What is makes you an experienced Forex trader? Is it because you have tested thousands of indicators? You have built a system with positive backtesting results? You are have invested a lot of time onto becoming one? If you are not exceptional, you will not be a good one until you have the last element – experience.
Now, you should not be discouraged if you have put a lot of time into making yourself a better trader, even if your system does not show great results. If you got up to that level, you are on the right path, for the next 30, 40 years and more, your life will be financially free. This also induces stress-free and even can be said a healthy life for the long term. Fortunately and unfortunately, depending on how you look at it, money solves many of the problems today. Forex is a blank slate, the internet is also, giving you the opportunity, it comes down if you want it.
And, yes, there are no shortcuts, no easy way to get to this level. Those that seek that easy path will ultimately meet failure. You have invested so much time into Forex trading that you now have a chance to be very close to what is regarded as a “dream job”. Those that reach it are very few, just look around and see all those busy people on the street hasting to get to their workplace in time. A sad truth, many will be frustrated and wonder “why I could not achieve that life I have always wanted”, and they see others do it, just why not me. The opportunity was there, you just didn’t act. Forex is that opportunity, and it will allow you to start again, everyone has the same unpreferred window to study it as long as you live.
Many traders who put in the work, a lot of work, experienced frustrations, and many other negative emotions that are just part of gaining experience. Traders will run into things for what they are not ready yet. It is just a matter of experience, there is no substitute for it. Going forward this article will give you a bit of insight into what to expect, addressing to those who are already into forex trading. All this comes from professional forex prop traders some tips and a practical tool many prop traders use.
Never forget the three pillars of trading: The most important ones are Money Management and Psychology. Trading Analysis is secondary, a far secondary. There is a proven methodology that shows this is the truth. You can throw a coin for every decision to go long or short in a trade, with good Money Management which is followed to the letter, you will still have positive results. Without the right mindset or Psychology, all this can go to waste. Unfortunately, most people just focus on the secondary part, Trading Analysis. Not a surprise the 99% of people do not make it far to reach that stress-free life.
Just to make sure you are on the right trading, your trading system should have three stages. The first test is when you are just building the system and backtest it to make sure you have a much better winning rate than 50-50 as with a coin-flipping. The second stage is where your good-to-go system is put on a demo account and forward-tested. In the third stage, when you step up and say you are ready, you go to a real-life test. You will make different kinds of mistakes in the third stage, and that is alright. This is the experience stage where you will mature as a professional trader. The experience will unavoidably forge you to avoid future mistakes.
At this point, you may think you will not make mistakes, you have made the system that works, but, once it gets serious with serious money put in the trades, it is a completely different world. Forex will be the same market as before but now you have new challenges you have to be ready for. These challenges will be emotions. You better make these emotions happen in the past before you move on but still, some will be new to you. You may have just started to trade your system/plan and you have 4 bad losses right away. The mistakes made will be remembered especially if these decisions were emotional. But this is a good thing and part of gaining experience in a real professional career. Whatsmore, you will have a huge motivation to improve your system.
Know that your system should always be perfected, it is not a holy grail for eternity. Your system is no just a series of indicators for analysis/signals, it is also your emotional control anchor. Trading your system sounds easy but it is not, experience gained from this is essential. Once you realize you had overcome the new emotional challenges, you will realize the Psychology element is the grease for your trading machine. Stop greasing it and it will halt. Confidence will also grow with experience, as well as your balance. Once you have done 1000 trades you will know that the series of big losses you had before was just a normal or nominal statistic.
Every gaining equity curve has these drawdowns, it just happened the drawdown was peaking when you started. Of course, you did not have the experience so you were living in that moment, you doubt is the system works in the first place. At that moment traders do not look at the long game. Once you overcome this, the next series of losses will not shake your confidence. As you move on you will face new challenges yet with every one of those “unforeseen” events patched up in your rule book and the system, you have improved. Those bad situations on the market will trouble you less and less until a few very rare things can surprise. Forex will go out of bad bullets eventually for you.
If you are on to a professional Forex trading career, your path was probably in four stages. The first one is all about demo trading. If you skipped right into real money trading, the odds are it was a huge loss. Consider a lucky event if you have withdrawn after a few great winning trades. It would be smart to stop at that point because you lack experience and the system for the long game. Do not return to live trading before building a system and demo trading. The experience will tell from the demo trading your system works but live trading is now very emotionally different. The third stage is when prop companies want your trading results (note that not every proprietary company needs this when selecting traders).
