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:

Trade Different Time Frames

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.

Trade Different Styles

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.

Trade Different Markets

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.

Make changes to your trading method

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.

Trade Long Enough

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

Download this article in PDF

Please share your thoughts and comments below

Switch Trading Systems
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.

Buy New Soft wares / EAs
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.

Double Up Losing Trades
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.

Reverse and Trade in Opposite Direction
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. Click Here.

Download this article in PDF

Share your experience, leave a comment below

• 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

Account Wipe-outs
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.

Keeping Poor Trading Records
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.

Urge to Trade
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.

Keep Reading Here for Part 2

We all have had trades which started off profitable only  to end up in loss. This not only hurts financially but also emotionally.  In this article we will explore the psychology behind it and how to overcome it.

We all know that fear and greed is what drives most of the new trader’s decisions. Though a very simple concept to understand, it is very to hard to put into practice. The primary reason why new traders let their winning trade become a loser is due to lack of trading plan. Before placing any trade we should know when to take profits and set the stop loss.  We will cover ways of setting profit targets and stop loss in another article.

Setting profit taking point is only  the first step. It happens so often then before the trade can reach the profit target it reverses back to go all the way to  Stop Loss. At that  time we curse the market and feel cheated. This has quite serious implications on mind of a trader. Next time as soon the trade turns profitable the trader is inclined to take profit prematurely so as to not get cheated by market again.

Now we covered the psychological point of how it works, lets look into how we can avoid falling in this trap.  First divide the profit target into three parts. These three parts don’t have to be of equal size. They can very based on support / resistance or any other criteria. When placing trades always trade in lots divisible by 3.  Close first third when trade reaches third of your profit target. Do NOT move the  Stop Loss to starting point yet. Once the trade reaches second profit target close the second third and  move the  Stop Loss to starting point. The last third is now a free ride.

Trading this way not only reduces your risk but also locks in profit as you move along. However always keep in mind not to trade more than 2-3% of account equity in one trade. You can read more about Money Management Here.

Download this article in PDF

Share your experience, leave a comment below

Ask yourself these questions: Are you trading Forex to make a living? Or Are you hoping to trade Forex Full Time? Or Do you  want to learn how to trade like a professional Forex trader? If the answer of any of the above question is Yes, then You Should  Care.

You must have come across Brokers advertising that their Mini account competition winner made 500% in one month. If you got excited reading such advertisement then I’ve a bad news for you.  The winner of such competitions usually have multiple accounts with rather small equity in each account. They bet all or nothing and try to gamble their way to win the prize money.  Anyone who want to last long in the markets and serious about trading then he should seriously consider 3% risk rule.

So what is this rule all about.

The 3% Risk rile basically says the every time you place a trade you don’t risk more than 3% of your total equity. So in case you  lose then you losses should not go beyond 3% of total account equity.   Look at the image on the right to see how it is calculated.

Another important thing to note here is Risk to Reward ratio (R/R). Ideally traders look for 1:2 Risk/Reward per trade, which means that for every dollar risk your wins should be two dollars or better.  So if you take example from the image then your risk is $300 and your expected reward should be $600 or better. Now as long as your trading system gives you a Win to Loss ratio of 50% or better you would end up in profit.

3% Risk Per Pair Type:
Anyone who has been in market long enough would realize that some currency pairs move in synchronization.  From my personal experience I’ve noticed two major Pair Types:

1. EUR/USD, GBP/USD, AUD/USD and NZD/USD  (USD/CHF and USD/CAD in reverse direction)
2. USD/JPY, EUR/JPY, AUD/JPY, NZD/JPY, CHF/JPY

What this tells me that when I am looking at opening multiple trades then I would not risk more than 3% in one set of currency pairs.  For example if I want to go long EUR/USD and AUD/USD then I would risk 1.5% of total equity on both pairs at one given time.  However if the pairs are in the different set then I would risk 3% per trade never exceeding a total of 6% risk at any given time.

Commissions and Slippage
When trading with mini lots you may not want to worry about commissions or slippage. However if you start trading anything more than 5 standard lots I would recommend to consider commission and slippage to your calculations. Commission depends on the broker you use and usually large brokers charge commission in order to provide tighter spreads.  Slippage would happen when try to execute a large order and price move before complete order is filled.  It would also depend on the time you trade and liquidity provided by your broker.

Download this article in PDF

How much you risk per trade? Feel free to post comments.

As a trader I need to keep in mind that even the most successful system will have series of losses. This is called Drawdown and it is part of life. I am mentally prepared that this is going to happen sooner or later,  it helps me prepare and control my risk.

