Beginning Traders Have Plenty of Market Illusions.
By: Amit Singh
It's true. Beginning traders fancy themselves as the next Peter Lynch. They read all the "hot, latest and greatest", New York Times Best Seller trading books such as Market Wizards, and raid the newsstands for trading magazines. They immerse themselves into technical analysis and start learning chart patterns. Many often try to incorporate fundamental analysis into their trading decisions as well. They subscribe to guru newsletters and stock tip sheets.
After trying to trade on their own for awhile using all of this powerful, newfound knowledge they've acquired -- and usually losing all their money - they decide to seek "professional" training. For most traders this entails investing in expensive trading seminars and courses. They go home after the killer weekend course and try their hand at trading again. It doesn't take long for them to find out it's really not as easy as the "professional" made it look when the markets were closed.
Let us enlighten you to a startling statistic: 90% -99.9% of the trading courses and methodologies most gurus teach out there are subjective! That is, they are methods still dependent largely on the trader's own judgment and experience. It remains to be proven to us if trading judgment and experience can be imparted to another individual in a $3000 weekend seminar. Hence, it may be less than startling to you if we told you that 90 - 99.9% of beginning traders lose all their money in the markets and leave shortly after arriving, only to be replaced by a brand new crop of aspiring traders.
Do you think there might be a correlation between the way trading is normally taught (largely subjective methodologies) and the high rate of failure of most traders trading these methods??
Any Trading Methodology That Relies on Human Subjective Input is Doomed in Most Cases to Failure.
We feel this is because the financial markets are designed to be an efficient marketplace. If a Stock, Futures or Forex contract is momentarily too cheap it will almost immediately soon be valued higher. If a Stock, Futures or Forex contract is momentarily too expensive it will almost immediately soon be discounted. The beginning trader is simply not capable of competing in this ultra efficient marketplace.
They get confused with the subjectivity involved using typical subjective methods of day trading. Fibonacci, Trend Lines, MACD and other Oscillators, Moving Averages are commonly used and are all subjective. When do you apply one indicator and not the other? What do you do if one indicator says to buy whereas the other indicator says to sell? This results in what is called "paralysis of analysis." When you trade subjectively, you basically don't know what to do, so you are essentially in a state of trading paralysis and you do nothing, except watch your money evaporate. The use of a good trading robot software will eliminate all subjectivity, which can greatly reduce your trading stress, mistakes and improve your bottom line! TSUBOT by Tsunami Trading Educators, Inc. is one such robot which analyzes price volume & momentum in real time and gives out high margin 100% mechanical trading calls right from your computer's speakers.
About the author:
To read more about TsuBot, visit day trading robot ( www.tsunami-trade.com ). If you want you can try TsuBot in live markets for free, visit Free Trial.
Showing posts with label Forex Psychology. Show all posts
Showing posts with label Forex Psychology. Show all posts
Saturday, January 9, 2010
Forex Education \ Forex Trading: 6 Ways To Overcome Fear And Greed By: Ricky Weber
Forex Trading: 6 Ways To Overcome Fear And Greed
By: Ricky Weber
Any person who has ever invested their hard-earned money into a financial market that is traded on margin or leverage might have noticed that as the amount of money that they are working with grows, so do the emotions that you experience when the value of your account and open positions fluctuate up and down. The worst thing for a trader to be owned by your emotions and thereby have your judgement clouded, so these six tips will help you to own your emotions and not the other way around.
Triple Your Demo Account Twice Before Trading Live
Trading demo accounts is something that every trader should start with whether you are trying a new trading software for the first time or are just trying out a new trading strategy. In order to trade in a calculated way and not an emotional way, you must have confidence in the accuracy of your market analysis skills and in yourself, and this can be fostered by gaining experience as a trader. However, when you are trading a demo account you do not need to risk any of your own money, so if you follow this tip then you should become a good enough trader that you could step in and grow literally any trading account regardless of size, making it far less probable that you will lose money when you switch to a live account.
