Forex Trading Strategies

Ways to Completely Sabotage Your Trading Strategy: Part 4

We’ve covered money management, trade management, and trading psychology’s biggest strategy sabotaging tactics in the first three articles of this series, and now, we are down for our last eye-opening conversation on this topic.

There are some questions we don’t ask because no one told us that other options exist. While this is definitely not the only way of looking at things, we certainly believe that this dialogue is very much needed in the trading community.

You know the saying…When the student is ready the teacher will appear (Tao Te Ching). Maybe this rhetoric gives you the insight you’ve been looking for.

  • Part 4: Don’t Look Beyond

When traders first start learning about their market of choice, they are a tabula rasa, a new notebook waiting to be filled with knowledge and wisdom. At this critical stage, like children who gradually learn to be less honest because it is socially unacceptable to utter certain truths, traders are also conditioned to look at things in a certain way. Still, as human beings, we are blessed with analytical skills we need to rely on to create our own path, our own success story.

That’s why, when we first get to read about different trading markets, we need to understand the essential differences between them, such as the intricate nuances that separate the forex market from the stocks market.

A lot of resources suggest that money is made when you buy low and sell high, but we’d like to throw in a little twist here to possibly give you a perspective of where this narrative is coming from.

If we are speaking about the forex market, many experts ask how we can discuss if something is overbought and oversold when currencies essentially have no value of their own. The days of the gold standard are long gone, so what we have nowadays is fiat currencies that, unlike equities, have no intrinsic value.

When we look at a specific stock, there are many things we can rely on to determine its price. With currencies, however, we don’t think of balance sheets or products; we only depend on major banks to drop the news concerning prices.

This is one among many subtle (or not so subtle) distinctions that might seem very insignificant. Nevertheless, it’s like with changing companies – you need to understand the company culture to see if you’d fit in even though the position is the same. Here too, we are traders in either case, but some rules of the game differ.

So, what do you think happens when the money floods into the market? With stocks, it is clear – the money comes in, the price follows accordingly. Forex, like some experts, like to explain, does the opposite. When the money comes in, the prices run in the opposite direction.

Why do you think so many traders fail at trading currencies? They swarm in like bees, making massive concentration in one area of the chart, and guess what happens next…the big banks step in and pull the rug from under their feet.

The big banks use all the technology they can to see where the money is going to go next. If something is headed long, they will change it to short. This is how the big banks take the cream off in this market, which does not happen with stocks. So, how the price goes up and down is entirely different in these markets.

Now here is another topic to contemplate – reversal trading. This is one of the favorite topics on trading blogs as well as one we should definitely ponder on more deeply. Reversal traders seem to be the key players in this game of price change. Why? Big banks don’t need trend traders, professionals claim. They need reversal traders for the show to go on. 

While some traders are trying to call a reversal, big banks are “secretly” waiting for the right moment to wreak havoc. That’s why this scenario has been repeating on and on all this time. Most traders get into this collective loop of waiting for a currency to reverse itself for a long time. Do you know when a reversal really happens? ….only when the majority of reversal traders give up on waiting. 

You can always find proof of this if you look up client sentiment online or even observe the charts. You will see how the big banks keep traders immersed in this fixation by calling a reversal with sporadic crumbs of small wins. But, in the end, the majority losses because the majority does not possess this information. They did not read or learn what we talked about in the previous articles of this series and they do not understand what makes them obsess about something that keeps making them lose.  

The most important thing is to try and look and not just disregard and toss everything that doesn’t resemble mainstream thinking. Whatever is prevalent temporarily may not carry the information you need in the long term. Also, whatever is present online is not necessarily true or good for us, which is something we can see in other areas of our lives as well. Why would you let your ignorance be the reason why others become rich? 

Another important topic that is closely related to what we discussed above is your toolbox. What do you have on you to tackle current challenges? Many traders use indicators that are not only designed for other markets but that is also so old and thus useless at present. Forex traders in particular are known for using tools that were specifically made for trading stocks even to this day after so many indicators have been made only for trading currencies. Why this happens lies in the fact that many people are unwilling to search and test, but this is the only viable way for anyone to become professionally and financially satisfied doing what they do.

