Hi readers, thanks for clicking in. However, before we start, you must agree to the following statements:
Forex markets are full of sharks and they will eat us alive. There is no shortcut or so called secret trading methods.
The only way to achieve successful in trading is only through sticking to simple and sensible rules. In other words, be self – disciplined.
Successful can only be achieved through applying the correct method, having the right mindset and practicing good money management. Lacking of one of those will never bring us success in trading.
Winning in forex does not refer to how much profits you gained, is all about how well do you stick to your trading plans and rules.
Now, if you agree with the statements above, we have the same point of view. If you don’t or you are already generating fruitful profits from the market consistently, you may close this page now.
Alright, feel good to see you are still here. Let’s get started.
I remembered that when I first started my trading journey during early 2013, I turned USD1000 into USD5000 within 3 weeks. During that time, I was extremely excited and I had a thought that trading is just seemed to be easy, just by a simple click of buy or sell, I am able to generate profits.
However, that was where my nightmare started. My trading account blew out in next 4 days due to improper lot sizes, over trading and emotional distraction. I funded my trading account immediately right after the account blew out and guess what, my account was blew out again, on the same day, due to being anxious to recover all the money I lost.
I never gave up, I researched and looked for the best trading methods, spent over $10,000 on forex courses, coaches and even expert advisor (EA) After 6-7 months, boom……, my account blew out again.
This time, I have no more choices but to stop funding in again into my trading account. I condensed myself and started to search for solutions. I read through many articles and case studies and I noticed that most of the traders are facing the same problems as mine. After all, I can conclude that the root causes of the problems is all about trader behaviors. In other words, it is all about how well the traders practice the trading plan and does he really stick to the rules regardless what the markets show them.
Let me ask you some questions,
Have you ever feel that every decision you made is wrong and the market direction is always opposing to your entry?
Or have you ever been stopped out of the trade due to insufficient margin ?
Do you know that human behaviors are somehow similar and predictable? This is the reason that most of the amateur traders went through the same experience like me. Believe it or not, there are thousands of Forex traders experiencing the same things like you and me. But the problem is, they do not find the root cause of these problems and they will be putting blames to the market, or even claiming that the trading setups aren’t working. However, they have somehow neglected an important point, is to always start thinking from themselves. Some people claimed that they have 10 or more years of trading experience but they are still losing money, why ? This is because they are practicing the same experience for 10 years, without any improvement or self – reflection.
Risk Management – The Only Way to Survive Until The End
I am about to share with you an analogy so that you can see market in a different angle. First of all, I would like to clarify with you what is the real definition of winning and losses. Does making profits over some trades refer to win and stop loss is equal to losses ? I would tell you this is definitely a wrong statement. You can still remain winning in forex although facing stop losses in some trades. We must always accept that stop loss is part of the trading process, just like business expenses. You can loss 5 out of 10 trades, but still remain profit overall as long as your risk and reward ratio is correct. This is to do about having a very strong risk management skill. Risk management is not only about putting a stop loss point, it is always about how do you put and where you put it, so it offers a great ratio of risk verses reward.
When you really believe that trading is simply a probability game, concepts like right or wrong
or win or lose no longer have the same significance.
– Mark Douglas
Let me show you a very simple experiment to prove the power of risk and reward.
Register a demo account from your broker with any amount you prefer, the rules is never risk more than 2% of your capital. Then, we will start to trade randomly at only 1 trade per day. The parameter of the trade is pretty straight forward, just to use stop loss of 50 pips and profit of 100%. No price action setup or any indicators are required, just buy or sell based on your prediction and let the market do the things. Once enter, set and forget the trade until one of the stop loss or profit point is triggered and execute a new entry. Repeat this for a month, the result will truly open your eyes.
Above are my experiment results for 11 months. A total of 68 buys trades were executed and I have lossed around 60% of the trades. However, in overall I am still in winning and gaining 5% of profits. So, what are the lessons learnt here ? With the trade history above, we can again prove that the power and importance of risk and reward ratio. When we are confident enough on our risk and reward strategies, we will have no doubt in entering the market. When our profits ratio is at least 2 times than the risk, we will still have profit or breakeven after facing losses.
The problem with most of the traders is risk reward is not implemented properly. They put stop loss just for the sake of so called market requirement taught by their coaches. When there are making profits of less than 2 times risk, they need to have a very high probability in winning in order to make money but the truth is, most of the trading strategies do not give you an edge that allow you to consistently win money. Also, a good quality trading setup will also allow you to set and forget while trading yet still giving higher probability of winning. Therefore, when combined both professional money management and high quality trading setups, we can have a stress-free way to enter the market, by only taking obvious setup and implementing risk and reward ratio of at least 2, you will definitely stop losing money and start profiting.
Always Have More Practice than Real Trading
Other than risk management, practicing with your own trading setups is important too. Practice makes perfect. Nobody can be successful just over a night. Numerous backtests are a must in order to unlock the successful swing trading results. Only through continuous backtests and practicing your trading setups, you can gain enough confidence and also to understand more about your trading strategies. It is no matter how good your trading setups are as market changes from time to time, it is all about your level of understanding in price action and swing trading.
One of the best way of practice before going live is to register for a demo account and start trading with it. This enables you to know about the real trading environment and you can test all your setups with demo account with no risk at all. However, if you are a swing trader, testing with demo account will take longer period as the demo account are synced to the live market.The other way of practicing is through Forextester. It is a backtest software designed for special trading and enable you to backtest strategy on year of historical data. From here, you can develop or strengthen your current trading method and be more familiar with the market. You can test the market up to 10 years before and you will definitely build up your confidence with it.
Being a Self – Disciplined Swing Trader
Nevertheless, the biggest variable that can affect your trading result is whether you know your edge and when to not enter the market. We should always wait for the trading setup to appear, but not finding it over the charts and eager to entry.
With swing trading, we can easily eliminate that. By only trading daily and h4 charts, we will have sufficient time to filter and analyze the market and wait for the best entry, like what other pro traders do. We must always see the markets like from pro traders perspective. Pro traders always see the market completely different way than amateurs do. They will keep their trading concept as simple as possible. Firstly, they will always filter the market using their trading setups and not over complicating everything. If the setup is present, they will next filter it using ratio of risk and reward. They will only take the trade and walk away if the risk and reward is attainable. Amateur traders will normally to get caught up easily on each trade. They will be keeping looking and searching for trade signals for entry, especially in lower time frame. Once trade is executed, they will be fully “controlled” by the trade and get emotionally distracted. Look at my random trade results above, I am still able to make money over trades, just as long as I stick to my trading plan and right ratio of risk reward.