Currency Trading Information

Why Forex Traders Plan To Fail Before They Even Place Their First Trade & How You Can Know It & ...


Have you heard the wise saying that a trader who fails to plan, plans to fail? I have, and I was once that trader! However, did you know that even though traders who have constructed a plan, which incorporates their trading stategy (their "edge"), they have a plan that is likely to fail?

If we look at all traders who participate in the market: we have one group that fails to plan and therefore plans to fail; another group whose plan is failed; and a third group who properly plans and therefore does not fail.

Is it any wonder that the success rate for forex traders is so slim?

Well it doesn't have to be.

Here's a list of reasons why those whose plan is destined for failure fail:

1. They become emotionally attached to their ideas about how the market should be with minimal or inadequate testing;

2. They fall in love with their back-tested net profit results without fully understanding other key statistical data;

3. They don't admit they're plan is wrong.

Let's explore each point in a little more detail.

1. Becoming emotionally attached to your ideas without adequate results

Most new traders when they realize the importance of obtaining a trading plan and sticking to that plan immediately begin to use the knowledge they have been taught and haphazardly throw it all together into what they deem their "trading plan".

When they are questioned on whether they have a trading plan most of these traders answer with an unequivocal "Yes!".

Most of these traders are destined for failure because their strategy is untested. They rely on blind faith to guide them through the trading jungle to make their untold millions. Would you walk from one length of the Amazon jungle to the other blind-folded? Of course not! You'll have to watch out for all the snakes, tarantulas, and other creepy things that go bump in the night, so why would you approach trading in the same fashion? I mean all you're really doing is placing the blind-fold on your capital!

Why do traders do this?

Because it's easy. That's right... it's easy. They don't need to learn a computer language to type their system into some piece of software that will take them the better part of 6 months to a year to learn, and they don't have to spend any money on buying historical data. Therefore it's easy and it's cheap and it also conserves time!

So does success meet lazy people like this?

Not many! However I will admit that it does meet a fortunate few - only those lucky enough to start their trading during roaring markets where even a monkey can make money! To repeat again: don't wear the blind-fold. Your success may be great at the start, but given time and trades, you'll be the one out of the game - having depleted all your capital.

So what do you do if you KNOW that your method is untested?

If you have the time, the money and the learning capacity I would strongly encourage you to purchase some back-testing software (such as Wealth-Lab Developer), acquire some forex data, ask heaps of questions on the Wealth-Lab forum on how to code your ideas and within 3-6 months you'll be safely coding your own forex system and testing adequately.

If you do not have the time, the money nor the learning capacity I would strongly suggest that you manually write down your system into clearly defined steps that you MUST follow. Then, after opening a DEMO forex account you would trade your system according to the rules you have set out. Trading your rules until about 20 trades have been completed.

After traders obtain their results from their testing period they unfortunately look at only one figure and make a rash conclusion about the system based on that one performance figure, namely, the net profit. This then leads us into the next problem of why traders plans are failed prior to placing their first live trade...

2. They fall in love with the net profit result and no longer question it any further!

The net profit is only one statistic among thousands, however, to keep things simple we will look at the top 3 results that you need to make sure you fully understand.

Here are the other statistical pieces of data that you should look at when your system has completed its testing period:

I. How many trades did it have? If you have made a nice profit, but have only had 3 trades during the testing period you do not have a sufficient sample space to arrive at any safe conclusions. Can you imagine what would happen to Neil Armstrong if NASA had only done 3 computations on how they would arrive on the moon??!! If it's not good for NASA then it's probably not good for you either, however, as NASA do zillions of computations you would only need to conduct about 20 trades as the bare minimum before you can arrive at any safe conclusions;

II. What was your money management procedure during the testing phase? This is by far the most important point, however, you need to make sure your system is properly working prior to even embarking on this difficult area (hence the reason why it is a CLOSE second to the above point). Be sure you fully understand what I am about to explain (read it several times to absorb it if need be)...If you test a method whereby you rely on a percentage amount of capital on a trade you can be biasing your results!

How?

Let us look at the following comparison sheet where we plot 21 trades with their pip return (we'll assume that each pip = US$1), and compare the returns against using 10 contracts per trade, 10% capital per trade, or 2% risk per trade...