What we really want to stress here is that you need to think for yourself and think outside the box. We cannot let popular or widespread ideas dictate what we should do. The number of traders who fail is absolutely unbelievable. Don’t make yourself be just another statistic. You can do much more with just a little more effort on your behalf. 

And…this is the end of this journey. Remember to look beyond and test everything because you deserve better – better trading, better results, and a better life. Good luck!

Forex Trading Strategies

Ways to Completely Sabotage Your Trading Strategy: Part 3

We are on a mission here! We’ve dismantled some major fallacies and we are finally ready to come undone, free of misconceptions and wishful thinking. We’ve understood how exactly to approach our trading plans in article one and how our emotions can serve us in article two of this series. If you are too ready for some real truth once again, keep on reading. We are bringing in some more clarity today.

  • Part 3: Don’t Listen to Experts

This is another one of our favorites here. Don’t listen to experts. Why would you listen when you know better? This is a special treat for anyone in love with sabotage. You may be surprised how deep this belief goes and how far it reaches. No, it’s not only about everything you read before. Just, read the whole article and then form a judgment.  

So, let’s get right to it.

This is a story about Bob, which we heard from one of the most prominent traders we know. Bob started trading when he read a blog post on how he can make a lot of money trading. His eyes popped when he saw the monthly return. He finished reading in the blink of an eye and discovered his new calling. He will be a successful trader!

Bob started his demo account with 20 thousand USD. With a risk ratio of 1:50, he managed to raise his account to almost 100 thousand USD in just a few months. Interestingly enough, Bob only used stop losses upon entry when trades would unfold to his benefit. He thought that he had enough in his account to bear the consequences of a trade going against him, so he would just wait for the scenario to change back to positive. 

What do you think Bob’s approach lacked the most?

If you don’t know, we’ll help you with some additional questions:

No. 1: Could Bob differentiate between the money in his account and money management?

No. 2: Do you believe that Bob ever enquired about proper money management skills?

No. 3: Was Bob ready to settle for less?

You’ve got three big NOs here. Bob served us well to learn an important lesson.

Warren Buffett is no lunatic. Why would he not secure a greater yearly return? Do you think a man who achieved that much would ever not use ways to protect his trades? Imagine how unusual it may sound for someone who has just started to trade that 10—15% return is amazing when they managed much more on a monthly level. Why would anyone on earth be using stop losses when there is another way, these novice traders may think. 

We wish to discover a trader who has managed to maintain a steady-growing account year after year this way, but most professionals would agree that this approach is simply unsustainable. If you wait for a trade to go your way, you can – and probably will – deplete your account of every last dime you’ve got. The only way to make this big of a change in your account is to use reckless money management.

When you are so eager to increase your income no matter the consequences, what you get is the opportunity to kill two birds with one stone – see your account skyrocket and then be completely shattered. These results are just like Newton’s laws of physics – inevitable. 

Now, let’s quickly go back to our previous article on sabotaging strategies. What emotions do you think Bob felt throughout his experience? Was he calm and composed or half-crazed with euphoria and excitement? We believe it was the latter. We think that the best advice for Bob, the main protagonist of our story today, would be to go and cash out everything before he manages to waste it all. Would you agree?

Now if you are wondering if you could go above the standard 2% risk and maybe use stop losses in a different, more lenient way, the answer is yes. The only questions left are what kind of results you are getting with this approach and whether you are doing your account a disservice.

Now, make sure to write this down in your notes and underline it as many times as it takes for the message to get engraved in your memory:

Reckless money management is a sure way to sabotage my strategy.

If you are still wondering why, the answer is simple – it won’t render lasting results. So again we go back to the previous article and ask you – what is your aim? Are you in for the long haul or you want quick results? What is your standpoint in trading?

