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Level up to trade forex successfully
Trading is like a video game. In some video games, you can level up your character from level 0 to level 99. Final Fantasy anyone? As you level up, your attributes increase. Strength up, agility up, defense up and etc. At higher and higher levels, you can equip better weapons, heavier armor, faster boots. And defeat stage bosses.
So it is similar to trading. As you level up in your trading skills, your ability to attack and defend against the market increases. You get better at knowing when to enter the market (attacking skills ), when to cut loss (agility skills ), when to stay out of the market (defensive skills ). Also, you are able to manage your position size, when to up or down your position size according to your experience (constitution and wisdom skills). Last of all, with each trade, you are aware of your own psychology (mind skills).
In this thread, i wish to share my mind games of trading. Remember, trading is a mind game. As i share, hopefully all of us can level up from our current level to level 99. At a high enough level (level 70-80??), we should be able to extract profits from the markets consistently. Do note that i am mainly a forex trader. So my charts are forex-based charts.
I will post my thoughts frequently and will help us level up from level 01 to level 99. Alright, i will be posting on level 01 soon. Bookmark this thread.
Level 01 - always trade with a stop loss
Level 01-10 will cover the most basic stuffs of trading. Yet these foundations are the most important to trading success. Remember the story of the 3 pigs and the big bad wolf? "I will huff and puff till i blow your house down!!!" growled the wolf.
Strong foundation = strong house to withstand earthquakes and hurricanes.
Weak foundation = straw house ready to crumble anytime.
LEVEL 01 - ALWAYS TRADE WITH A STOP LOSS
Understand this and internalise into your soul. There are only 6 possible outcomes to any trade.
1) Large win
2) Small win
4) Small loss
5) Large loss
6) Account blown to zero
When stop losses are used properly, the worst that can happen to any trades is #4. However, if your trading system has a proven winning edge. then stay far far away from #5 & #6. And your account will grow over time.
Thank you. Level 01 is up.
Originally Posted by root-minus
l would enjoy expressing my thoughts and experiences alongside yours as the thread develops with live trading charts
one thing l cant handle is the following - loads of chat about market wisdom, knowledge etc without a live chart and trade within the live market to back up everything ................... without a live trade chart to complement the teachings of any system - whats the point
so, l will offer my live interaction alongside full reasoning if you think thats ok
level up to trade forex successfully - requires live market trades displayed
will participate fully - live as it happens, just like a video game
LEVEL 01 - UPDATED WITH A CHART
In response from root-minus feedback, i have attached a chart on GBPAUD that i traded to illustrate why stop losses are a must.
You are welcome to share in this thread. Looking forward to seeing your live charts to complement my level up series.
Originally Posted by root-minus
Stop loss is Equivalent to keeping a small account. Instead of putting a stop loss on a Big Account, let the small account blown off if market is running against you. -
Originally Posted by Forex MindGames
This is just a mapping of the concept of Stop Loss.. Is it OK ? Please clarify.
Week 28 (09-13 july) trade previews part 1
I am looking to short EURUSD & GBPUSD for this week's trading. First up, lets look at EURUSD daily chart. I always start by having a bird's eye view on the currency pair, through using the longer term chart. In the daily chart, EURUSD is contained in a falling channel.
Zooming in on the 4hr chart. I am looking to short if price retraces to resistance zone of 1.2410-40. Last week, it drop 400pips. Will we see it drop another 400pips this week? Direction of EURUSD is quite clear. I think EURUSD may touch 1.2000 soon. It is just a matter of when.
SHORT EURUSD around 1.2410-40
Stop loss 30-40pips
Final target profit 1.2000
Week 28 (09-13 july) trade previews part 2
Next up, shorting GBPUSD. This trade is slightly trickier, as there are 2 possible scenarios for this pair. Though both scenarios are still short trades.
SHORT GBPUSD around 1.5480-5500
Stop loss 20-30pips
Final target profit 1.5300
SHORT GBPUSD around 1.5540-60
Stop loss 30-40pips
Final target profit 1.5300
Yes. For example, my trading account can be up 20% in profits for this year. Yet all it takes is 1 large loss to wipe out 20% of my profits. When we use a stop loss, 1 trade should not wipe out 20% of my account. Maybe only 2-3% at the most.
Originally Posted by raghu1
Level 02 - THE 4 M OF TRADING
LEVEL 02 - MONEY, MIND, METHOD, MYSELF
A good trader is like a sturdy chair with 4 legs. If 1 leg is damaged, the chair become wobbly and very risky to sit. Would you risk buttocks to sit on such a chair? Ouch!!
Likewise in trading, there are the 4 M's to become a successful profitable trader. Each M represents 1 leg of the chair. When all 4 legs are in your trading system, your chair is in good shape and so are you.
A professional trader will strive to maintain a strong chair. Once the chair becomes creaky, they will repair it. However, a novice trader will try to sit on their 1-legged or 2-legged chairs. Which chair do you have?
Level 03 - The First M - Money Management
A quiz. Do you know who this guy is?
He is Nick Leeson. He broke the 233 year old Bank of England with his trading in the 1990s. His trading losses amounted up to $1.3 billion dollars, which caused the bank to declare bankruptcy.
Why did i bring this story up on the topic of money management? Because proper money management is the first leg of a strong chair. If Nick Leeson had the discipline to use a hard standing stop order, to limit his losses, he may still be trading today. If the Bank of England had restricted his trading size to a certain percentage of the bank's capital, it may have still survivied. I did a quick internet check on Nick Leeson. Right now, he has a website about himself. He is doing speaking tours, books and movies deals. Not bad, i would say. If you aim to get famous through this route, that is.
However, i do not have $1 billion dollars to trade. I wish i would. So i am forced to practice strict money management on my trades. When i was a novice trader, i am already blown up my first 2 accounts. So i have been there and done that. So therein, i learnt a most vital mind game in trading. Never ever violate your money management rules. When you trade, define how much you can afford to lose. Not how much i want to make. In case you are asking, yes my first 2 accounts were my personal money.
Another important rule here: Learn to trade another day. When you are wrong, get it right by getting out. Avoid huge losses.
Trading is truly truly a mind game!
Level 04 - the smallest loser is the best winner
This is the difference between a consistently successful trader and a novice trader. A novice trader puts on a trade and sees imaginary money pouring into his trading account.
He neglects risk control. He does not think "How much can i lose on this trade?". Rather he thinks "Oh yeah! I am going to make $1 million dollars on this trade. I can feel it. I can smell the money!" Hey, stops are for losers. I ain't no loser. And because he hates to put stop losses, he ends up losing 50% of his trading account on that "i can smell the money" trade.
A successful trader first priority is risk control. He decides beforehand how much he afford to lose on that one trade. He finds out where is the best logical place to put his stop loss. Based on that, he will determine what % of his trading account to risk on that trade. And then based on that, he calculate his position size. He will think like this:
Trading account = $10,000
Willing to risk 2% per trade = $10,000 * 2% = $200
Best logical stop loss for that trade = 40pips
Therefore, $200/40pips = $5 per pip
Position size = $10,000 * 5 = $50,000
A novice trader decides how much money he wants to win. A successful trader decides how much money he wants to lose.