To find a systematic method that can help you avoid emotions and discretionary judgement is just the first step. I can’t emphasise enough how important is to then develop the right mindset. Hopefully the tips above help. What do you do to Maximise Trading Performance?

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Most traders new to Forex are often guilty of letting their losses run and cutting their profits short, even experienced traders do it every once in a while. Before we begin, answer the two questions below. When faced with a scenarios below which option would you prefer?

Most traders would chose Option B in Scenario 1 and Option A in Scenario 2. Compare these results with your own answers. If you chose the same then unfortunately you will be among 95% of traders who fails at Forex. Read Forex Loser’s Checklist, and see if you qualify. Lets look at psychology behind your decisions.

The two scenarios are quite interesting. Our perception of gain and loss changes our behaviour. When the options of a risky scenario involve profits, traders are risk-averse (risk-avoidance); however when options of a risky scenario involve losses, traders are risk-seeking. The other words, traders tend to seek risk in face of possible loss and avoid risk when profits are at stake.

This asymmetrical way of risk-taking has great implications on trading decisions we make as a trader. Our decision are based “subjectively”, taking in account recent events rather than looking at overall net trading balance. Let me explain:

After a profitable trade, the decision to close trade and take profit on next trade depends on gains made on previous trade. A trader starts to think ” I’ve made enough on the first trade, lets not lose it all and give away all the profits. Take early profit and call it a day”. At the same time, on a losing position trader delay cutting losses and hold on to trades hoping that it will reverse. The result is that trader realize profits way too early while allowing losses to accumulate.

Another interesting aspect of trading is the impact of losses on our minds. The feeling of losing an amount is much worse than pleasure gained from winning the same amount. Hence traders, hate losing 10,000 more than they love winning 10,000. Psychologically losses have twice the impact, no wonder why a trader don’t want to close a loosing position and willing to risk more.

A good trader is not a trader who makes millions in fraction of a second. A good trader is one who know where to cut his positions. It is not about making money; it is about losing as less as possible when we are wrong. Thus managing the psychological asymmetry in risk-taking is the key for succeeding as a trader. Bottom line “An experienced trader stands out from a new trader not by how he makes money, but how he loses money”

Do you agree? Leave comment below.

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Forex Trading Systems

Are mechanical Forex trading systems really any better? Can Automated Forex systems outperform discretionary Forex systems?  Let’s find out.

Some people prefer mechanical Forex trading systems while others prefer a more discretionary approach. My personal approach lies somewhere in between. Let’s look at each of them closely:

By definition, a mechanical or manual Forex trading system provides well defined entry and exit criteria and clearly describes trade setups and execution.  Such trading systems can be quite easily transformed into automated trading systems which can aid back testing, research and analysis.

The merit of such Forex systems lies in the fact that the guesswork is taken out of equation and trader only needs to follow clearly defined set of rules.  It helps to avoid emotions coming into the way of trading and with little discipline such systems can be easily be followed. Not only that but it also helps in reducing stress factor which is a bonus.

On the negative side of mechanical Forex trading systems we got problems with changing market conditions. No set of rules can cover all market conditions and there will be times when such systems would fail miserably.  Situation could become worse if the market conditions do not change for a sustained period of time. Automated Forex systems written based on such trading methods will be unable to cope with unpredictable market conditions.

These Forex systems bring out the artistic characteristics of traders. This is where the logic gets fuzzy and experience becomes paramount in making trading decisions.  A typical discretionary Forex trading system would use chart patterns and trend lines, which by a means are not determined by exact set of rules.

Adaptability and customization are two big advantages of any discretionary trading system.  Such Forex system can easily adapt to changing market conditions and rules can easily be changed to accommodate any unforeseen market scenarios. Experience and intuition are the cornerstones of any discretionary Forex trading systems and they can never be programmed into an Automated trading system.