Don’t forget that the internet is a safe haven for tricksters and some more serious frauds who will promise anything for you to believe that your dreams can come true. Now more than ever, there is enough room for every form of deviant behavior to be wrapped up nicely for all manipulative intents and purposes. We see this with trading robots (EAs) where the results you think you see on their web pages are not the actual results you need to see and have after you make a purchase. As we explained before in this series of articles on sabotage, do not believe everything you read. Ask for clarifications and use the power of your analytical mind.

Speaking about analysis…Bob explained that he had enough margin to wait out for as long as it was needed until the trade started to move in his favor again. The problem is that, in reality, dropping from a 50 thousand USD account down to 40 thousand USD is already very, very hard to recover from. Realistically speaking, you would need to make a 25% return, a return better than Warren Buffet’s yearly average, just to make up for what you lost. On the other hand, with a standard 2% risk profile, you would need to take 11 consecutive losses to manage to get this low, and that would be without any exit plan except by a stop loss at 2% risk per trade. 

The point of everything you do in terms of money management and trade management is to make everything happen to your benefit. As we explained in the previous articles, you are a good trader if you manage to not just win but protect your account from losses as well.

Even professionals traders will admit that, at times, they deviated from the system they advise others to follow. Still, this happened under exceptionally favorable market conditions and after many, many years of trading experience. We need to create a steady foundation if we want to build a palace. 

What do you think happened to Bob?

In the end, Bob realized that he was losing more and more, so he visited this one website where he was told to watch and read further. 

  • More reading, more learning, he shouted.
  • Bob said his goodbyes and closed off his account. 
  • Like the famous meme says… Don’t be like Bob. 
  • Don’t sabotage your trading. Be a smart trader.
  • Choose quality, not quantity.
  • Choose sustainability, not instant cash.
  • Choose everlasting content, not passing news.
  • Choose to grow, not to be praised.

It is, especially at the very beginning, important not to think that you are above it all. With some humility and eagerness to learn, you will not fall for the trap that Bob did. Pick wisely the content you will let get to you and learn from other people’s experiences. You don’t have to suffer as much.

See you next time with the very last article on how to sabotage your strategy. Until then, think of the ways in which you possibly ignored expert opinion to your detriment and then try to add on the results of the trading psychology test we talked about in the previous article to get to the why’s.

Forex Trading Strategies

Ways to Completely Sabotage Your Trading Strategy: Part 2

If you don’t know what the problems with your strategies are, you probably didn’t read the first article of this series. The short answers to your questions will be included in this article too, but, before you proceed, you should definitely read the first part where we talked about how trading plan issues can be the worst sabotage to your strategy and success

If you think that making a trading plan will suffice, you are badly mistaken. That’s why today, as promised, we are moving on to another key area that will help you avoid the biggest traps in the world of trading.

  • Part 2: Don’t Give a Darn about Trading Psychology

They say money is energy. Therefore, since energy goes where attention does, what you pay most attention to in trading will inevitably dictate the amount of money you earn.  Interestingly enough, most traders who have the least success trading take very little notice of how their personality and habits impact their trading. And, many of you who assume you have everything going for you are also far from impervious to this hurdle.

What we want to achieve is the ability to control:

  • Our emotions while trading
  • Our reactions to losses
  • Our compulsive need to correct things

You may notice that we did not say eliminate, and there is a crucial difference here. If you think about people who suffer from any addiction, you may remember that the first step towards recovery is acknowledgment and acceptance of the problem.

We cannot fix the problem if we don’t know that we have one or if we keep turning a blind eye to it constantly.

We always write our New Year resolutions, but we don’t stick to them. Do you know why? We rarely try to understand what lies behind our lack of motivation to lose weight or exercise for example.

That is why if you don’t recognize that, as a human being, you are prone to feeling different emotions before, during, and after trading, you are by default sabotaging your strategy. We will call this our step 1.

Emotions are in our DNA and there is no reason for you or anyone else to feel ashamed. While many people try to ignore this side of their personality, any attempt to disregard our affective responses leads to making wrong trading choices.

