Be a Patient Forex Trader

Patience is a common trait among successful traders.  Unfortunately, patience isn’t inherent in many of us.  My belief though is that patience can be separated into two worlds for traders.  The first world consists of the patience you exhibit in your non-trading life.  I’ll be the first to admit that I absolutely hate to wait in lines.  I don’t discriminate against particular lines like waiting in line at the supermarket or waiting in line at the DMV to renew my driver’s license.  I hate all lines.  The second world consists of the patience you display when trading.  Here is where I show very good patience with intermittent lapses.  What I’m trying to stress here is that just because you don’t have patience in the first world doesn’t mean you won’t have it in the second.  I don’t believe they are conditional of one another.  So don’t assume that your won’t be a patient trader if you have no patience outside of trading.

With experience, you can learn tricks that will help you develop more patience.  For me, I just stopped watching charts.  I’ll scan them in the beginning of the day but I don’t have the desire or time to watch every tick.  I also stopped letting myself be influenced by what others were saying.  Every month I’ll hear everyone talking about trading the NFP report and every month I’ll ignore it.  Just because everyone is talking about trading it doesn’t mean you have to. Other things you can do and think are increasing your preferred time-frame (ie: from 30-minute to hourly) and knowing that there will be more plenty more trading opportunities in the future if you miss a trade.   Your trading patience doesn’t have to emulate your non-trading patience.  It may take some time to separate the two but you can do it.  

One Good Reason To Exit a Forex Position Early

Ask my subconscious self why I exited my position "early" today and he might tell you that it was due to fear.  Ask me why and I’ll tell you that it was not fear but a necessity to boost my psyche.  Let me explain why.  

I measure my performance month to month.  I may have gained 7% in January and 10% in February but to me, March is a whole new month.  So when March 1st came, in my mind, I was at 0%.  I like measuring this way for two reasons.

  1. If you had a bad month, it gives you a chance to reset and start over from 0.  Why carry over the loss and put that additional pressure on yourself to "get it back."  Technically, you are still down compared to the previous month but I think it just puts you in a better state of mind.  On the flip side, if you had a profitable month, why risk the chance of instilling overconfidence or invincibility.  Reset.
  2. A month typically gives you enough time to come to that average win/loss percentage.  Measuring week to week is too short. What if you had only one trade.  This wouldn’t accurately reflect your overall trading performance.  Measuring longer than month to month and you might miss the chance to assess your trading before it’s too late.  End of month performance assessment can lead to important changes that may improve your trading.   

So why did I exit my position early this morning? I entered a long AUD/USD position yesterday with the intention of holding until I obtained at least a 200 pip target but the pair shot up nicely this morning and I was quickly up 100 pips.  I exited here for one reason, to kick the month off on a positive note.  This was important for my confidence going forward this month.  Exiting a forex position is also a good idea if you’re stuck in a losing streak.  Why risk the chance of losing the profit and losing even more confidence? Take the profit and put an end to the losing streak. 

Check out these other forex blog posts.

  1. Forex Trading Profit Up 9.6% In February
  2. How Many Times Have You Exited a Position Early?
  3. Forex Trading in the Black
  4. The True Test
  5. Six Percent Loss This Week

Down 400 Pips and In Denial

Trading Forex Psychology in denial

I don’t give personal trading advice for two main reasons:

  1. I’m not confident enough with my skills as a forex trader (yet.)
  2. I’m not a financial advisor and don’t want to be responsible for your money.  That’s your job.
I received an interesting email from a trader today.  I don’t want you to get the impression I’m berating or laughing at him because what he writes can serve as a reminder and lesson to all of us.  
 
He writes…   
I was just wondering if you had any advise on EUR/AUD. I had gotten into the trade at 1.6600. and as you probably know it is down nearly 400 points and is showing no sign of a turn around. Do you have any advise if it will reach the 1.66-1.68 area soon? 
 
There are so many problems with his mindset and strategy that can be inferred from this three sentence email:
  1. He has no strategy! Maybe he had an entry strategy but obviously no exit strategy.  
  2. He is clearly in denial.  Unless he was trading a weekly chart, he’s was very likely wrong on this one.
  3. He’s looking for advice from me.
  4. He’s probably searching the forums for an answer to his question that no one could possible provide.  Actually they can provide the answer but who knows if it’s the right one.  No one knows the answer.  No one can see into the future.
  5. He has a false sense that the pair will turn around.  Maybe the pair will turn around tomorrow or next week or never.

I know I said that I don’t give advice but seriously, he should cut his losses.   You should know the point when your position should be exited before you get into the position and never hope for a turnaround that may never happen.  I would recommend he quit trading until he goes back to the drawing board and develops a complete written trading plan. 

What Makes an Expert Forex Trader

While I’m not avid reader of Brett Steenbarger’s blog, I found his post titled, What Makes an Expert? Three Surprising Research Conclusions very interesting.  There were several conclusions made by the researcher regarding expertise (referenced from http://www.psy.fsu.edu/faculty/ericsson/ericsson.exp.perf.html) 

  1. Measures of general basic capacities do not predict success in a domain. No general superiority was found in speed, memory, or intelligence of the expert.
  2. The superior performance of experts is often very domain specific and transfer outside their narrow area of expertise is surprisingly limited.  In other words, just because a trader excels in futures trading doesn’t necessarily mean he/she will excel in forex trading.
  3. Systematic differences between experts and less proficient individuals nearly always reflect attributes acquired by the experts during their lengthy training.

This flies in the face of those who may believe that expert traders are born with the qualities that make them experts.  It also gives me the impression that with a lot of deliberate practice, anyone can be an expert in their field of study.   Steenbarger believes a structured curriculum can progress a novice to exhibiting competent expertise.  

You can’t go to college to get a degree in Forex trading so where do you go to get a structured curriculum? I don’t know? I’ve been trading for about three years now but I don’t have any formal training.  I’ve read a lot of books, studied a lot of charts, managed a plethora of trades, read a lot of blogs, and listened to a lot of so-called experts.  I think that with discipline and self-motivation, it may be possible to structure your own curriculum.  It may take longer than formal training and may require a lot of trial and error but it may be possible.  On the flip side, maybe formal training is necessary to narrow the gap between novice and expert.  

I feel a lot closer to becoming an expert trader than I did last year but by no means am I anywhere near an expert.  I guess the best way to know if I’ve become an expert is if I can consistently be profitable. 

The questions I pose to you are, do you feel like you need a structured curriculum to become an expert trader and what attributes do you think you need to be considered an expert trader?