Trading Tips from The Pros

Do you know how professional traders make millions? Here are some tips from them.

Jesse Livermore: The Worlds Greatest Stock Trader by Richard Smitten
1. Don’t Lose money
2. Always Establish a Stop
3. Keep Cash in reserve
4. Let the (Successful) Position ride…until you have a Clear Reason to Sell.
5 Take the Profits in cash…and place 50% in a separate account

Lessons From the Greatest Stock Traders of all Time by John Boik
1. Trade with the Trend
2. Cut Losses short
3. Let Profits run
4. Manage Risk

How Legendary Traders made Millions by John Boik

1. Understand the General Trend of the market
2. Use the Knowledge of History in your Study and Observation of the Markets
3. Use your Own Research and Don’t Listen to Others
4. Buy the Leaders
5. Buy only on Breakouts and Use a Pyramiding Strategy to add to those Winners
6 Cut Your Losses short
7. Hold on to your Winning Positions until Classic Sell Signals tell you to unload your Positions

Never Predict The Market

Forex trading is a damn risky business. Many people have went from millionaires to homeless in less than days trading the markets. And this week, aside from upping my equity to another 13.06%, I learned that it pays to be calm and collected when your trades goes against you. It is a must that you believe that you can not control the market. And you do not own the market. The market does not need anything from you, that is why, you don’t need to expect anything from the it. It is you, who needs money from the market. A place of unlimited wealth. So do not get angry if your trades goes against you. Always remember that you are in this, to get money. Why would you be angry if you lose money?

Many systems and techniques are there for the taking, but I will be bold enough to say that all of these systems DOES NOT WORK 100%. They can not predict market movements, they can not predict when the trend will start, stop or reverse. It has been a perversion of many people to control things and the market is one of those things that they can not control. You may hear alot of conspiracy theories, from your friend stock trader’s stories of why the stock will go up or news flash from your commodity trader friend, but all these are just odds and percentages that your decision might be right or wrong. But still you can not predict it.

Thinking that you can predict the market is all BULL CRAP! Here’s why.

What makes the price go up or go down? If many people buy, certainly, the price will go up. If many people sell / short, the price will go down. Let’s say you are a technical analysts who spends a lof of time drawing trendlines, graphs, fibonacci retracements and then finally you decided you wanted to buy and calls it a day, after drawing the hell out of the graph and make it look like a renaissance painting. Then you woke up the next morning seeing you are down 10%. Why?? Why is it wrong? You continue to ask yourself. “I spent the whole fucking day analyzing this god damn chart!”.

My friend, never fear, all those technical traders forgot to tell is that, not all elements in price action are included in the chart. Elements that can affect the price movement greatly, but are not included in the charts. And I’m here to tell you just that. Why? Because we’re friends.

Price, reacts to supply and demand and is reflected on the price chart. May it be candle stick or bar chart. “Yeah, so what? We already know that!” Well, do you also know when the other investors, traders that are on the sideline, will join the trade? How many of them will go against you? How many traders will get out? Most importantly, how many institutional traders will join in and trade with or against your position.

You can not see all of these in a chart. And you can not control it. So why bother?

5 Things Before Your Start Trading

Before you start trading forex for full time, make sure that you have everything covered. Though, not all people are risk takers and will quit their day job on a whim (like me), you must be prepared on to a new journey of your life. You will look back and if you become successful at this, you’ll realize that its the best decision you’ve made in your life. There’s no better feeling than being your own boss and eating your own kill.

#1  – Money To Keep You Afloat

Save at least 8 months worth of your expenses. Compute all of your expenses per month and then set aside money to pay that expenses for 8 months. This should keep you out of worrying where to get the money to pay for your rent, electricity, water etc. should you take consistent lose on your trading.

