How to Get Out Of Losing Trades

Screen shot 2014-02-25 at 7.06.25 PMAs far as forex trading goes, every trading system has their own rules for entry and exit, their money management and risk and rewards. But system rules, entry and money management are the easiest part of the system. The hardest part of the system is the “exit” because its where you’ll make or lose money.

What’s even worse is if the position is a losing proposition. Clicking that exit button might seem like a Herculean task of discipline and strength. Most people breakdown at this point and fall into the abyss of self-denial, thinking that the market will eventually comes back and recuperate their losses. But the market never did come back and his trading account, vanished.

I’m here to tell you what I think about losing trades, how to ease the pain it brings, how to get out gracefully and how avoid it in the first place.

Avoid Losing Trades by Concentrating more on the Exit

When you see a trade, focus on the exit rather than the entry. A newbie forex trader will try to “imagine” patterns when they see an entry signal. And sometimes, deliberately try to convince themselves that the pattern is indeed 100% accurate. They become obsessed at proving themselves that they are right. You should do the opposite. You should always try to prove yourself wrong and always look for the exit rather than the entry.

As I quote Sun Tzu’s Art of War:

“Victorious warriors win first and then go to war, while defeated warriors go to war first and then seek to win”.

Know beforehand that your exit will be profitable and you have won that trade even before you make it. As you make this approach, you’ll notice that you’ll have fewer and fewer trades. But the quality of those trades will certainly increase.

Immediately Close a Losing Trade and Move On

This is probably the hardest action to take for a losing trade. Accepting the fact that you’re wrong is a sign that you have matured as a trader. While newbies will try to hold on to the trade wishing that the market would bounce back. There are probably another school of thought when it comes to this strategy. The market does not go in a straight line and they wait for it to bounce back even for a little. That is perhaps true. But I would rather end it now than to hope that the market will come back for me. What if I’m wrong on that part as well? Being wrong twice in a single trade could be the worst feeling and it could harm your future trades.

Never Risk Too Much Money

All in all, it all goes down to the amount of money in a trade. Demo trading is fun because the money used is not real. And so, every losing trade in a demo account is nothing to you. But if real money is at stake, “shit hits the fan” too much too often. Risk only the amount of money you are comfortable with. You need to have a good money management strategy on top of your trading system. This is different for every people. That’s why we have a term risk appetite. Some people likes to risk high and some people don’t. I don’t personally like risking alot of money in a single trade. Well, I used to risk a lot, but I’ve changed.

Personally, the amount of money I risk in a single trade is 2%. Max. I don’t go over that. I have found that I’m very much comfortable losing that amount of money and so I don’t panic when I have losing trade. I just kill that losing trade and move on.

Whatever you do, losing trade is not a good feeling to have. But remember that forex trading is a business and should be treated as such.

Week 9: Looking to Enter This Week

Our patience is paying off. Our prediction is steadily taking its course. We are looking to open a position next week. Hopefully, price will reach the red line, which I assume to be the top. Our stop loss, near that line.

We are still on our plan and still following that plan thus far. Remember: We only need to get 1 big trend to make money. But in order to make the most out of that trend, we must get into the top or the bottom of that trend. Get into the exact turnaround of the trend. So we have the maximum amount of profit possible. We risk as big as we can possibly get once we know that all our setups are right.

Forex Trading as Gambling vs Forex Trading as Odds and Probabilities

I admit that I have been guilty of the title Forex Trading Gambler. During my first few years and quite some of the time, I trade forex because of the adrenaline rush and the thought of easy money. I get excited on every high risk trade that turns out to be a winner. It was my high. I was addicted to the feeling. Like a gambler who doesn’t care about the risk, odds or the probabilities of winning or losing. He just wants to experience that same high that got him hooked.

As if I were a junkie.

Then comes the realization, I continue to lose and I kept increasing my trading size. Only to burn even faster. With that good feeling that you miss, you just want to trade more and more, larger and larger, only to experience the bottom faster. Trading this way will not work.

It is not about the feeling in trading. How much money you made or how much you lost should not be the basis of trading. The more I trade, the more I realize that. Money doesn’t matter in trading. For me, being right matters most.

Its all about the odds and probabilities. Its all about timed aggression and patience. A little bit of luck may help. But don’t depend entirely on luck. Because even though luck is involved, there is a reason why the final table have so many familiar faces.

It is a different kind of feeling that the thrill of winning big. Being right is better than breaking the bank. This is not a sprint, its a marathon. Trading larger size may give you great gains, but also great drawdown, and greater risk to go bankrupt. What we want is to make the right decisions each and every time.

