Forex Trading and Patience
Do you despise waiting in line? Are you constantly
in a race against time? Patience is defined as calmness, self-control,
and willingness or ability to tolerate delay.
I took an online patience test yesterday because I was curious of how I compared to the norm. My score was 48/100 which put me surprisingly in the middle. I'm mentioning this because over the past couple of months, I have made a conscious effort to improve my patience as it relates to trading. I remember the days when I was trading too much. I would trade at all hours of the day and many times just to be in the market. I didn't have the patience to wait for a setup and would jump to conclusions or assumptions before the setup materialized. Sometimes I would actually win but many times I would also lose. The biggest issue with my impatience was that it formed some really bad habits. I am now just starting to fix them.
Part of my "therapy" was to set a realistic monthly goal of 260 pips. 260 pips don't sound like a lot over a month's time and there is the possibility of making this on 1 trade. I felt that setting a daily or weekly goal only contributed to overtrading. For example, it is Wednesday, July 5th and I have yet to make a trade in the month of July. If I had a 60 pip weekly goal, I might have felt forced to enter the market this week just to reach that goal. Instead, I don't care if I trade this week or not. I still have 18 trading days left to reach my monthly goal.
Want to test your patience? http://www.queendom.com/tests/minitests/patience_access.html
What’s Your Problem?
Brett Steenbarger, author of "The Psychology of Trading" has a new post on his blog today titled, "Why Your Trading Isn't Working Out."
He identifies 4 possible reasons why your trading may be unprofitable from a market knowledge and psychological perspective.
- Problems of training and experience or lack there of
- Problems with changing markets or the identification of change
- Situational emotional problems or immediate psychological issues such as the stress of successive losses
- Ongoing emotional problems such as depression or substance abuse
I've gone through #1, #2, and #3 and probably will continue to intermittently do so as I'm sure a lot of traders have. The important thing is to identify this and then try to overcome it.
Check out the entire post at http://traderfeed.blogspot.com/
First Discretionary Trade in Weeks
I made my first forex discretionary trade in weeks yesterday morning. I followed my plan to the tee and came out on top with 92 pips of profit. What did I do right?
Found my Setup
As I stated a couple of weeks ago, I was going to be studying chart patterns on the Daily or 240 minute charts. My setup is based on the daily chart below. The USD/CHF had been trading within this bearish flag for weeks now. The price had recently bounced off the top channel line and slowly started to descend. Providing further confirmation was the 3/8 Murrey Math Line which from my limited knowledge is a difficult line to penetrate. In addition there was a bit of divergence between MACD Oscillator and price.
Stop Loss
I placed my stop loss above the high of the previous 2 daily candles and above the 3/8 Murrey Math Line at 1.2456.
Limit
With all of the indecision in the market, I decided to move to the 4 hour charts and exit at 2/8 Murrey Math line which would be a 92 pip limit.
Risk/Reward
Entry at 1.2421 with 35 pip stop loss. Target of 92 pips. 2.6 Reward/Risk.
Psychology
A common mistake of mine in the past was to close out my position when it showed a bit of profit. This is due to fear that the market will move back against me. In the past, I probably would have taken the trade off the table last night when I was up 50 pips but I knew that this was definately not the right thing to do. The right thing was for me to ride out the trade and wait for the target to retain my very good risk/reward. I did wait and at about noon today, my target was hit.
Now the stupid thing for me to do would be to get overly excited about this successful trade. I am by no means doing so. I just want to make a point that when you plan a trade before you enter and stick to your plan, you can at a minimum feel good that emotions didn't get the best of you. If you win the trade, it's even sweeter.
Not Much Going On
I haven't been posting much lately because there really isn't much going on. I've been concentrating on chart patterns, support and resistance, and now Murrey Math mostly on the Daily or 240 minute charts.
I've realized this week that my biggest problem with entering a position now is fear. I'm afraid that after my minor hiatus from discretionary trading, my first trade will be a loss. I have some things to work on psychologically. You have to wonder if these feeling are already so engrained in you….