Example Trade Sheet

Now as you can see from the results they can easily be doctored according to the different type of money management technique you use and what variable you decide to use it on (i.e. who is to say that we not use 20 contracts per trade, or 20% capital, or 5% risk per trade - all of these would inflate the net return figures).

It is best when you trade to stay at a fixed quantity. If you use any results that require a percentage calculation of the equity balance prior to the trade quantity being calculated you will BIAS the last trades more than the trades at the start. Hence, using a fixed quantity throughout the entire sample is one of the true indications of whether your system is profitable or not.

III. What was the drawdown? This is the largest peak to trough distance on your equity curve. In other words, if you were to enter in on the day the equity curve made a peak, how much would you have lost if you bailed out at the lowest point? To test this manually you would obtain an equity curve peak trace how far the equity curve goes down until it moves higher that the peak you started from - the lowest point made between these two points will be your trough figure which you will then subtract from your starting peak figure. The figure with the largest % loss would be your drawdown.

You would then need to look at this drawdown figure and determine whether or not it fits your risk profile. Would you be okay mentally if your account was down the drawdown % figure? If not, then you're going to have to re-create another system. As a rule I don't like systems that generate more than 30% drawdown.

One other statistic that incorporates drawdown that I like to check to determine whether the system is profitable or not is the recovery factor. The recovery factor divides the net profit by the drawdown (without the negative sign). As an example, if the net profit were $5,659 and the drawdown were -$3,542 dividing the net profit by the drawdown would result in a recovery factor of 1.597 (get rid of the minus sign). I generally prefer systems to have this statistic above 3.

So even though we have created our system that fits our personality and risk tolerance level well trades can still fail by not heeding the third and final statement...

3. Don't fall in love with the system

Most traders once they have designed a system cannot believe that their system is making a loss, or worse yet, a loss greater than the system's historical drawdown.

So, to combat this they dig their head in the sand hoping that the problem will go away. Just as trades fall in love with their position, at their own peril, falling in love with their system is also to their detriment.

Treat this as a business with your system as one of your salesmen. If the salesman is costing more than he is bringing in then you need to fire him and find another one.

How do you know if your system is no good?

As a rule I look at the historical drawdown of my system and add 10%. As an example, if my system had historical drawdown of 20% once the system reached 20% x 1.1 = 22% I would stop trading this system and move onto another. And sometimes you can still trade the same system, just with different variables, or a minor tweak.

Be sure that you fully understand the implications presented to you in this article. Trading is a business, therefore conduct it like one, as it is one of the most difficult endeavors you could ever undertake.

