Does Your Forex Trading Plan Encourage You To Overtrade?
Welcome Ryan, the author of this Forex Project guest post. Ryan trades from a quiet country lake house and helps traders through his blog at http://www.ryanokeefe.com.
Does your trading plan encourage you to over trade?
Recently I started a survey on my website asking traders to answer this question:
“What is holding you back from trading successfully?”
Currently the number one answer is “I make some money, and then I give it all back.”
Multiple factors contribute to this result however over trading is the most frequent concern struggling traders email me with. I have some thoughts to avoid over trading I hope you’ll find useful.
Consider Your Trading Plan
Over trading may be baked into your trading plan without you realizing it. I received an email from a concerned trader who struggled with taking too many trades although they were following their trading plan. I asked to look at their trading plan and found it was built around the 60 minute chart, the opening of each trading session, support and resistance levels plus the MACD indicator. How many opportunities do you think their trading plan generated on a daily or weekly basis?
I’m a big fan of slowing things down with longer time frames. Using a longer time frame automatically reduces the number of trades you will consider which reduces your trading plan’s built in propensity for over trading. You won’t be tempted to take a “valid signal” 10 times a day trading a daily chart. The vast majority of my trades are planned on the daily chart with the entry taken on a four hour chart.
Consider a Weekly Goal
In my trading plan I have a weekly goal of 50 to 100 points. This is a realistic goal for me to achieve and having the number written down reminds me that once I’ve made my weekly goal there is no reason to place it at risk. When the goal is achieved it is time to do anything other than trade. If you’re trading a lower time frame I think setting a weekly goal is even more critical because as we have discussed, shorter time frames offer more “trading opportunities” which place your profit at risk. I’ve had this weekly goal established for years and it works well against over trading.
Some traders may think a goal of 50 to 100 points a week is too low but keep in mind there are as many ways to configure a trading account as there are ways to trade it. With the right mix of leverage, lot size and risk capital you can do a lot with a goal of 400 points a month. Most important is to set your goal according to your personality; whatever you believe you can achieve and doesn’t stress you out in the process is best.
Do you really need to take that trade?
Before I open a trade I ask myself this question every time without fail. It seems obvious but so is lowering the landing gear before landing yet some pilots still manage to land with the gear up. Consider your emotions before you take a trade. Are you tired? Are you angry? Did you miss a good trade and now desperate to make some pips? Have you made your weekly or monthly goals? If you have met your goals you don’t need to trade, period. If you can honestly answer this question with a “yes” then pull the trigger but if not, don’t put your capital at risk.
Be accountable to somebody other than yourself.
Rob Booker pitched this idea in a presentation I watched online and I believe it is the strongest action you can take to eliminate any propensity you have to over trade. Whoever you report to should have a basic understanding of your trading plan and be able to question you on each trade in a constructive setting. This is a full disclosure exercise so find somebody you can trust.
I report to my Wife every Friday morning with a print out of our account statement. We go through every trade while I explain what system I used, why I took the trade, what mistakes I made and what I could do better next time. We also discuss what I should be doing during the upcoming week if goals are already exceeded.
If knowing you need to explain why you put hard earned profit at risk for an unnecessary trade at the end of the week can’t keep you from pulling the trigger, nothing will.
Popularity: 76% [?]
Forex Mentor Reviews
I stumbled upon yet another useful website if you're looking for a mentor or just want to know which were reviewed well or poorly. Reviews are provided by users who post comments and a rating of SCAM, 1, 2, 3, 4 or 5.
Scam sites that I've seen in the past either via advertisement or Google Search:
-
WinningTradersAssociation.com – The one thing I can say about this site is that if you look like this guy, don't post your picture all over your website - 4xmadeeasy.com
Reputable mentors?
Take user comments with a grain of salt. Some of the comments are really good though. They range from really ANGRY users who had their accounts blown up in a matter of days to users that are extremely grateful.
My mentor, Rob Booker was reviewed so-so. Here are some comments about Rob that I found interesting:
THIS ONE I CAN RELATE TO.
"He was busy with too many
clients, with his own trading, and with some
side projects."
"Apparently Rob also
started a managed accounts service, which is a
nice proof that he actually trades himself.
His results from January 2006 to March 2006,
haven't been too impressive at only 3% gain for
three months, but what's encouraging is that Rob
is honest about it."
"…This is a very
expensive program for offering not much more
than rehashed information from so many trading
texts."
You can check out the reviews and comments for yourself. If anything, it opens your eyes even wider to the fact that you have to be responsible for your own account and analysis. If you have had enough experience and have learned what works for you, it's much more beneficial working on your own or with friends than ever signing up with a mentor. Would you be more angry if someone else told you to make a trade and you lost big money or if you told yourself to make a trade and lost big money?
Personally, I'd be a lot more steamed if I listened to someone else and lost.
http://www.forexbastards.com/education_reviews.shtml
Popularity: 5% [?]
Trading in La La Land
I've said this before but there is no easier way to take the emotion out of a trade by placing the trade, setting your stops and limits and going to bed. I made a decent trade last night going short on the EUR/JPY and woke up to a nice surprise, +42 pips (limit reached, trade closed.) I'll post the journal entry for this one later. I still see a favorable trade lower but I'm waiting for certain levels to hit.