On the flip side, such trading systems are hard to back-test and have unstable trade results caused mainly by emotions and stress level.  Such systems require much more trading experience and higher degree of discipline.

In my opinion, anyone new to Forex trading should start off with mechanical trading systems, it helps to develop discipline and gain experience. It takes time to develop feel of the market and it then becomes easier to move towards more discretionary trading systems. My current method has clear set of rules that identify potential trades, I them use my experience to narrow down and chose the ones that I see fit for the current market conditions. With more work and analysis I hope to improve over time.

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So how do you stick to the trading plan if you missed a call?

Begin by understanding the nature of the FirePips’ calls.  Always, he is calling a buy trade if price reaches up to a certain level, and/or a sell trade if price reaches down to a certain level.  Those types of trades are called “stop” orders on most of the platforms I have ever used.  You use a “buy-stop” or a “sell-stop”.  Some brokers may call it by different names, but what it is is an order to sell at a price lower than the current price, or buy at a price higher than the current price.

It is intended to wait until (or unless) price moves ahead to the trigger point, and only then get in the trade.

So if you miss the call, but see it later, there are three things that can have happened:

1. Price has not yet reached the entry price given by FirePips.
2. Price HAS reached the entry price given (and a trade would have been entered), but price has now retraced back behind the entry. A trade that had been entered would now be somewhat in the negative.
3. Price HAS reached the entry price given (and a trade would have been entered),  and price has continued in the same direction.  A trade that had been entered would now be in profit.

Scenario A:

This one is real easy.  If the entry price that was called by FirePips has not yet been reached, then unless he has already signaled in the next bar to cancel the order, just put in your order(s) exactly like you would have done if you had seen the call on time.

Scenario B:

This one is a lot of fun!  If you see the trade call late and price has already passed the entry point, but has now retraced into negative territory (and has NOT yet reached the price of the stop loss), you now want to get in with a market order.  That is, buy or sell at the current market price.

THIS PART IS IMPORTANT.  You compute the stop loss price and the take profit prices from the entry price called by FirePips. NOT from the entry price that you got when you placed your market order.

• Example: FirePips called 135.50 for the entry price for a buy trade, with a 45-pip stop loss, and targets of 40-80-120 pips.  When you saw the trade call 2 hours later, price has been as high as 135.65, so you missed the entry; but now price has retraced and is at 135.30.  You then buy immediately at market price.  But you still set your stop loss at 135.05, which is 45 pips from the entry price that was called.  And you still set your first target at 135.90, which is 40 pips from the entry price that was called.  Second target will be 136.30, third will be at 136.70, same as if you had been there on time and traded it normally.  Now if the trade stops out at the levels called, you will only lose 25 pips instead of 45!  And if it hits the first profit target, you will make 60 pips instead of 40!  And so on.

So whenever you see one like this, you get lucky.  If it still turns out to be a loser, you lost less than everyone else.  And if it turns out to be a profit, you make more.

Scenario C:

The third scenario is not hopeless.  Not yet!  If you see the trade call late and price has already passed the entry point, and has now continued into profitable territory, it may seem like you just missed this trade.  That is not yet always the case.   For this situation (if price has NOT yet reached within a few pips of the first target), you want to use what is known with most brokers as a “limit” order.     You use a “buy-limit” or a “sell limit” order.  It’s an order to BUY at a price LOWER than the current price, or SELL at a price HIGHER than the current price.

It is intended to wait until (or unless) price retraces back to the trigger point, and only then get in the trade.

So you put in a limit order to enter the trade at the called price.  In practice, I will sometimes let it be as much as 5 pips worse than the called price, because I don’t want to miss out, and 5 less pips is acceptable.  Whatever price you enter, if the current price retraces back to that price, then you get in the trade at or nearly at what was called.

THIS PART IS IMPORTANT.  Again, you must compute the stop loss price and the take profit prices from the entry price called by FirePips.  Not from the entry price you might get with your limit order.

