can also hurt you if you don't use your bias wisely. Let's think about how a market bias can help:

    1) It can help you pick safer trades (The trend is your friend)
    2) It can help you determine potential pullback and profit levels. I often use fib retracement and projections when analyzing a currency pair.

    How can bias hurt you?

    1) It can give you "tunnel vision". You can become so fixed on your bias that you miss other opportunities that are out there.
    2) It can cause you to break your rules. How many times have you held onto a losing trade because you felt the market "had" to come back to you?
    3) It can cause trading errors. How many time have you thought "This can't go any higher" or "This had to have hit bottom because it has been so strong for the last 3 days" and entered a trade only to see it continue to go "against" you?
    4) It puts you in a position where you could be "wrong" and we all hate to be wrong and sometime make mistakes to try to prove we were right.

    There is nothing wrong with having a bias. But control your bias, don't let your bias control you!

    Fundamentals and news

    Fundamentals and news are another two-edged sword when it comes to trading. My thoughts are that fundys and news are relevant if you're planning to hold a trade for over 4 hours or looking for 100+ pips on a single trade. Beyond that the information is of little to no use. I know many will disagree with that. Now that is not to say that I do not respect fundys and news. I would be a fool to trade ahead of or just after a market moving news event blindly. I respect that news can effect an open position to my advantage or disadvantage and need to be ready to respond, either by cutting, adding to or holding a position.

    I look at it like this. I typically look for anywhere between 10 and 50 pips profit on any single position. In reality 10-50 pips is little more than market "noise". Fundys and news will never stop this noise. The most crazy up or down moves have at least a few 10-15 pip retracements throughout any single trading day. News/fundys simply do not matter...but it can create a bias that could lead to trading errors. See my post on Market Bias.

    Now if you are "swing" or "position" trading that's a whole different ball game. Fundys and news play a more significant role in those trades and need to be taken into consideration along with technical's like support, resistance and range.

    News and fundys can be useful. When planning a trade, take them into consideration but don't let them change your plan. In other words, plan ahead!
    "The trend is your friend - until it bends at the end"

  • #2
    Originally posted by TraderFX65 View Post

    Setting Goals

    One of the biggest mistakes I feel traders make is to set weekly, monthly or yearly profit goals. We all do it or have done it. So you might say "Joe, you have to set a goal. If you don't know where you want to go, how can you get there". To that I agree, you should set a goal. But your goal should be this: To plan your trade and trade your plan on each and every trade. That's it. Do that and the market will give you what it wants to give you. Planning your trade and trading your plan IS THE ONLY THING YOU HAVE TOTAL CONTROL OVER. You cannot will the market to do what you want it to do. In Mark Douglas' book "Trading in the Zone", Mark states that in trading, there are 5 fundamental "truths":

    1) Anything can happen
    2) You don't need to know what will happen to make money
    3) There is a random distribution between wins and losses for any given set of variable that define an edge
    4) An edge is nothing more than an indication of a higher probability of one thing happing over another
    5) Every moment in the market is unique

    Given the fact that (1) anything can happen and (2) there is a random distribution between wins and losses, how can we possibly expect to know what we may be able to earn in a week, month or year? Setting goals leads to trading errors, at least for me. When you fall short of your "goal", it causes you to feel like you failed, which in turn causes you to "push" to earn profit. More often than not, this will lead to holding onto losing trades or cutting winners short...or worse, letting a winner become a looser.

    I strongly recommend Trading in the Zone to anyone that is serious about being a self-directed trader. This is the one book I keep on my desk and pick up a read every single day. I actually have a "back up" copy of this book...it's that important to my trading!

    Set a goal to plan your trade and trade your plan. The pips will take care of themselves...:-)

    [
    Thanks Joe,

    I couldn't agree more with this statement. I remember when i started trading I'd target 20 pips per day.

    But the reality is that you can't control your profits. If the market doesn't want to play ball there is nothing you can do. Forcing the issue is a recipe for disaster.

    Have a plan and trade it. That's the best piece of advice I've ever been given in relation to FX trading.

    Stick it on the wall, before you enter a trade and once you close a trade go over the plan to make sure you stuck to your rules.
    Would you like free lifetime access to our forex trading room?

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    Click here to find out more.

    Comment


    • #3
      Right Nick...actually once you have a large enough sample size trading a method that gives you an edge (on a real live account), you will be able to project where you could be in a month or year based on your past performance...just don't forget the 5 Fundamental Truths!
      "The trend is your friend - until it bends at the end"

      Comment

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