The more I read about the stories of successful traders, the more I realize that trading is much like poker. Some people treat it as gambling, some treat it like a sport, a mental sport like chess. Some play poker just to have fun, feel the rush, some play poker as a profession, as a business. We should approach forex trading the same way. Its all about the odds and probabilities. Its all about timed aggression and patience. A little bit of luck may help. But don’t depend entirely on luck. Because even though luck is involved, there is a reason why the final table have so many familiar faces.

Happy trading!

Forex Trading Small First Before You Go Big

People are greedy. That’s a fact. But its the emotion that keeps us wanting more and always wanting to have the things we want. Makes us think of ways on how to get it. Don’t fear greed. Make use of it. Master it.

Most newbie traders, me and my friend, talked about the profits in trading. One of us will argue that to have great profits you need to have large amounts of pips in a winning trade. Ok. Fair enough. More pips = more profits.

Think about this, you have $1M in your account as capital. And your target profit in terms of pips is in the 200+ pip range. Sounds like a lot money to be made when you get that 200+ pip. But think of the risk you will get and also the time before you get to profit. In forex trading, there are fluctuations, can you stay calm when your account displays -100pip because of its initial retracement? Can you still decide if the trend is against you or its just a retracement? Remember, earning that kind of pip will require you to hold the trade from 1 hr to 1 day. Can you handle the pressure?

I say, pip size doesn’t matter. How much you risk in each trade matters. Playing with small profit pips will reduce risk. And also, having a profit target that’s small will minimize risk. Smaller pips means, shorter time inside a trade which means lesser risk, less pressure from greed or fear.

Pip size doesn’t matter, volume does. Increase your volume once you got the thing going. Increase more to profit more, while still maintaining the same pip per trade profit. And always remember, don’t overtrade. Take a time out. Every businessman needs his vacation once in a while.

Good luck!

Never Trade on Mondays

I’ve been reading some beginner stuff about forex trading and one thing that caught my attention is that many experienced trader always advice not to trade on mondays. The reason behind this is because you want to know what will be the starting setup for the coming week so letting the first days alone is crucial. It also has the less volatility when it comes to pip movement.

I don’t know… Since I started trading, I’m never been more excited about mondays. When I was still in a full time job, I despise mondays! But now, I’m excited and I can’t even sleep sometimes.

What do you think? Do you trade mondays?

10 Misconceptions About Forex Trading

A lot of people will enter the market with the wrong misconception about the forex. Diving in, nose first without the proper mindset on what they are getting into. I hope this list will clear your mind and hopefully give you a healthy dose of forex trading success.

Forex trading is never easy… What is easy anyway? Picking your nose perhaps?

  1. Forex trading is easy. Many people that want to dive into the world of the foreign exchange market believe that the Forex trading is easy — you just read a book or two and then you will be able to earn daily profits with just 2-3 hours trading daily. Others think that they can buy a profitable strategy and it will make them rich in Forex. In reality that’s just a myth. Succeeding in Forex isn’t easier than mastering any other profession — it takes time, money and a lot of practice.
  2. “I will make money in Forex, if I can trade stocks successfully.” Success in stock market doesn’t imply that you will get success in Forex market — there are many differences between trading stocks and the spot currencies. First of all, Forex market requires a lot of hard work and dedication as this market is open for 24 hours a day. You cannot just sit in front of your computer for the whole day and night, so the best way is that you should find the most suitable time periods for trading. Second, “buy&hold„ strategy simply won’t work in Forex market. Third, you don’t have that much information about currencies as you can get from the companies’ reports and statistics.
  3. “I can make profit whenever I want if Forex market is open 24 hours a day.”Once again, you won’t be sitting in front of your PC for the whole day to be able to trade 24 hours. You’ll have to develop automated trading software to get the advantage of 24 hours a day working schedule.
  4. “I can be a successful Forex trader just following someone else’s signals.” Many beginning traders get burned by the blind signal-following. That’s like putting away the whole responsibility for your actions to someone else. That may sound cool, but in reality you end up with the huge losses. Learn to rely on your own knowledge and skills. Remember that there were no great signal-followers in any financial market.
  5. No commission is to be paid in Forex market. You only have to pay the spread, but you don’t have to pay the commission. And what’s spread? It is the difference between the buy and sell price of the currency pair at the same moment. You may end up with the major part of your profits in the broker’s hands if you plan to rely on the short-term trading.
  6. Forex is a scam. Some skeptics and disappointed traders think that Forex is just some new fad to scam people for their hard earned money. Although there are many scams that are hiding behind the “brand” of Forex, that doesn’t mean that the Forex itself is a scam. There are many institutional Forex brokers, regulated Forex account managers and other solid companies in the market to whom you can trust.
  7. “I need to exactly predict the market outcome to be profitable in Forex.” There is no scientific method to know something in advance in the market with a 100% certainty. There would be no Forex market if you could know the exact currency rates beforehand. Trading is not the game of certainties; it’s a game of odds. One of the first things that new traders learn is to think in the terms of probabilities and risk-to-reward ratios.
  8. “I need to use a very complex strategy to be successful in Forex.” It’s a popular myth, in which many on-line sellers would want you to believe. The main requirement to be successful in Forex is a self-discipline and money management. There are many traders that make consistent profits with rather simple and old strategies.
  9. “I need to have a lot of starting capital to get profit in Forex.” Big capital investment won’t help you in Forex. You don’t need a lot of money to diversify in currencies and you can’t move the currency rates with your trading orders (you’d need billions of dollars to do that). Actually you can trade with a very a little capital, because Forex trading is almost always leveraged with the broker’s money.
  10. Forex is gambling because it’s completely random. Although there is no certainty in Forex (as in any financial market) it doesn’t mean that it’s completely random. And it’s certainly not a gambling, since your success in this market depends mostly on your skills and experience, not on your luck.