Keep A Trading Journal That Documents Your Trades
This step is probably the one that most people skip because they immediately say to themselves "Haha, that's dumb" and never are able to gain the tremendous benefits that this can have. It might seem like a childish exercise to try and write down the emotions that you feel when you trade, but you can keep this journal to yourself and for that reason you can be honest when you do it. You can just use a simple notebook, and you should write down the date and approximate time of trading, the currency pair you are trading and whether you buy or sell, the entry price and exit price, and also if it was a winning trade or losing trade and whether it was compromised by trading emotionally.
Do Not Fund Your Account With Money Crucial To Your Life
One of the best ways to make your trading a highly emotional and stressful experience is to fund your live account with money that you cannot afford to lose, because you will literally freak out if you see the market moving against you. While trading in the foreign exchange market is inherently risky especially when you are using the high amount of leverage that is typical with this market, you are still taking calculated risks that have an established probability of being profitable over time. When you take the paycheck that you need for groceries and put it into a trading account, this is called gambling and you would probably be better off to take that money and put it into slot machines or buy scratch off lottery tickets.
Leveraging Your Money Leverages Your Emotions
There is a vast amount of power that is placed into your hands when you are allowed to trade open positions in excess of 100 times the value of the allocated capital in your trading account, and underestimating this power can spell disaster for a forex trader. Trading a currency pair like EUR/USD at a 1:1 ratio would mean that each pip is worth $0.10, but change that to your typical leverage ratio of 100:1 and each pip is now worth $10 instead. But as you magnify your money in this way you will also magnify the emotions that you experience when you see this money increase or decrease in value, so make sure you never lose scope of the power that comes with highly leveraged trading.
Never Enter If You Don't Know When To Exit
There is a popular saying that goes "wealth is not the money you make, it is the money you keep." Well when it comes to forex trading, success is not in the pips that you earn but it is in the pips that you capture when you exit the trade. With this in mind, your exit strategy is arguably more important than your entry strategy, especially when it comes to minimizing losses. Never enter into an open trade without both a predefined profit-taking level and a stop-loss level, because without establishing your exit level on both sides you open yourself up to making spontaneous decisions based on your emotions.
Simple Market Analysis Is Better Than Overly Complicated Analysis
There is a condition that a trader can suffer from called "analysis paralysis," which is when you load your price chart with a dozen different indicators and then read the hundreds of items streaming through the news feed, and while trying to discern a usable trading signal through all that noise you end up with nothing but a headache. Instead of doing this, it is better to ignore the news feed and only put two indicators on your chart that you fully understand, because simple analysis is always more practical than making things too complicated.
Following these six forex trading tips should help you to master your emotions while trading, and should allow you to separate yourself out from the majority of traders that wipe out their first live account and never again return to trading because they were completely controlled by fear and greed.
About the author:
Ricky Weber is the finance writer for http://TheCurrencyMarkets.c om and http://TcmForex.com
By: Ricky Weber
Any person who has ever invested their hard-earned money into a financial market that is traded on margin or leverage might have noticed that as the amount of money that they are working with grows, so do the emotions that you experience when the value of your account and open positions fluctuate up and down. The worst thing for a trader to be owned by your emotions and thereby have your judgement clouded, so these six tips will help you to own your emotions and not the other way around.
Triple Your Demo Account Twice Before Trading Live
Trading demo accounts is something that every trader should start with whether you are trying a new trading software for the first time or are just trying out a new trading strategy. In order to trade in a calculated way and not an emotional way, you must have confidence in the accuracy of your market analysis skills and in yourself, and this can be fostered by gaining experience as a trader. However, when you are trading a demo account you do not need to risk any of your own money, so if you follow this tip then you should become a good enough trader that you could step in and grow literally any trading account regardless of size, making it far less probable that you will lose money when you switch to a live account.
Keep A Trading Journal That Documents Your Trades
This step is probably the one that most people skip because they immediately say to themselves "Haha, that's dumb" and never are able to gain the tremendous benefits that this can have. It might seem like a childish exercise to try and write down the emotions that you feel when you trade, but you can keep this journal to yourself and for that reason you can be honest when you do it. You can just use a simple notebook, and you should write down the date and approximate time of trading, the currency pair you are trading and whether you buy or sell, the entry price and exit price, and also if it was a winning trade or losing trade and whether it was compromised by trading emotionally.