#2 – Trading Capital

This is probably will come from a personal preference. But for starters, I’ll try to give a more concrete estimate on how much should your trading capital be. Forget about the trading system for now. Let’s say that your trading system (thru backtesting) produces consistent profits at the rate of 10% per month. And your monthly expenses is let’s say, P20,000 per month. How much funds do you need to produce P20,000 for 10%?

x = 20,000 / 0.1
x = 200,000

The answer is P200,000. If you need P20,000 to live with 10% increase per month. You need P200,000 of initial funds. Whatever your target income per month, just use the formula above.

#3 – Money Management System

You also need, and probably the most important thing, to have a money management system. This is not merely how much money should you risk per trade. This is also, how much money should you risk again should you know you are right. And how much money should you take out if you’re right and how much money should you cut off if you’re wrong. There’s a lot of things going on in a money management system, please do a careful research first before trying to broke yourself in trading. Victory loves preparation.

There’s a lot of books in money management. But there’s only one that comes to mind.

Trade Your Way to Financial Freedom

#4 – Trading System

A trading system is a system that will tell you when you will enter and exit the trade. In searching for a system, give more emphasis to the exit strategy than the entry strategy. Why? Because it can either be the profit taking or the cutting of losses in which either case can affect your account and your mental state. Don’t get too hang up on trading strategy, just a simple trading strategy will do. The most important part in your trading is money management and trading psychology.

There’s a lot of books that teaches trading systems. But I guess its up to you on what you will choose. I’ll just refer you to a book about different successful traders of our time so you will know what trading strategies they are using and decide for yourself:

Market Wizards: Interviews with Top Traders

#5 – Trading Psychology

Emotions are the main enemy in trading. That’s why you should learn to control them. Read books about trading psychology to be aware if you’re acting on emotions or rational decisions. There are times when you will suffer consistent winners and consistent losing streaks. Having the mental toughness to overcome that will make you a great trader so never try to skip step and proceed trading without practice. If there is one book I would recommend for this topic, its:

Trading in the Zone

Forex Trading Tip: Invest Before You Trade

I think that the most important thing in trading is to not be attached with money. Once you realized that the money you are throwing away due to bad trades, is money that you need to feed yourself, you become attached to it until trading becomes impossible.

Remember that trading can be tough. Its a mental game. And a lot of decision making involve. It also takes a toll on your mental health. Look at Jesse Livermore. Before you can really say “Fuck You Money!” ignoring its value and not be attached to it, I think you have to invest your money.

But I think, investing has its merits as it gives you more security on your financial future, should you have a lot of losing streaks in trading. Investing gives you residual income.

Investing can be fun for those who likes big big gains over the course of many years. For a trader, it might not be an attractive proposition. You literally have to wait a lot of years for it. But I think, investing has its merits as it gives you more security on your financial future, should you have a lot of losing streaks in trading. Investing gives you residual income. Stock dividends, real estate rental properties and brick and mortar business. It might not be a huge business or huge profit, but over the course of the year, it will compound. Slowly but surely.

Planning your financial future and before getting into forex trading, fix your finances first. Invest a portion of your money to passive income, have an emergency fund and the rest goes as your trading fund. I think that is the best course of action to take.

Just a quick note. If you’re going to invest your money in mutual funds or UITF, I’d rather not put it there. I think its a redundant thing. Mutual fund managers trade with the money you gave them, but you are already trading, you don’t want your investment money to be traded. Not to mention the high fees. You want it to be invested. I think buying the index as an investment is the best way to go.

Forex vs Real Estate

Real estate has been one of the pillars of wealth as most people believe. The popular notion that, “you don’t get to produce more land” usually the selling point to seal the deal and invest in real estate.

I think, real estate is a good investment. But saying that real estate is the only good investment is far from the truth. Real estate for me, has the highest PITA (Pain In The Ass) ratio. There’s a lot of people involved and you need to pay each one and negotiate with each one. If you love talking to lawyers, accountants and marketing people, you’ll love real estate. I have an engineering background so I would love to talk to the engineers and architects that’s involved in the project, other than those people is too much for me.

Once the tenants come in, more headaches come in. Maintenance, repairs, tenants who doesn’t pay rent, tenants who delay payment of rent. For me, life is too short to be stressed out like that.