Today should be quite a crazy day to trade. I already missed a trade at 7 this morning on the AUD/USD that I was going to go long on but thought twice because of a resistance line up above. I'm trying to show some discipline by not going into the trade 2 candles late. By then the risk/reward isn't what it was and it's a good way to lose money.
Have a good trading day and be safe.
Popularity: 3% [?]
May 2 CFTC Report
I've been reading more about the Commitment of Traders Report and how knowing not only non-commercial positions but commercial as well can assist in longer term trades. For those of you that don't know what the Commitment of Traders report is, let me tell you.
Some of this information was provided with assistance from Alexander Elder's book, "Entries and Exits"
First, the report is really the only way for private traders to get an idea of the volume for each currency pair. Each week (Wednesday), the Commodity Futures Trading Commission releases the number of open positions, short positions and long positions in a given commodity. These positions are given for 3 groups of traders, hedgers, big traders, and small traders. "Savvy COT analysts compare current positions to historical norms and look for situations where hedgers, or the smart money (big traders) and small traders… are dead set against each other. If one group is heavily short while the other is heavily long, which one would you like to join? If you find that in a certain market the smart money is overwhelmingly on one side, while the small spec are mobbing the other, it is time to use technical analysis to look for entries on the side of the hedgers."
Currently, I only provide non-commercial positions or small traders. You can read more about how to use just this information by going to http://www.forexproject.com/forex_volume
In the upcoming weeks, I am going to start providing data and graphs for all 3 groups of traders. I just have to put my programming hat on and find the time to do it.
Popularity: 3% [?]
May Issue of Currency Trader Mag Here Now
The May issue of Currency Trader Magazine has been released. The highlights of this month's issue include the following:
- Trading the Mexican Peso
- Interview with Money Manager Peter PanHolzer
- Forex Money Management Strategies
- The Euro Index
- Japan and the Yen: New Era or more of the same?
Content Removed: Download from http://www.currencytradermag.com
Popularity: 4% [?]
Flogging Anyone?
I appreciate Greg's comments and agree with everything he says. In particular, I agree with the facts that:
- I am getting flogged. If this was actually happening physically, I'd be a bloody pile of mess.
- The 5% who consistently make money are taking the other 95%'s money (including mine)
The reality is that though I have lost money, it hasn't been more than $2000 (give or take a couple hundred.) It has cost me a lot more in time and effort. I don't consider the loss of thousands of dollars a waste considering the 6+ months of experience I have received. The $1000 for a mentor is also money that I feel is well spent even though the results have not been realized yet. I was chatting with Rob during the US session today and as far as I can tell, he is trading for real during these times. It is also no wonder that most mentors are probably failed traders that decided that they could do well teaching others a very difficult thing. This doesn't mean that they know how to make money trading forex. You can compare it to a professional sports coach who was never successful as a player but is as a coach. There are many examples of this. They aren't necessarily there to tell you what to trade but are there to prepare you for when you do decide to trade.
The goal of this site is to be truthful and honest. I can tell all of you that though I have thought about not posting a losing trade in my trade history because of fear from criticism, I never did not post it. I feel strongly that if you cannot be honest with others, you cannot be honest with yourself and therefore you will never learn.
As always I appreciate all the comments that come in and hope that I can and others can learn from this. If after 2 years, I'm still posting crap about losing, then shoot me down because I should not be doing this. I promise that I will not enter the world of mentoring either. I am not without faults in my trading (specifically with randomly trying things with real money, emotional trades, overtrades, and all the rest) but after 6+ months, I still have confidence I can do this for a living. It's not going to be easy but think of all the hope it will give others if I can manage to beat the odds.
Don't come to this site if you want trading advice (THAT'S FOR SURE… at least not yet) but if the 95% of you want to see someone going through exactly what you are going through, come on in. Post your comments because I truly respect every one of you that has and if I am successful, I will attribute it to you.
Enough of this Rah rah rah… After reading this over, it sounds like I'm about to cry…. 
Popularity: 4% [?]
It’s My Fault
A transcript between a couple of us today:
Wim Says:
Hi Rick,
Minus 180 pips on 3 days of trading seems not that
great. Wow, I would be pissed of, part of learning.. Are mentors really
that great..
Why would you coach someone if you make a ton of money?
I would not spend my time trying to learn somebody for $1000 if I can
make 50K/month with my personal trading.
Some time ago, I
took the FXCM euroshop ($169), well in my eyes, it is worth nothing. it
looks really nice on their website until you pay for it.
3 methods but none of them actually work in my eyes. Everybody can make a course or call himself a mentor.
Personally,
I won't spend a dime to education or learning anymore. Being in this
business for 3 years, I make money now but not the first 2 years.
I
think a combination of knowledge and market understanding is a lot more
worth then pulling up some indicators and following them blindly.
Magdalena Says:
Wim,
A couple of questions for you:
1) Are you saying you didnt make money in the first 2 years and are you trading full time?
2) What in your opinion is the best way to learn how to trade and gain the knowledge of the market, how did you do it?