Do Not Fund Your Account With Money Crucial To Your Life
One of the best ways to make your trading a highly emotional and stressful experience is to fund your live account with money that you cannot afford to lose, because you will literally freak out if you see the market moving against you. While trading in the foreign exchange market is inherently risky especially when you are using the high amount of leverage that is typical with this market, you are still taking calculated risks that have an established probability of being profitable over time. When you take the paycheck that you need for groceries and put it into a trading account, this is called gambling and you would probably be better off to take that money and put it into slot machines or buy scratch off lottery tickets.
Leveraging Your Money Leverages Your Emotions
There is a vast amount of power that is placed into your hands when you are allowed to trade open positions in excess of 100 times the value of the allocated capital in your trading account, and underestimating this power can spell disaster for a forex trader. Trading a currency pair like EUR/USD at a 1:1 ratio would mean that each pip is worth $0.10, but change that to your typical leverage ratio of 100:1 and each pip is now worth $10 instead. But as you magnify your money in this way you will also magnify the emotions that you experience when you see this money increase or decrease in value, so make sure you never lose scope of the power that comes with highly leveraged trading.
Never Enter If You Don't Know When To Exit
There is a popular saying that goes "wealth is not the money you make, it is the money you keep." Well when it comes to forex trading, success is not in the pips that you earn but it is in the pips that you capture when you exit the trade. With this in mind, your exit strategy is arguably more important than your entry strategy, especially when it comes to minimizing losses. Never enter into an open trade without both a predefined profit-taking level and a stop-loss level, because without establishing your exit level on both sides you open yourself up to making spontaneous decisions based on your emotions.
Simple Market Analysis Is Better Than Overly Complicated Analysis
There is a condition that a trader can suffer from called "analysis paralysis," which is when you load your price chart with a dozen different indicators and then read the hundreds of items streaming through the news feed, and while trying to discern a usable trading signal through all that noise you end up with nothing but a headache. Instead of doing this, it is better to ignore the news feed and only put two indicators on your chart that you fully understand, because simple analysis is always more practical than making things too complicated.
Following these six forex trading tips should help you to master your emotions while trading, and should allow you to separate yourself out from the majority of traders that wipe out their first live account and never again return to trading because they were completely controlled by fear and greed.
About the author:
Ricky Weber is the finance writer for http://TheCurrencyMarkets.c om and http://TcmForex.com
Forex Education \ The Truth About Forex Forecasting By: Christopher Lee
The Truth About Forex Forecasting
By: Christopher Lee
Forecasting in Forex is the predetermination of events that should eventually lead to you making a sort of handsome profit that everyone is looking for in terms of investment ideals involving the many forms of commodities that are available online. One of the best things in terms of forecasting within the paper trade is that the Forex market has been known to fall into loosely predictable patterns that can, to a certain extent be predicted before market movements.
What directions, flights to safety, market psychology being dependent on several key and core factors, one would be indisposed to study the market patterns over the past few years and form opinions based upon that. If you are really interested in the currency trade, and would like to make some decent money from there, then this is one of the main things you should know about when it comes to forecasting.
The truth is, there is no complicated formula that can be applied because in a strange way, there is an ordered chaos, a dynamic pattern that the market always falls into when certain events happen or when the potential for market movement is there. But beware, do not be fooled into thinking that patterns will change at the touch of a finger because when a trend does occur in the FX market, it tends to stay there indefinitely. Sometimes it can last for weeks, sometimes months and trends (depending on market and external conditions) have been known to stay on for several years at a time.
Always watch the trends in the FX market, but also remember that uniqueness is part and parcel of the currency market that you are investing in. This is because of its highly liquid structure, and within a single trend, there might be rapid but uniformed changes that will happen every minute and every hour. The trend will stay, but changes and microcosms within the trend will definitely change as sure as a tidal wave approaching a small island. There are certain things that you will need to keep in mind when forecasting on the FX market, and the following are a few simple principles that should be at the back of your head at all times.