Is it safe because we are not producing any more land? Remember the housing crash of 2007 – 2009? A lot of companies, banks and investment companies who invested in real estate went bankrupt. What about invasion? China invading Tibet and more land from South East Asia, how safe really is real estate?

It also has the highest capital requirement. And very slow in liquidity. It would take months to buy and sell a real estate property. Managing the property would be time consuming.

Now looking at forex, you can buy and sell currency anywhere in the world. You just need a laptop (or a smartphone) with internet connection. I think this is one of the best benefits of forex. Management of forex portfolio can be a breeze, with tools available for traders, automation and what not, you can be free to spend your time on things you like (i.e. travel). Should invasion from China comes, pack your things and fly to another country, taking your laptop with you and your portfolio is still there.

You can so decide to NOT invest in the country you don’t like. You can liquidate your position any time, instantly, and take advantage of opportunities faster.

I think forex wins hands down. But since this is a forex blog, I am biased. But I hope that you think about this deeply, see the benefits of it all. Some people would like real estate others don’t. I’m one of those people who likes to spend my time on things I want, and managing a real estate portfolio for me, I think, would prevent me from living the life I dream of.

Forex Philippines Mailbag: Answering Your Questions

During the past couple of weeks, I have received a couple of emails asking if I offer mentoring classes or if not, any recommendations for a forex mentoring or seminar.

Forex Seminar

As of this moment, the only mentoring I offer is the free forex course which I add lessons every couple of weeks. I realized that a lot of people are asking so I made an online lesson for it and to help a friend of mine. If that happen to be a worthwhile pursuit I may offer something like a real seminar in the future. But for now, I am enjoying my travel and a no hassle approach to trading.

Recommended Seminar

I will be blatantly honest… In this industry where most people make money not by trading, but offering seminars, its hard to really find a legitimate mentor who will teach you what really work. I don’t want to name names, but honestly, the seminars that are being offered here in the Philippines at the moment are found online for free. You don’t have to pay P6,000 for a 2 hour seminar on how to use a trading platform or how to interpret if a chart is going up or down… There’s a lot of sources for that already. I know it could be kind of hard to search for a mentor especially if you’re new. And I understand that, I have been there. But keep going for this is a worthy pursuit. What you need is to be reading books. Not looking for someone to teach you how to use a trading platform.

The Insecurities of Technical Analysts

Trading, whatever markets you are into is still the same, making profit out of the volatility of the price. Whatever you use to have an edge over the market is a personal reference and thus every person may have a different way to try to trade the market. Thus, there is no one person that can claim that there is only 1 way to trade.

I am using technical analysis to try and trade forex. But its only 10% of my whole trading system. Its not even that important. When I try to share this knowledge, you may already being branded as a fundamental analyst and this can raise eyebrows. What else can you be using aside from technical analysis?

I think there is a perversion in technical analysis today. Trying to claim that it is a the holy grail to trading. I think there is none. I think its a probabilities game. Its all guesses and betting money for that hunch. Ok maybe its still predicting, but its more like a perverted way to say LONG or SHORT by saying, the market will go down at this price and bounce back at this price and we can enter to earn this amount.

You can not be that too much precise as if you know the next move. Even elliot wave, which I have quit a bit of time learning, will never tell you when is an extension of a wave will end. Where a correction will end or when the extension of that correction will end. So, when do you enter?

Just because everybody is doing it, it is the right thing. More often than not, it is the wrong. Or if it is right, when will you know when it is wrong? Markets change, trading strategies become obsolete. At one point in time, one system will not work anymore. So how will you know that your trading strategies is already dead? Because your mentor is still using it? Its not a very good indicator is it?

Thinking for yourself and welcoming new ideas is the evolutionary quality that makes great traders. If you try to shoot down any new concept because it wasn’t the way you were taught, you will find yourself old with an old system that doesn’t work. The world and the market has moved on and you can never adapt.