For trading to go well, you essentially need to meet two basic requirements:

  • Trade your system
  • Do not interfere

And, this always goes fine until emotions come into play.

Anxiety, fear, desire, need, tiredness, failure, continuous losses all leave a mark – a sensation followed by physiological changes in the body. 

Even winning affects our brain. The moment traders’ percentage return goes way up from where it used to be, people start thinking of leaving their jobs. This is one of the major misconceptions about trading and a sure way to sabotage your trading. Trading alone, for the greatest number of everyday people, cannot suffice right away. The way trading is conceptualized will not allow this immediately as you may have initially expected, so don’t give in to these thoughts and feelings.

We cannot eradicate our emotions, but after we grasp their existence, we can choose what to do with them. This is step 2.

Losing will always be a part of this game and every trader, professional or not, goes through this experience sooner or later. The moment things start going really well for you, losses may become even more painful. You cannot lose your motivation and focus here. Like consolidation periods are a natural part of the market, so are the losses. 

Therefore, it is not losses that should worry you, but your reactions to them.

Some traders find the 2% risk rule to be ridiculous because they want more and they want it now. Greediness can bring some amazing results but only in the short term. This has happened so many times to so many traders.

Some of the most successful forex traders earn a 20% yearly return. When you manage to ensure a consistent return year after year, you learn to appreciate the effort behind and stop believing everything you read.

Another massive sabotage traders are prone to struggling with is guilt. Guilt is such a dangerous trigger for a variety of harmful actions that you really need to change your perspective immediately. Any loss you took was meant to happen because you needed it to grow. Don’t cry over spilled milk and quickly return your focus to where it can actually serve you. This is step 3.

Instead of drowning yourself in regret and self-pity, do something useful – analyze what went wrong without any should-haves. Did you follow the guidelines for risk? Did you overleverage? Were you overtrading or did you cross any other boundary?

Especially as a beginner, you may regret not following your plan through and thus losing some pips. However, we need to learn to celebrate our small wins as well. You may not have earned as much as you intended at first, but you still managed to go through with the trade and ensure a positive return. Celebrate your success regardless of how big or small it is. Note this down as your step 4.

Now take your pen and write these words in this order:

I will never trade by feel or chase losses.

Do not allow your trading to be conditioned by something as transient as emotions. You are there for the long run. You want consistent results and sustainable trading.

So, we will always support recognizing emotions but you need to learn what to with them.

What will it take for you to stop letting your feelings drag you down? Is it more demo trading? Is it more testing? 

The thing is…trading will never be perfect, like anything else in life. The more we seek perfection, the more we miss the bigger picture. Here are some of the famous quotes we should all strive to live and trade by:

  • If you don’t make mistakes, you don’t make anything. (Joseph Conrad)
  • Take chances, make mistakes. That’s how you grow. (Mary Tyler Moore)
  • Mistakes are a fact of life. It is the response to error that counts. (Nikki Giovanni)
  • He who is not contented with what he has would not be contented with what he would like to have. (Socrates)
  • Skepticism is the first step towards truth. (Denis Diderot)
  • Millions saw the apple fall, but Newton asked why. (Bernard Baruch)
  • He who spends time regretting the past loses the present and risks the future. (Quevedo)

Your last step, step 5, concerns trading psychology tests. You do not have to wait for the big crash. Meet yourself now. Discover what situations could trigger your shadow sides and explore ways to bypass these issues in advance.

Be brave and smart now so you don’t have to pick up the pieces later. And, this is a perfect introduction to what we will be talking about next. Until then, start getting to know yourself better.

P.S. All answers in today’s test should be NO.

Forex Trading Strategies

Ways to Completely Sabotage Your Trading Strategy: Part 1

If you are so keen on wiping your account off the map, you are welcome to follow this new series of articles that comprise expert opinions on harmful trading habits and practices. Today, we present you with a thoughtful collection of our favorite mantras for master trading account demolition.