Forex is a truly 24-hour, round the clock market - so trades are being conducted while you are busy doing other things; including sleeping, so always place these measurables and irregularities of the market within your forecast paradigm. It is also a true-zero sum market, which simply means that wherever there is a winner, there will be an equal loser on the other side of the fence. At the end of the day, the FX market will have to balance itself out.
The currency market has no measures other than the primary ones that are noteworthy, and the FX market can be manipulated by large central banks and governments, who will state their intentions clearly that they will stop the flow of a market movement if it is in the best interests of the majority. These are just some of the truths about Forex forecasting you should be aware of when considering on investing in the Forex market.
About the author:
Click Here to claim your Free Forex "Basic Momentum Analysis" report today! Christopher Lee helps thousands of traders learn the proper way to trade currency.
By: Christopher Lee
Forecasting in Forex is the predetermination of events that should eventually lead to you making a sort of handsome profit that everyone is looking for in terms of investment ideals involving the many forms of commodities that are available online. One of the best things in terms of forecasting within the paper trade is that the Forex market has been known to fall into loosely predictable patterns that can, to a certain extent be predicted before market movements.
What directions, flights to safety, market psychology being dependent on several key and core factors, one would be indisposed to study the market patterns over the past few years and form opinions based upon that. If you are really interested in the currency trade, and would like to make some decent money from there, then this is one of the main things you should know about when it comes to forecasting.
The truth is, there is no complicated formula that can be applied because in a strange way, there is an ordered chaos, a dynamic pattern that the market always falls into when certain events happen or when the potential for market movement is there. But beware, do not be fooled into thinking that patterns will change at the touch of a finger because when a trend does occur in the FX market, it tends to stay there indefinitely. Sometimes it can last for weeks, sometimes months and trends (depending on market and external conditions) have been known to stay on for several years at a time.
Always watch the trends in the FX market, but also remember that uniqueness is part and parcel of the currency market that you are investing in. This is because of its highly liquid structure, and within a single trend, there might be rapid but uniformed changes that will happen every minute and every hour. The trend will stay, but changes and microcosms within the trend will definitely change as sure as a tidal wave approaching a small island. There are certain things that you will need to keep in mind when forecasting on the FX market, and the following are a few simple principles that should be at the back of your head at all times.
Forex is a truly 24-hour, round the clock market - so trades are being conducted while you are busy doing other things; including sleeping, so always place these measurables and irregularities of the market within your forecast paradigm. It is also a true-zero sum market, which simply means that wherever there is a winner, there will be an equal loser on the other side of the fence. At the end of the day, the FX market will have to balance itself out.
The currency market has no measures other than the primary ones that are noteworthy, and the FX market can be manipulated by large central banks and governments, who will state their intentions clearly that they will stop the flow of a market movement if it is in the best interests of the majority. These are just some of the truths about Forex forecasting you should be aware of when considering on investing in the Forex market.
About the author:
Click Here to claim your Free Forex "Basic Momentum Analysis" report today! Christopher Lee helps thousands of traders learn the proper way to trade currency.
Forex Education \ Retail Forex Trading Tendency To Range Trade - Fresh Insights By: Jay Meisler
Retail Forex Trading Tendency To Range Trade - Fresh Insights
By: Jay Meisler
Copyright (c) 2009 Jay Meisler
The growth of retail forex trading, which tends to rely on technicals to make trading decisions, has coincided with an ever increasing use of such indicators to drive currency markets. However, there seems to be a bias in how retail forex traders approach the market, which is not as trend followers but as range traders who use technicals to help guide trading decisions. These range trading strategies can have a measure of success in normal markets (depending on proper risk/reward trades, money management, etc) but when a trend or breakout develops, it can prove fatal to the undisciplined trader. The goal of this article is to add some insights into the range trading approach and suggest some ways to add flexibility and discipline to increase the odds of success or at least staying in the game to trade another day. The following is a discussion on range trading from the Global-View forex forum to illustrate these points.