The best way to impress is by having a demo and live account trading results. At this stage, you have some experience and the system is tight for most of the market situations. However, your trading might be different. When you want to impress, some trades that made you successful off the stage might be missed. After overcoming this obstacle comes the fourth experience stage – actual live prop trading. This is a completely different set of emotions again. This happens to responsible traders, those who are not responsible and do not respect the money are filtered out. At this stage, someone is giving out their capital so your trading can enjoy the “economies of scale” effect.
Bigger equity, bigger trades, bigger responsibility. Losses will happen, they always do, and you might become risk-averse because of a higher scale of responsibility. From an inexperienced trader who went to live trading, risking too much and trading too much now has a risk aversion and trading fear. These emotions will catch you off guard, you might deviate and change your system. There is no other way except to face them, for experience requires time. If you are at this point know the worst thing you can do is turn back. The success rate in this business is so low you cannot afford to drop everything.
Here is a pro tip for traders at this point. These traders should have a system which is backtested, forward tested, and is used in live trading. This system should be considered that will last for life as a profit-making machine in the forex market. Even if you are trading for a prop company or still in the admittance process, put yourself to test – trade an uncomfortable amount of money with your system. By uncomfortable is meant an amount that will seriously hit your home funds balance if you lose everything. This may sound crazy and irresponsible but this money should be recoverable, especially if you have a job or other sources of income. When big money is on the line, this test will help you. Take it as a sacrifice now for the next 50 years or so of your life.
Once this is dealt with, there is not much that can stand in a trader’s way to become a true professional. This emotional experience is so important that it even can be crucial to becoming a professional trader. Forex requires you to lose before you can win. Loses will still be sour and winners sweet but the experience will control the emotions so your final P/L line is just a number. Most coaches will tell traders to hide the dollar amount tied with their trades and trade for the pips. Putting yourself in a very uncomfortable position or out of the comfort zone is beneficial, there is no substitute for that experience gained. This accelerates your learning curve. Some of the great coaches will also say traders are not born but forged. They are forged because they had to go through fire to get to the top.
The tool related to the situation where your system might not work for some time, especially if you are a trend following trader, is the $EVZ. Just a side note, if you are not using any known trend-following strategy, trend following is a way to go for almost all of the proprietary traders. CBOE EVZ volatility is a very important tool for trend following traders, especially on higher timeframes. Since the world where we live is cyclical, so is forex. There are periods of high, choppy, chaotic, low, and other volatility patterns on the market. Trend following strategies need momentum, volatility, or volume to work, this is how trends are created. Most of the traders will find that their system does not work very well during these low volatility periods. Losing streaks will emerge and traders will dip into the emotional zone. Experienced traders will recognize this period and probably will not trade until the volatility/volume picks up again. 2019 was the year of extremely low volatility on the forex market while in 2020 COVID-19 stirred extreme volatility spikes.
Extreme situations are new to you and your system. Do not question your system during these periods, take the $EVZ, and compare your results relative to the $EVZ value. As one prop trader suggests, his trend following system does not work well for anything below the 7.5 $EVZ. If the situation prolongs, like in 2019, he will cut the usual position sizing. If it goes below 6, he completely avoids trading. He may go to Metals markets or Indexes. Simply, the odds for a trend to run in the forex market on his daily timeframe are low so all he gets is breakeven at best. Another tip and always good for Risk Management is diversification. When you perceive low trading volume in the forex market, you can still gain trading Gold or Silver, for example. Metals market requires additional knowledge as they move differently but gains will also affect your emotional state. From a different perspective, the 2019 low volatility is a perfect testing ground for your system, traders that have endured and adjusted are now even more prepared, they have gained experience from an uncomfortable situation.
To conclude, never forget the importance of the Psychology pillar, 99% of people do forget. Experience is a failure and trying again, every top trader went through the forge. Embrace this fact and sky is the limit. Pay attention to the $EVZ and adapt to the situation, markets and economy are cyclical. Finally, do not panic if you make consecutive losses, it is just part of the long game if your system is proven to work.