Yes, you read that right. These are really some of the best ways to stop trading in record time. And, today we are giving special attention to the best of the best – the very gem that possibly consumed the most souls. Meet the number 1 strategy sabotage and take your pen out – you will need it.

  • Part 1: Don’t Have a Trading Plan

Ok, ok. We’ve got you. You have your system set up. Your algorithm is there, waiting to be used. You’ve searched the internet countless times and you are ready to hit the jackpot. You could just go on and guess your next move. Bring on the adventure and the suspense!

Oops! You forgot something. Or….did you not? 

Well, it all depends on what you want to achieve.

We’d say that you may want to stay and finish this article if you really want to see how sabotage works at its finest. By the way, did you know that the word sabotage actually first meant to deliberately and maliciously destroy property

Anyway, let’s start with trading and money management biggest slips.

  • Taking action just because there seems to be movement

Traders love this one. They recognize that some action is taking place in the chart and they want to be in the zone right now, naturally without a specific plan. Expectations build up, creating a false sense of courage, and disappointment typically ensues.

The slip: Traders lack insight into the market’s nature and the skills to plan their actions. 

Corrective measure: Wait for an actual trend or a move that is worth the risk you are about to take on and knowing when to get out.

  • Not showing any inquisitiveness

Many beginners tend to take bits and pieces from different websites and/or social media pages before ever showing curiosity towards why different strategies exist and what their purpose is. Then, when their strategy renders poor results, they still don’t see the point in trying to understand what went wrong.

The slip: Many people don’t understand the value of being eager to learn and how a deeper understanding of things actually gives perspective, power, and confidence.

Corrective measure: Understand why your results do not match your initial expectations. Practice discipline in notetaking before and after every trade. Eliminate loss drivers first. Keep upgrading your strategy.

  • Embracing inconsistency everywhere

Traders often fail to see the bigger picture. They have a desire to earn a few pips here and there and they think that the sole knowledge of how to use MT4 is sufficient to get them where they want to go. Alas, strategy entails much more.

The slip: Traders have no idea what to do in every step of the trade they entered.

Corrective measure: If you plan your entry and exit points properly, you will be able to go long or short in the best possible spot. 

  • Implementing a “one size fits all” approach

After much studying, a lot of traders think that they finally get everything, so what they do is use the exact same approach for every single trade they are in.

The slip: Traders miss the point of money and trade management. When conditions are different, they still hope to get a good result with the same formula.

Corrective measure: Professionals say that if volatility levels and the time frames you are using are different for the trades you are currently in, you cannot have the exact same stop loss. You need to be adjustable, not rigid.

  • Chasing losses

Traders often fall for this trap. They feel angry with themselves and they want to make it up for the losses that they took. 

The slip: Traders think that because a trade started to go against them, they can just tweak the settings a little bit, make some changes here and there, move their stop losses as they please and the trade will finally respond to their commands.

Corrective measure: You must never make changes in the middle of trading, particularly in terms of moving your stop loss (not related to trailing stop). You may feel insecure when you see that something is not working, but if you have a plan to fall back onto, you will also be able to compare results and optimize it later.

  • Capping your upside

Some experts loudly oppose the strategy where 1:2 or 1:3 Risk/Reward ratios are used to enter a trade and then exit only when your trade well exceeds your stop loss. They believe that, this way, traders only limit their potential to earn a higher return.

The slip: With this strategy, you will miss high-yield trades that matter to the year-end line.

Corrective measure: Traders should strive to be a part of long runs where a trade can go from 1000 to 1500 pips in one go (trends seizing). This ratio strategy will prevent you from getting these big wins. While small wins are there to offset your losses, big wins are those that go directly in your pocket, professionals say.

  • Seeing success as every win you make

A lot of traders think that being a good trader is getting one win after the other. However, this is not entirely true. 

The slip: Traders forget that trading is very much about protecting the account from losses. If one’s strategy is only aimed at winning, the losses they take may overpower and outgrow all their wins.