Once again, I am recommending you read the Innerworth Daily Column. It is totally free and their column is surprisingly insightful. Here is a snippet of today's column:
As you trade the
markets, it's vital to trade calmly and with confidence. If you
constantly worry about failing or losing money, you will sabotage your
efforts and end up losing in the end. That said, you don't want to be
too overconfident. The overconfident trader is the naïve trader. In the
back of your mind, you should always remember that trading is like
playing with fire.
US Economic announcements this morning include Building Permits and Housing Starts. I have subscribed to the aggressive engines on FX Engines so unless there is no spike, I expect to automatically be in the market this morning at around 8:30.
The whole concept of trading the news is quite simple, to capture the direction of the first price spikes after the economic announcement as quickly as possible. You can realistically expect to profit if the volume is there and there is no reversal. The best thing about trading the news is that your risk is limited.
One thing that I've been experimenting with is Gain Capital's API (Application Programming Interface.) I have a live feed to tick data and can automatically make trades via a demo account. All of this is done directly on my server via JAVA programs. Most brokers don't provide an API but from the brokers that do, Gain Capital's is the best. This API will provide me with the ability to trade the news similar to the way that FX Engines does. Of course there are proprietary components that they have that I do not but either way, this is an experiment that is worth taking. As I've said before, I don't want to rely on 1 product to produce equity. I want to diversify as much as possible for the if and when I can start trading full time for a living.
Mind Over Markets
Magdalena sent me a link to the website http://www.innerworth.com which is summed up best by them:
Our objective is nothing less than transforming you into the
best investor you can possibly be. With Innerworth expertise
and guidance, you gain control over the emotions, stress, and
hesitation that so frequently defeat investors. In other words,
you develop the mental edge all great investors say they need
to be successful.
I checked it out today and it is very good. Their "advisory board" also includes well-known author Mark Douglas and as far as I can tell, once you register, everything on their site is free. It doesn't even seem like there are any advertisements or sales attempts.
I read an article that was emailed today by them and it was very good. A lot of us are so busy everyday trying to learn technical analysis that we forget about the psychology of it all. Reading this daily may balance this.
Do yourself a favor and check it out.
Psychology of Trading Workshop
This was the first workshop I attended on Saturday. The speaker was Stephanie Jaeger, author of "Mind Over Money." Overall I felt this was weaker than any other that I attended.
The workshop was pretty full with about 200 or so people. Some of them were already trading live, others demo trading, and some not trading at all.
Stephanie Jaeger tried to drill home the point that people are very emotionally attached to their money. She told everyone to take out a $20 bill. She asked again, do you have psychological attachment to your $20 bill? Some said no, others yes. She then told everyone to tear it up into tiny pieces. I did not and neither did anyone else except for 1 guy. Some dude Scott was the only one to tear it up because he said he trusts her. Everyone pretty much found his comment laughable and idiotic until she said that Scott could now choose 1 of 5 bags sitting on the table behind her. In 1 of the bags was a video IPOD. Immediately, 4 others tore up their money for a chance to pick a bag. I already have a video IPOD so I'm glad I didn't. Either way, 1 person out of the 5 who tore up their $20 bills won an IPOD, the others $20 gift certificates to Starbucks. So, who trades without emotion? Emotion is there and don't deny it.
What is the 1 thing to guarantee your success?
What is the secret to success?
You.
She stated that it is also not losing that traders hate so much, it's being wrong.
She said that it is important to be able to switch your emotional state. She had us all stand up and think about when we lost or when we were feeling like total losers. Then she told us to take a step to the right and think about a time of ultimate success. That is all you have to do to switch your emotional state?
1 interesting thing I found about her comments was how trading intuition can lead to success. Our left brains are logical and our right brains are intuitive.
Left brain = technical indicators, books, trend lines, computers
Use your right brain!
Get in touch with your emotional state and develop an emotional trading log. Learn to identify your emotions. What is anger to you? What is greed to you? What is fear to you?
Stephanie feels like trading intuition can make traders more successful than mechanical traders. Traders get paralyzed by technicals.