As posted on the Global-View Forex Forum:
GVI Forex Jay 13:07 GMT September 11, 2009 Range Trading: One characteristic of retail traders is they tend to trade markets as ranges. This generally sees them looking to buy on weakness and sell on strength, often not using stops as they employ a range strategy. There are some who will add to losing positions to average the price in the hope of improving the breakeven exit level. This works when the market trades in ranges although one will argue there is an opportunity cost of not using stops and holding on to losing positions in the hope that the market will come back to breakeven or a profit. This strategy can be painful when markets go from ranges to trend as those fading the market may not see their entry level again. Doubling or tripling up in this environment can prove fatal.
Please note that the above is a generalization and prudent money management can change results but for the average "fade the market" approach, breakout markets can be painful or even fatal. We always recommend using stops. We also suggest being flexible and recognizing when the market is trending (i.e. this week's breakouts are an example) and not trading a range.
Reply from a forex forum member:
sofia kaprikorn 22:25 GMT September 11, 2009 Range Trading: Reply hmm - interesting to look at this topic from another perspective.
As you say 'retail traders' tend to do this in the observed way. I'm interested why or how is the way to change this.
What I mean is that if retails do it wrong then there must be a Correct way - or the way of the Pro's or the 5-10% group who make it.
Then I ask myself why am I a loser - was it that I started in a wrong way or it is a permanent flaw in my personality that can't be changed since I repeat the same mistakes even after 4-5 years of trading.. and it is not the knowledge since I gathered so much knowledge that I can easily cover any area from Japanese candlesticks to trend-following systems.
I have read material on trader psychology and it seems that the clue is in the Right Conditioning or maybe discipline, which is interesting if one can re-condition himself or impose strict discipline on himself.
Certainly the debate of whether a winning trader is born or conditioned is a pretty old one (case in point Richard Dennis & William Eckhardt turtle experiment) and some will make and others will not.
Reply to the forex forum member:
GVI Jay 12:40 GMT September 12, 2009 Range Trading: Reply
Kaprikorn. As we have discussed, I have never read a book on trading (except the one we wrote) and anything I say is just from my personal experience.
The fx market tends to trade ranges, even during trends when the market pauses and consolidates. These ranges can often lull the range trader into a feeling of complacency and this is when some get into trouble when the trend reasserts itself and the trader either doubles up on a loser or holds on hoping the market will come back into range. This is why we suggest always using a stop.
Without going into too much detail, this is my approach:
- Always be aware of the broader trend (e.g. daily charts) - that is what drives the real money flows and where there is risk of technical breakouts, reversals or corrections.
- For example, if you are trading in shorter time frames, such as 5 minutes, 15 minutes, 1 hour, you can trade those trends but put them in perspective vs. the broader trend and don't treat them as the underlying trend in the market. It is too easy to get lulled into thinking the 1 hour, for example, is the real trend when in fact it might just be a counter trend to the overall trend.
- If trading against the overall trend, be quicker to take profits than if going with the trend as the market will tend to reverse quicker
- There is a better chance of seeing your levels again if you are with the overall trend and market moves against you
- Look for anything in the daily chart that will change the overall trend. This will tell you what the risk is in the market
- One example that is worth reviewing (see chart above) -- note the summer range for the eur/usd but look at the broader trend to put it in perspective. There was a major trendline on daily charts that was never threatened. There was also a minor up channel that stayed intact despite times the eur/usd looked like it was heading lower. This is what I mean by the broader trend. Of course, it is easier to discuss this in hindsight with the help of the chart but it does show a good lesson in keeping the broader trend (and risk) in perspective.
This just scratches the surface but hopefully gives some insights into trading ranges.
About the author:
Jay Meisler is a co-founder of Global-View.com, the leading forex discussion site for more than a decade and where traders from around the globe come for the latest breaking news, flows, rumors and trading ideas =>http://www.global-view.com
By: Jay Meisler
Copyright (c) 2009 Jay Meisler
The growth of retail forex trading, which tends to rely on technicals to make trading decisions, has coincided with an ever increasing use of such indicators to drive currency markets. However, there seems to be a bias in how retail forex traders approach the market, which is not as trend followers but as range traders who use technicals to help guide trading decisions. These range trading strategies can have a measure of success in normal markets (depending on proper risk/reward trades, money management, etc) but when a trend or breakout develops, it can prove fatal to the undisciplined trader. The goal of this article is to add some insights into the range trading approach and suggest some ways to add flexibility and discipline to increase the odds of success or at least staying in the game to trade another day. The following is a discussion on range trading from the Global-View forex forum to illustrate these points.