• Example: FirePips called a 1.5000 for the entry price for a buy trade, with a 60-pip stop loss, and targets of 50-100-150 pips.  When you saw the trade call 2 hours later you have missed the entry, and price is at 1.5025.  If it has NOT yet reached within about 10-15 pips of the first target (in this case 1.5050), then you put in a  “buy-limit” order for 1.5000 (or as high as up to 1.5005 if you like).   Still set your stop loss at 1.4940, which is 60 pips from the entry price that was called.  And you still set your first target at 1.5050, which is 50 pips from the entry price that was called.  Second target at 1.5100, third at 1.5150.  Now, if price retraces to the entry point, you get in the trade at the same place you could have if you had seen the call on time.  VERY IMPORTANT:  If price reaches the first target before enough retrace, and your entry has not been triggered, then you cancel your “buy-limit” order, and ONLY THEN have you really missed that trade.  But very often you’ll get it, so it’s important to know this method.

And lastly, here is a piece of trading psychology, which as usual I’m going to tell you is more important than the rules of the trade.  Most of all, DON’T beat yourself up about it if you miss one.  Trades are like buses.  If you miss one, another will be along shortly.  Yes it does suck to miss the single highest-profit trade of the week, I know, I’ve done it.  But it also is a blessing sometimes when you miss the worst loser of the week.  I’ve done that too.  Now it’s important you never let that be an excuse to just schlock off your rules and just miss trades.  But as long as you trade with discipline and stick to the plan, you do need to not let it eat you up inside if you miss a trade.

That leads to one of the best things I’ve heard FirePips say:  “Trading should be boring.”   Seriously.  You get that way by doing it with discipline to the best of your ability, learn from a mistake, and just keep moving forward.  No one trade will EVER make you or break you.

Article by Diet Pipsi

How do you trade FirePips signals?  Share your experience with us.

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You may find this strange topic to write and may be wondering how on earth something like The Secret relates to Forex. I never thought I’ll write an article that has Secret in its title but here it is anyway.

First of all if you don’t know The Secret is then I suggest you Google it, there is a book and a 90 minute video. Once you have done that come back to this article and it will make more sense.

I came across this video through spam email which landed in my inbox, it asked me to see this video and then take quick action to buy their product. I did see the video but didn’t buy whatever they were selling, not because I hated The Secret but I couldn’t correlate between the two.

The Secret talks about “Law of Attraction” (some would say a fancy name for “day dreaming” ). The Law of Attraction states that like attracts like; your thoughts and feelings attract corresponding experiences. Your thoughts become things and by simply imagining it and taking actions you can get everything in life.

To some degree it is true since it emphasise heavily on positive thinking. Though not necessarily true in Forex. Let me explain.

Imagine a day when you encounter a big loss in the market. If you are firm believer of The Secret you would avoid any negative thoughts that come to your mind, wipe the complete day out of your memory and start fresh next day. This may not sound too bad but there is a problem.

Successful trading is an incremental learning process. It is not different then a player watching a recording of his / her performance, noticing mistakes and avoiding them the next time he / she is out there performing again. By completely neglecting the past performance you would miss out on the constructive learning process. The Secret fails miserably at this point.

There is a Forex Secret. The secret is not only to record your mistakes but also to record what you did “Right”. Repeating over and over again the “Right” and avoiding the “Wrong” is the real Forex Secret. That’s how you excel not only in Forex but in anything in life.

This article is meant to raise a lot of eyebrows and to inspire conversation, so go ahead and comment. I would love to hear your thoughts.

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Give a bunch of traders a proven successful system, you can bet that not everyone will make money from it. We know the system is not wrong. So what is it that makes a person successful at trading? Lets find out.

In my opinion success comes when there a perfect fit between the person and his/her trading strategy. If you are still struggling at making profits from trading then it is not because you are lazy but perhaps you are simply trading in a way which is not in sync with your personality.