Rich,
What
is the "touch of emotion" and how big of an impact it had on your
trading recently? Are you saying that Rob's methods work and you simply
didn't have enough discipline to stick to them, cuz that's exactly what
happened to me recently when using Raghee's setups.
Craig Says:
Hi Rich,
Bummer, I have been making a bunch of losing trades as
well. I was looking though your trade history and trying to figure out
why you made all those AUD/USD trades on the 25th, the pair was going
sideways. Is it possible to elaborate on your current stratergy?
P.S.
Have to say Wim's comment is pretty on the mark.
I Said:
I'm getting my spreadsheet together to analyze these trades but before
I jump over Rob, I have made some mistakes with execution and did so
specifically with my lost GBP trade this morning. I entered incorrectly
and got stopped out by 5 pips before the 100 pip move up. This cost me
huge. Some of the other trades were also executing issues. I can
honestly say that without even analyzing and from the top of my head,
if I was more experienced with this system, I would probably be up. A
lot of his strategy utilized multiple lots so that you can let some
more profit run. I'll post more when I know more.
I Said again:
Magdalena, I think Rob's strategies can work. I think they give you the
best shot at making money doing this. The touch of emotion happened 2
times to me:
The first was with my Aussie trade where I entered
before the candle closed. Rob says you can enter before the candle
closes but he waits and recommends you wait. After this trade, I would
definately wait also.
The second time was with my trade today. I
entered 2 candles late on the GBP/USD trade and set my stop without
reflecting the price 2 candles ago. If I would have set a stop based on
the price if I had entered 2 candles ago (when I should have) I would
have made MANY MANY pips today. Like I said before, I think I would be
in positive territory if I didn't make these mistakes.
Popularity: 8% [?]
Trading Full-Time continued
Thanks to Forex2stay for the following comments. Visit his blog at http://forex2stay.blogspot.com/
I do think it's possible, but I believe money mangement is the key.
This needs to be a marathon not a sprint. One thing I've realized is
that you can't use the same lot sizes for all of your trades. For
example on one trade you might be risking 30 pips and another 20 pips.
So if you trade 4 lots on both of them (standard account) you'd be
risking $1,200 on one trade and $800 on the other. That's not good
money management and it can get you a person in trouble.Here's what I do…..
When
I position trade (4hr and daily charts), I won't trade unless I have a
2:1 risk reward ratio. I figure out the proper stop loss for my trade,
based on TA. So for this example say that's 40 pips. I then make sure
based on TA that I'm comfortable getting at least 80 – 120 pips profit.
Once i'm comfortable I put my information into the following formula.
S=(E*R) / (P-X)
S = Size of Trade
E = Account size (Cash)
R = Maximum Risk percentage per trade
P = entry price on the trade
X = pre-determined stop loss or exit price
So let's put in some numbers…..
My account size $10, 000
Entry price on EUR/USD 1.2600
Currently I'll risk 3% of my account on a trade
My pre-determined SL is 1.2560
So how many shares of EUR can we buy with our money management rules??
S=($10,000 * 3%) / (1.2600 – 1.2560)
S = $300 / .40
S= 75,000
Anyway this is the way I do it. I hope it helps…
Forex2stay
Popularity: 6% [?]
Studying in Advance for Next Week
Booker has me a lot more attentive to upcoming Economic Releases and the trade opportunities that can arise. Therefore, taking 1 day at a time, I took a look at the Global Economic calendar for Monday, April 24th to see if any pairs may exhibit volatility due to any releases. It generally looks like a light day with NO economic releases out of the United States. The UK does have a couple of releases at 4:30 a.m. EST including Retail Sales (month over month), Public Finances, and Money Supply (month over month.) Last month during the retail sales announcement, the GBP/USD moved about 30-35 pips following.
Therefore, I will plan on getting up at 4:00 a.m. Monday morning to look for a trade opportunity in the GBP/USD using short-term charts (15 minute?)
I'll be going through more of Rob's lessons this weekend and will keep everyone updated on my progress.
I hope everyone had a great trading week. Have a relaxing weekend.
Popularity: 3% [?]
Come into my trading room
I was interested by some of Alexander Elder's comments in his book, "Come into my trading room." For those of you who have never heard of him, he is a professional trader who at one time was a psychiatrist.
He states that a successful trader needs to stand apart from the crowd and one way to do so is to be unique in choosing your timeframes. I've always used the 60-minute, 180-minute, 240-minute, and the Daily timeframes. Elder says that it pays to use uncommon parameters for charts and indicators. Most traders use the default timeframe configurations in their trading software but since thousands of people use half-hourly charts, why not be the minority that use 25-minute charts. The benefit to this also is that you may get signals a little faster.
I was reading more about his Triple Screen Strategy not really because I'm looking for a brand new strategy to use (I'm always open-minded) but because it stresses the use of multiple time frames for entering and exiting positions. I've always treated each timeframe as a totally separate entity mostly because it simplifies entries and exits and also because I adopted this style after reading Raghee Horners first book.
Elder seems to have a lot to offer in the way of trader psychology and money management. I'll continue to post anything interesting if I come across it.
Popularity: 3% [?]