Corrective measure: Build your strategy so that you limit the losses. Track your net gain and loss as shown in the table below, delete the losses as you improve the strategy without cutting the winners too, if possible.

So, what do professionals advise novice and underachieving traders to do?

How can we limit the losses and ensure winning?

No. 1 Advice

First of all, you must set a stop loss and take profit. Instead of capping your trades as a form of protection, you can take half of the winning trade off the table and keep the remainder running. Move your stop loss to break even and add a trailing stop as well.

What’s the benefit, you may be wondering.

This way, you will no longer be asking whether you are going to win – you are now free. You can only wonder how much you are going to win. Even if any trade goes against you, you will earn at least half, which is still better than capping the upside, experts suggest. 

Success Factors

There are two conditions you need to meet for any trading plan to reap benefits:

  • Write your trading plan step by step 
  • Follow it religiously

This is important because, if you don’t respect your plan, you will end up trading by feel, which is something we will be discussing in the next article of this series.

The thing is…great traders are not just born. They gradually work towards becoming one. 

They invest in understanding what works best along with learning more about themselves. Don’t forget that you – your personality and habits – also make an essential component and a determining factor of your success. See you next time where you will learn another set of perfect ways (not) to completely sabotage your trading strategy.

Forex Basic Strategies

Differences Between Good and Bad Strategies

You have been told that you need to create a strategy, you cannot trade without it, however, once you have made your trading strategy, how do you know if it is any good? How do you measure whether it is a good strategy or not? Of course, you can look at whether it is profitable or not but there are plenty of other things that you can look at to work out whether the strategy is a good one or not, most of those reasons will be personal to you. So, let’s look at some of these factors that determine whether a strategy is good for you or not.

It should be personal: A good strategy needs to be personal to you, it needs to have been created in a way that suits you and the best way for that to happen is for you to create it yourself. This way you know the ins and outs and exactly how it works, if the markets suddenly decide to change, you need to have that understanding of the strategy in order to adapt. If you were to take a strategy from someone else, then you do not have a full understanding, as soon as the markets change you will be stuck, not knowing how to adapt it. So creating it from scratch is paramount and will help to really make that strategy your own.

It needs to be specific: The trading strategy that you need has to be quite specific, it should be focusing on specific things rather than being too broad. If a strategy focuses on just one or two currency pairs, this way the strategy will be able to more easily be adapted to the changing markets or if there is a dramatic event in the markets. If a strategy is trying to cover all bases and all currencies then it will struggle, each currency behaves in different ways and so there cannot be a group of settings that can cover them all, this will only result in there being issues when things go wrong or if the settings do not match the characteristics of one of the pairs.

Opening lots of trades: A good strategy will be able to pick its trades well, it will use very specific criteria before opening one up. What you do not want is a strategy that is opening tens of trades when only one is needed, some strategies do this to increase the volume being traded or the entry requirements are so loose that it allows for lots of trades. This is also sort of related to the precious points of being specific, if it is relevant to too many pairs then it may open too many at a time. When we look at trading, we are looking at quality and not quantity.

Risk management: A good strategy will have its risk management built into it. This will include things like the stop losses, the take profits, the percentage of the account to risk on each trade, and just simple methods of keeping your account safe. A bad strategy will unfortunately not include some of these things that can make them far riskier and dangerous, if a strategy does not have any risk management attached to it then we would suggest looking for a different one to use.

Can it cope with change? A good strategy will need to be able to adapt to the changing markets, they will always be changing, on a day to day basis and on a larger scale over the months and years. If your strategy is not able to handle any of those changes due to it being too rigid and requiring very specific requirements without the ability to alter them, then it would be considered a bad strategy. You need to be able to make adaptations or the strategy will only lead to eventual losses.

So that is a non-exhaustive list of things that could cause a strategy to be either good or bad, there are of course a lot of other things too, but these are some of them. Try to keep your strategy personal and specific, those are the main points to take home.