+48% Gain From USDJPY

I closed my position on USDJPY with an increase in my war funds of 48%. Right now, I took an opposite position to the SHORT side.

Why did I took an opposite position? I think that 80.70 is a strong resistance. And there’s little risk if we took the short side (betting that the resistance will hold) than remaining on the LONG side (betting that the resistance will break). I think that the resistance is strong and may take a couple of tries before it breaks (or not). I just want to play it safe by betting on which side will most likely give us a greater return. And I think, this time, its on the Short side.

5 Mental Things You Need Before You Start Forex Trading

Job Security is an Illusion.

Many people want to be a forex trader. And I know a lot of people in my social circle who wants to be a trader. I even teach them how. Recommend them books, websites and strategy. But there seems to be people who is just damn scared to let go of their day job. Afraid to take the plunge. Afraid to be laughed at. Afraid to make something happen in their life.

They are just too contented by the way things are. Perhaps, too fucking contented… Safe, secure… “But I really want to be a millionaire trading forex”. Do you see what’s wrong there? There’s a lot of contradiction in that statement. Being a millionaire is NOT synonymous to being safe in a day job. Being a millionaire is synonymous to risking, having the balls to follow what you want in life and most importantly, its ignoring what other people may say to you. Be it “bat shit crazy for quitting a high paying job.”

Have The Balls to Follow Your Dreams

The hard working people that goes to the office everyday to work 9 hours a day. Be stuck at traffic, be soaking wet during the rainy seasons, are probably the most common. Talk to them and ask them if they want to have a business. 100% of the time they will answer something like this “I really want to have a business, but I don’t have any funds right now.” or “I want to have a business but I don’t know how or have no time”. Or whatever other reason they have. Its all wishy washy. I’ll do this after I do that then I pray to the flying spaghetti monster in the sky to let me win the lottery. Before they know it, they are 40 years old. Now, they have a different problem and a little different reason. “I’ll want to have a business but I’m not sure if I’m still young enough to learn all that.”

Hesitate and you will age. Run and you will die.

Ohh… How time flies…

Lose Your Ego

There’s nothing I enjoy more in watching other traders is their ability to talk about how confident they are in a market (stocks, bonds, commodities, forex). yet they can’t seem to accept the fact that they are wrong. And sometimes, which is more dangerous, they think they can predict where the market will go.

Forming a forum so you can exchange ideas (or persuade other traders) that your analysis is correct so you have a better confidence in your analysis. I don’t think that will do any good. Knowing first hand where your trade will go, before it even go there makes your mind closed. You are not open to the possibilities that your trade may reverse. Or it may give you a profit then reverse. The decision is based on ego that you are correct. And it will be harder for you to take a loss. And thus, you are fucked up inside. You can’t trade.

Think For Yourself

Does it matter if your friend is also LONG position on the same currency pair you are in? Does it matter if your technical trading mentor is SHORT on the EURUSD? Would you try to rationalize the idea that your LONG position on the EURUSD is wrong so you can join your mentor on the SHORT side?

This is the reason why I don’t like groups in trading. I think trading is like a boxing match. And I like it that way. You don’t need the spectator’s shout of advice. You are the one that’s getting hurt. Shouldn’t you worry about your own ass?

Have the Discipline

Of all things, discipline is probably the most important. It takes the most time to develop. And takes the most effort to practice. When lose control of yourself, you don’t even know. You sometimes don’t know that you are being greedy. Or being afraid. Self discipline makes you aware of those feeling and act accordingly. And most importantly, its the best skill to have if you want to learn a new skill. It is the trait of all successful trader out there.