As posted on the Global-View Forex Forum:
GVI Forex Jay 13:07 GMT September 11, 2009 Range Trading: One characteristic of retail traders is they tend to trade markets as ranges. This generally sees them looking to buy on weakness and sell on strength, often not using stops as they employ a range strategy. There are some who will add to losing positions to average the price in the hope of improving the breakeven exit level. This works when the market trades in ranges although one will argue there is an opportunity cost of not using stops and holding on to losing positions in the hope that the market will come back to breakeven or a profit. This strategy can be painful when markets go from ranges to trend as those fading the market may not see their entry level again. Doubling or tripling up in this environment can prove fatal.
Please note that the above is a generalization and prudent money management can change results but for the average "fade the market" approach, breakout markets can be painful or even fatal. We always recommend using stops. We also suggest being flexible and recognizing when the market is trending (i.e. this week's breakouts are an example) and not trading a range.
Reply from a forex forum member:
sofia kaprikorn 22:25 GMT September 11, 2009 Range Trading: Reply hmm - interesting to look at this topic from another perspective.
As you say 'retail traders' tend to do this in the observed way. I'm interested why or how is the way to change this.
What I mean is that if retails do it wrong then there must be a Correct way - or the way of the Pro's or the 5-10% group who make it.
Then I ask myself why am I a loser - was it that I started in a wrong way or it is a permanent flaw in my personality that can't be changed since I repeat the same mistakes even after 4-5 years of trading.. and it is not the knowledge since I gathered so much knowledge that I can easily cover any area from Japanese candlesticks to trend-following systems.
I have read material on trader psychology and it seems that the clue is in the Right Conditioning or maybe discipline, which is interesting if one can re-condition himself or impose strict discipline on himself.
Certainly the debate of whether a winning trader is born or conditioned is a pretty old one (case in point Richard Dennis & William Eckhardt turtle experiment) and some will make and others will not.
Reply to the forex forum member:
GVI Jay 12:40 GMT September 12, 2009 Range Trading: Reply
Kaprikorn. As we have discussed, I have never read a book on trading (except the one we wrote) and anything I say is just from my personal experience.
The fx market tends to trade ranges, even during trends when the market pauses and consolidates. These ranges can often lull the range trader into a feeling of complacency and this is when some get into trouble when the trend reasserts itself and the trader either doubles up on a loser or holds on hoping the market will come back into range. This is why we suggest always using a stop.
Without going into too much detail, this is my approach:
- Always be aware of the broader trend (e.g. daily charts) - that is what drives the real money flows and where there is risk of technical breakouts, reversals or corrections.
- For example, if you are trading in shorter time frames, such as 5 minutes, 15 minutes, 1 hour, you can trade those trends but put them in perspective vs. the broader trend and don't treat them as the underlying trend in the market. It is too easy to get lulled into thinking the 1 hour, for example, is the real trend when in fact it might just be a counter trend to the overall trend.
- If trading against the overall trend, be quicker to take profits than if going with the trend as the market will tend to reverse quicker
- There is a better chance of seeing your levels again if you are with the overall trend and market moves against you
- Look for anything in the daily chart that will change the overall trend. This will tell you what the risk is in the market
- One example that is worth reviewing (see chart above) -- note the summer range for the eur/usd but look at the broader trend to put it in perspective. There was a major trendline on daily charts that was never threatened. There was also a minor up channel that stayed intact despite times the eur/usd looked like it was heading lower. This is what I mean by the broader trend. Of course, it is easier to discuss this in hindsight with the help of the chart but it does show a good lesson in keeping the broader trend (and risk) in perspective.
This just scratches the surface but hopefully gives some insights into trading ranges.
About the author:
Jay Meisler is a co-founder of Global-View.com, the leading forex discussion site for more than a decade and where traders from around the globe come for the latest breaking news, flows, rumors and trading ideas =>http://www.global-view.com
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