Points below will help you to find your own Forex Trading Niche:

Have you tried trading intra-day, swing and position trading? If not, then how you know that the current timeframe you are using the best one which fits you.

From experimenting I found that I mentally handle swing trades better than trades that last for months or few seconds like in case of News trading.

Most people dive straight into technical analysis based on indicators. How about fundamental based trading, or even news trading (not that I recommend news trading).

I’ve played around with more indicators than you can imagine. Bottom line, I was getting no where; there is no end at finding the best combination of indicators that would work. I stopped once I found my peace in Price Action and it is where everything came together.

Why trade Forex only and not Stocks, Commodities and Futures? Unless you attempt to trade all these markets how would know which one is best for you.

I am guilty of this myself. I’ve never traded any other market. I may be not performing at my best and I would never know until I try all other markets. The good thing about Price Action strategy that I currently use is that I can apply it on any other market. I’ll save this one for 2011 New year resolution.

One would think that once they have found the best strategy then there would be no need to make any changes ever. That’s just not true. On the contrary most professional traders constantly tweak their systems to match current market conditions.

I’ve modified the current strategy several times in the past, and I’ll continue to do so as I seem fit. On the other hand I keep working on variations of the same strategy to see if there is more I can get out of it.

This point brings everything together. It would take time to try all the combination above. If you just got started in trading then it can take some time before you discover your trading niche.

I did not succeed for the first two years, I was barely able to keep my account above par. I think I was too adamant to follow any gurus at the time, now looking back I think I should have followed someone which could have shorten my learning curve.

In Summary of discovering Forex trading niche, one would naturally excel when they find the right market, the right strategy and the right fit with their personality. On the side note, remember it is the journey that matters so don’t forget people you meet on the way

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It may come to you as a surprise that Forex market is not as transparent as its counterparts like Stocks and Options market. Unlike those markets, it is not centralized or regulated in the similar fashion, hence exchange rate of any given currency can vary between brokers. The main liquidity providers are the big banks and hedge funds, they are known as InterBank Market. With this in mind lets look at how ECN and Market Maker brokers fits into the picture.

As the name suggest they “make” the price, as in change Bid and Ask value. Say for example they receive 1 pip spread from InterBank Market on EURUSD, but instead for us they display 3 pips spread (spread is the difference between Bid and Ask). Brokers can vary this from time to time and sometimes even show tighter spreads on Demo accounts but when you open live account it is a totally different story.

Every time you open and close a trade you lose the spread. This adds up to a significant value if you trade frequently. Not only this but market maker brokers are notorious for creating spikes, they do it in order to take out customer’s stops. Some market maker brokers also freeze their platform during news announcements or increase spreads by 20-30 pips which is quite common. Since Forex is not tightly regulated as other markets there is not much NFA or similar organizations can do.

The only advantage of using a market maker broker is that they require less funds to open account and usually offer platforms that are easy to use. They also offer higher leverage, benefit s of which are debatable. Read Does higher Leverage in Forex Trading help?

ECN Brokers simply provides the best possible price i.e. the best spread based on current market participants. The price on their platform comes straight from the InterBank market and there is no manipulation of the spreads. Spreads as you know are the bread and butter of market maker brokers. Since there is no mark-up on spreads by ECN brokers, the only way they can money is to charge commissions / fees. This fees is not different from what you pay when buying or selling stocks. From my personal experience the commission are negotiable and you can bid one broker against another to quote you the lowest commission rate. Also paying commission works out economical than higher spreads on market maker platform. I’ve traded on several occasions when there was no spread at all (BID=ASK)

When it come disadvantages, the most common one is the lack of user friendly platform. Most ECN Broker’s platforms are hard to navigate and it takes time to get used to them. However once you are familiar you can take advantage of advance order types which are not typically available on other platforms.