When I look at my equity curve and it points up steadily over the period of time, I know that I’ve been disciplined and successful in controlling risk.  This is gives the confidence boost beyond imagination. Getting into the zone and acquiring trader’s mindset will take time, here are tips that may help:

• Try to be calm when trading. If your mind is occupied with some other concern than try to avoid trading until things settle down and you believe that you can trade calmly.
• Develop ability to focus on present reality and not how you would like reality to be. No one can see the future, so try not to predict it.
• Understand that  making money is not the only point. I personally don’t look at dollars when trading, I look at pips and keep a log in pips made or lost.
• There is always room to learn more. Never stop your self from reading more, keep your updated with news at all times.
• Being open minded, keep opinions to a minimum.  Don’t let others opinion affect you before you make a trading decision.
• Avoid anger at all cost.
• Learn to enjoy the process and make trading as your passion.
• Only trade one system or method at a time. What hurts the novice traders the most is the impatience when testing a system. Stick to one system at one point of time.
• Understand that we cannot control or conquer the market. Market is so big that no one can really control who wins and who lose.
• Stop feeling that brokers or market has taken you for a ride. There is no conspiracy, there is hidden agenda. Stop feeling that you are being cheated by the market.
• When it goes bad, take responsibility of the results.  Don’t blame market, broker or some one else for your loses. Accept your losses and move on.

The points above helped me a lot to get where I am today. However you may disagree with some of the points, feel free to comment.

Continue reading rest of the article…

As you saw in the last post that calculating right trade size is a relatively simple process.  Even so most traders don’t bother doing it until they suffer large losses and then decide to learn more about money management.  New traders concentrate on the result or the outcome of the trade, on the other hand professional traders ask themselves “how much can I afford to lose on this trade?”  The sooner you realize that outcome of every trade is different and beyond your control the sooner you would acknowledge the importance of sound Money Management.

Let me tell you a secret. A winning system is usually not more than 60% successful.  Even though you find one with 80-90% successful system on the paper, when you trade it usually come down 60%. In fact I think it is a blessing in disguise.  What it means is that we don’t have to wait for Holy Grail to come along before we can start making profit.  There are several systems available which works superbly if traded with right Money Management.

So if we are losing at 40% of the time it is essential that we control risk. Every time we lose we need make sure we don’t let it run and cut the loss when we reach the risk identified earlier.  Trading with improper trade size and variable risk every time would result in account wipe out sooner than you would think.  The ability to come back next day and trade more is what creates a successful trader in long run.

In next part of this article we will look more deeply into the mindset of a trader.

Continue reading rest of the article…

Have you come across a trader who reported a large amount of profit from a relatively small account? Such stories are wide spread and often attract inexperienced trader’s attention.  In this 4 part article we will explore into traders mind and psychology plus look into ways of managing money the right way.

Was it a Fluke? Perhaps just a stroke of luck. Anyone claiming outstanding gains overnight is probably exposing his trading account to enormous risk by trade large number of lots. It is only matter of time before huge losses would wipe out gains and beyond, leaving trader feel devastated financially and emotionally. Trust me, I know that from personal experience.  Money management in Forex Trading is a combination of specialized techniques and your trading judgment.  Lets look further into it.

Calculating Right Trade Size / Lot:

Overexposing or underexposing your account can change the end result drastically and hence the first thing we need to do is to come up with the right size for our trades. Also remember that this is not a one time process, in fact it is an ongoing process because variables like account size, stop loss and pip value keep changing with time.

Before we can even look into the formula for successfully calculating the right trade size we need to agree one very important thing, Risk. So what should be the ideal risk per trade?  Answer to this question would depend on the trader however most successful traders would recommend 2-3%. In my personal opinion you should not risk more than 3% per Pair Category. You can read up further on Trade Category here:   Risk Management

Once you have made up your mind about the Risk % then calculate Risk in Dollars by multiplying the account size by Risk %. For Example if you have $10,000 account and willing to risk 3% then total risk in dollars is $300 ({10,000 x 3} / 100).

Next step is to determine the Stop Loss.  Whatever trading system you are using, you would know by now what is your  Stop Loss. Lets say for the sake of this exercise your  Stop Loss is 100 pips.  The next important factor is to determine Pip Value of the pair your are about to trade. The easiest way to find out is to look at your brokers trading platform. Look at the attached screenshots from MBT and FXCM trading Platform. MBT represents Pip Value/Lot for a Mini Lot under their Watchlist or Position window and FXCM calls it Pip Cost under Simple Trading Rates window represented for a Standard Lot.

In  the example I’ve used MBT Pip Value as 1 resulting in Trade Size in Mini Lots. If you use FXCM Pip Value then the result would be in Standard Lots. Also keep in mind that resulting Trade Size may not come out as whole number and may be a fraction. In that case always go down to whole number and never go up. For Example,  If the resulting Trade Size is 2.32 Mini Lots then make it 2 Mini Lots and not 3. Some broker may let you trade fractional lot sizes and in that case you won’t need to worry about it.

Continue reading rest of the article…