Discipline is what makes the rich not use their money for parties or fancy cars. Not spend on hookers or drugs. Instead, use the money back into investing. That’s discipline. Focused on a goal. Whatever your goal is.

Week 24: Avoid the News in Forex Trading

I learned something. This is the thing I learned while learning stock investing. And I think it goes very well with trading in forex. I used to hear a lot of people saying this and I have never really understand the deeper meaning in it. Its about trading when there’s news.

A lot of traders have been saying that to never trade the news. And I have been a victim of greed over the past week. I try to anticipate news releases and have been wrong many times in doing so. I may have been right a couple of times, but results from news doesn’t last long enough to earn substantial profits.

I realized I was chasing something that I won’t be able to reach. And decided to trade only currency pairs that are not in the risk of news. I’ll let the news pass then I’ll return. Because of me, chasing the news, I realized I missed some great opportunities like in the currency pair NZD/USD. I was so caught up with EUR/USD, I missed the trend. It might not actually be a late time to enter but you get my point. Never trade the news. Go to currency pairs where there are no risk of news affecting it. Or in the words of stock investors, invest in obscure companies that are being ignored by professionals and traders.

I made money trading the USD/JPY on its way up. And got back to break even from the losses of EUR/USD hunting for the news. I’m still in good condition and still on my way to realizing my goal.

USD/JPY on Daily

USD/JPY could probably retrace now. Keep in mind though, if you’re going to take the short side, Bank of Japan have expressed their eagerness to intervene should the pair goes further down. Keep your stop losses tight. On a weekly note for this pair, its more of a sign to go long. I’ll try to catch the bottom of the retracement for the daily to enter. That position is less risky because you have BoJ on your side. The only problem now is the USD’s news affecting the currency.

Happy trading.

Week 17: Market Going Stale, Investing In Stocks

The forex market is going stale as we reach the end of the year. Many investors are on vacation so the market is not liquid enough to be exciting. +1 in capital for this week.

But, I’ve entertained myself with investing in stocks. Primary strategy is to produce passive income. I’ll be using this nest egg to fund my forex trading account in the future or perhaps venture into real estate. Not sure for now, but the journey thus far have been so exciting. Stock market is not moving fast to date, but I’m investing in it, not trading. There’s a big difference, I like it that way since the stock market is not that liquid like forex, you can’t enter and exit within seconds, there must be a buyer or seller on the other end with the same price you want. In forex, you can enter or exit anytime, very liquid. And liquidity is very very good.

Whole Year Round Up

Well, this year I finally achieved my goal of $5,000 per month in net profit from forex. I am also trading at no risk. Which means, the money that I have in my forex account are the money that I earned trading. I already withdrew the money, initially deposited into my account and thus, trading with no risk at all. In numbers term, I already earned past 100% of my initial capital to trade with only the profits I made. Sweet huh?

This year, I also ventured into stocks and realized that its a lot different than trading forex. So I decided to change my strategy with stocks and focused on passive income generation. In which I am very much enjoying.

I realized that forex trading is a probabilities game. You can not predict what will happen next. A good forex trading system is not a system that could predict the next move of the market, because there is no such thing. A good forex trading system is 60% money management 30% emotional discipline and 10% Entry – Exit. The time I realized this, my trading just improved.

I learned to accept the risk before entering the trade. If $200 loss hurts me emotionally, I turned the risk down to $100 or $50 until I feel no pain from risk. The reward may be small, but small steps before you can run. And it have proven to be profitable.

The best way to trade forex is to trade defensively until the next big trend comes. Don’t be on the sidelines far too long or you can miss the trend. Always be in the market so you can be in the position when the trend starts. You just have to survive the ups and downs of price by money management. And if you caught yourself a big trend, double, triple, quadruple, quintuple up your positions until you are stopped. That’s how you can make money with forex.

I also realized that day trading is stressful. So I switched to swing trading daily. I forgotten my first reason in trading forex. It is to be free. The “illusion” of easy and fast money with day trading is a myth. There is no easy and fast money. The only thing you can find there is stress and a lot of time spent, staring at a computer. That is not the life I want. I want to be free. Maybe once a day looking at a chart for 5 minutes and I’m off to the beach or to the gym. With a lot of free time and let my money work for me, not the other way around. Its a great great feeling.

I think that’s all 2011 taught me when it comes to trading. If you have any comments or suggestion or have something to add, just leave it on the comments section below. What did you learn in trading this 2011?

Happy new year everyone! 2012 should be good. Wait, that’s when the world was suppose to end doesn’t it? (:))