So the point of all of this was to get in touch with your emotions and try to understand them. Learn how to switch your emotional state if it's affecting your trading. We all know that trading is all about psychology and the markets tell the psychological story of every trader participating.
Limiting your emotional exposure to the markets
There is a good common sense post from a fellow forex trader about how to limit your emotional exposure to the markets. Some of you may relate to constantly checking your positions out of curiousity when you don't have to! Check it out.
http://www.forexforays.com/2006/05/limiting-your-emotional-exposure-to.html
This trader must have gone through what I am right now because he has another post about depriving yourself of sleep to catch the more volatile times the forex market offers.
http://www.forexforays.com/2006/05/trading-at-all-hours-get-some-sleep.html
Developing Confidence for Traders
Here’s a posting by Troy Peterson (private trader) titled, "Do you have confidence as a trader?."
Your level of confidence as a trader will have a huge positive impact on your success. The more confident you are the less time you will spend on second guessing your decisions. The more confident you are the more positive energy you will focus toward your desired outcome.
Confidence is based on two things; what you do and who you are. When a trade stops for a loss your confidence becomes rattled. This is because confidence is based on what you do. When confidence is based on who you are and your ability as a trader, one who is prepared for all outcomes whether a loss or a profit, then you are consistent with yourself no matter what the result. You will feel confident because you took the loss as intended or because you closed with a profit. You will choose correctly in either scenario! This is because confidence is based on you.
Each time you correctly make a decision in trading whether it is for a loss or gain, the more confident you will become with your ability to act accordingly to the current market situation in a manner that is appropriate. Your confidence is now based on your awareness as a trader (you) not on failures, mistakes or missed opportunities. Let me say that again . . . Your confidence is now based on your awareness as a trader, one who will make the correct decisions.
Help build confidence by reviewing your trades diligently to discover when, why and how you chose to act during the time of the trade. It will help your understanding of the markets and yourself. The more you choose to learn from each trade failure and success the stronger and more confident you will become. This confidence will increase your flexibility in your decisions and your behavior. This flexibility will help create comfort in your trading. This comfort will feed your confidence and the cycle continues.
Begin working on your confidence today. Believe in yourself and have faith in your abilities. Please don’t fall prey to falling someone else’s calls in the market blindly. Stick to your edge and realize that trading the markets is about you.
Fear and Impulse Trading Forex
Last night was a night of mixed emotions for me. I usually don’t hold positions longer than a day but I was holding on to the USD/JPY for a little longer waiting for the pair to decline a bit. It finally did and I grabbed over $1000 when I closed the trade at 118.35. I was fearful that it would retrace again toward 119.00 and therefore I just wanted to get back on track for the week. As a lot of you know, the USD/JPY plummeted last night (right after I exited) and was sitting at the 117.00 this morning. If I would have held on to the position, I would be sitting up over $5000 on 1 trade. I will put this one behind me but I made a real big mistake on my next trade.
Immediately after exited my Yen position, I started scanning my charts and came to the CHF/JPY and the price sitting right on solid resistance line. Thinking it was oversold and not knowing that the Yen was having a huge downward move (after my exit), I impulsively and foolishly entered a long trade in the CHF/JPY. The Yen pushed downward and hit my stop in about 30 minutes. I lost about $600 on this trade. This was a total impulsive move, one in which I entered the trade without really looking at anything but 1 line.
From past history, when the USD/JPY has had a large downward move during the Asian trading session, a USD bearish move follows for the GBP and EUR during the European session. That is why I went long on the EUR last night and made 44 pips on 3 lots which amounted to $1300.
So I probably only caught about a third of the Yen move and fearful of giving back my profit, I gave away the other two-thirds. It’s no wonder I always hear that the hardest part of trading is the exit.
The last 2 weeks, I’ve had to scratch my way back after starting the week down. Last week I was able to do it with a $700 profit. This week, I’ve made my way back to -$475 with 1 trading day to go. I’m not going to rush into anything though so if my week is done, so be it.