To me it is quite clear, ECN brokers win hands down. There is not better way of trading. Having said that, they may not be suitable for everyone, for those specially who choose to start with less amount of funds and prefer higher leverage.

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Before I put even a single dollar on the line I like to test my strategy on demo account. Demo trading helps me speed up my learning time many folds and it also acts as initial qualification of a strategy’s potential of success. I can then safely test the strategy over several pairs and identify the most profitable pairs.

Demo trading is the best way to make yourself familiar with the brokers platform. Whenever I use a new broker for live trading, I download their demo and press every single button and check all options. You can’t break anything in demo anyways.

Demo softwares can also be used to download history data which then can be used with Expert Advisors to backtest your strategy. However if you use strategies based on Price Action, like I do, it is harder to code them into a Expert Advisor. Indicator based strategies can be coded quite well with Expert Advisors and hence backtesting becomes quite painless.

If you are new at trading then I’ll highly recommend that before going live, wait until you have doubled your account in demo trading. If you can’t mentally handle losses in demo account, you have no right doing live trading. If you demo account trading reflects more like your poker table habits then you need to spend more time learning psychological aspect of trading.

Forex Demo accounts mostly provide real time data and they can be safely used for your live trading, unless until you trade on 1 min charts where prices can vary from broker to broker. I personally like MT4 charting platform, however don’t like placing trades on it. I use other ECN brokers to place live trades and use MT4 for charting.

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Are you continuously looking for some new systems? Are you visiting forums to look if there is new indicator or setup that can improve your trading. Let me tell you a secret, a lot of system out there are profitable only if traders start to follow their trading plan, keep records and analyze their mistakes. Blaming the system and moving on only hides the real cause of the problem – Trader Himself.

Have your come across websites that promise that their Expert Advisor would take away your emotions out of trading by trading automatically for you and you only have to log in once a week to check your profits. Those companies also promises 2000% return annually, simply incredible. Before your spend another penny on such software ask yourself would you bother to open up a website to sell your incredible EA which makes you tons and tons of money for $99 a month and then sit there and reply to customer inquiries. I guess NOT.

Have you ever added to your losing position, hoping that when it comes back it would be even more profitable? If yes, then you are suffering from “Marrying the Trade” syndrome. As I said earlier “Use Stops and Get Stopped”. Every time a trade hit stop loss you should congratulate yourself for following your trading plan.

Tell me who has not done this? This happens when we doubt ourselves and stop following trading plan. Once you have placed the trade then stop looking for confirmation or analyze it further. Leave it alone and let it do its thing. Come back later to check if it all worked out alright.

Read this article on how you can save yourself from account burn outs.

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• Account Wipe-outs
• Keeping Poor Trading Records
• Urge to Trade
• Switch Trading Systems
• Buy new softwares /EAs
• Double Up Losing Trades
• Reverse and Trade in Opposite Direction

Did you ever wipe out a trading account? If not, then congratulations, but I hope you do so sooner than later.  It sounds strange, however every successful trader at one stage have wiped himself off.  Remember those sleepless nights and loss of appetite.  Once you been through it, you promise yourself never to repeat it again and learn the most valuable lesson, “Use Stops and Get Stopped”, before a bad trade burns your account completely.

What were your last ten trades? Do you know how much was the drawdown before they turned into profit? Did you remember how did the chart setup look like?

If you are not saving screenshots and maintaining  a spreadsheets of trades then you are most likely to fail. I recommend using MS Office OneNote for keeping screenshots of every trade you take/miss/leave. Analyze every week or month depending on trading frequency and look for common mistakes and recurring patterns.

The “Need To Trade” is the biggest challenge for new traders. The constant desire to trade to either meet the goals or fulfill sense of excitement burns their account individually.

I recommend creating a trading plan. Every trade you take mark it down as “Impulse” if it didn’t meet your trading plan. At the end of the month look back and see how many were “Impulse” and their success rate. This will give you a better idea about your own mental process.

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