Ryan Sheehy is the author of Currency Secrets.com and Forex Zoo


MORE RESOURCES:
Finance:Currency Trading Articles from EzineArticles.com
01/11/2021 11:21 AM
The Learning Objectives and Trading Targets
Trading targets and Learning objectives are two interesting and inter-linked concepts in Forex trading. Newbies and novice traders mostly believe that trading targets are set as destination to reach at the end of a certain period.
01/06/2021 10:16 AM
Common Personality Traits of Successful Forex Traders
Novice traders often wonder if there are any common personality traits that are essential for becoming Wealthy and successful Forex traders. First of all, you need to learn that if you are here to get any short-cut and any magical formula for becoming overnight millionaire then my friend, you must search something else.
12/28/2020 06:34 PM
Is Bitcoin Gathering Over? Active Trading for Those Who Wager On Tether
The inflow of institutional cash is by all accounts postponed, and Bitcoin purchasing is presently only an inflow of USDT tokens. The days when energetic purchasers maximized their charge cards to purchase Bitcoin might be finished. Indeed, even the Korean markets have chilled off. Be that as it may, exchanging proceeds - this time, spared by the Tether (USDT) resource. At first sight, Bitcoin's value levels are hearty, at $6,743.53. While altcoins slide, Bitcoin keeps its position, and its value strength extended again to 43.2% of the aggregate market capitalization for all coins and tokens.
12/10/2020 04:41 PM
Cryptocurrency: The New Sensation
The concept of crypto currency was coined in 1991. However, the first real implementation was done in 2008 by Nakamoto. The first question arises, what is crypto currency. It's a financial setup in which the currency is being transferred between the two parties.
12/07/2020 08:57 AM
How To Survive and Succeed in the Forex Market With An Automated Trading EA
There are plenty of trading strategies you can adopt or develop to maximize your chances of success and give you a better chance of survival. Regardless of the strategy you choose, though, psychology plays a critical part in the success or failure of any Forex trader. Find out more inside the article.
11/30/2020 10:21 AM
Cryptocurrency Mining
Cryptocurrency mining is a never-ending game in this digital world. Bitcoin, the first decentralized currency introduced in early 2000. Mining cryptocurrency is a complex procedure of verifying transactions and adding them to public ledger (blockchain). Bitcoin, the first decentralized currency introduced in early 2000.
11/30/2020 10:18 AM
Ichimoku Analysis - A Reliable Technical Analysis Tool for Traders
The significance of Ichimoku Analysis is increasing day by day. It is a well-known western- based form of technical analysis. This analysis was introduced in the 1960s by Goichi Hosoda. It is mainly based on Japanese Candlestick. It allows the traders to understand the current state of Forex market. This analysis is also a very popular indicator of support and resistance points.
11/12/2020 12:18 PM
Kakushin - The Future of Multi-Billion Dollar Global Intellectual Property Market
What is happening is not a surprise, the statics from WIPO shows that the global Intellectual property markets are generating approximately $180 Billion USD in licensing each year. Intellectual property has turned out to be the most critical assets in the 21st century. What used to be a tranquil corner of the tech business is turning into a hot zone in the legal and business worlds.
10/22/2020 11:40 AM
Can You Mine Bitcoins on Your Smartphone?
Bitcoin is one of the well-known digital currency which was created by Satoshi Nakamoto, in the year 2009. Bitcoin uses blockchain technology where there is no middle man like banks, and intermediaries involved. Recently in 2017, the price of the Bitcoin moved up drastically making several people rich who had already invested in Bitcoins.
09/21/2020 10:47 AM
Can You Get Rich By Trading Forex?
If you are interested in Forex trading, you will be thinking about how much money you can make while working in this industry. In this article, we are going to tell you if you can get rich by trading Forex from the comfort of your home. The information given in this article will help you consider important things before trading currencies.
08/28/2020 11:12 AM
6 Most Common Mistakes That New Bitcoin Traders Make
Are you thinking of getting started in the world of crypto trading? If so, make sure you avoid the most common mistakes. You will be better than most of crypto traders by avoiding these mistakes.
08/28/2020 11:12 AM
The Advantages of Paying With Bitcoin
Since virtual currencies have a unique nature, they offer a lot of advantages over traditional currencies. Over the past few years, the world of digital currency is going through a lot of positive changes. There are a lot of cryptocurrencies, but Bitcoin is one of the most popular ones.
08/11/2020 11:38 AM
Top Quality Forex Education Is Essential to Success
Investment experts always advise people to get a good Forex education before going down this path. To do well, you need to be fully educated and this cannot be achieved with a crash course or by reading a few articles you find online. Read more inside the article.
08/11/2020 11:31 AM
How Forex Trading Is Changing Africa for the Better
Over the past few months, the coronavirus has spread across the globe. And somehow, this has caused a surge in the Forex market in Africa. According to statistics, the FX market is getting a boost on a daily basis.
08/06/2020 09:51 AM
Novice Traders and Three Hurdles They Face Trading Forex
Newbies are swarming in Forex trade to check the validity of the myths that Forex trade is game of luck and you do not need to do much except investing money. Well, definitely these are just rumors. This is just a bunch of lies. Actually Forex trading is a time consuming career that demands certain skills of trading.
08/05/2020 04:28 PM
What Are Bounce Trader and Intraday Traders And Their Strategies
Among the substantial reasons that Forex currency trading has such a broad appeal is that the existence of various trading styles and approaches which may be implemented. Those traders searching for quick moves can accommodate scalping strategies.
08/05/2020 04:28 PM
Turning A Trading Idea Into A Trading System in Forex
Before back-testing may start, your trading thought needs to be flipped into trading principles that are objective, reproducible, and also equipped to be more optimized. One common error is to attempt and back-test a trading plan or thought that's based on subjectivity.
08/05/2020 04:26 PM
The Importance Of China To Forex Traders In Currency Trading Opportunities
China is critical to currency traders in evaluating currency-trading chances. This article gives a review of significant China improvements which each trader should be aware of.
07/13/2020 09:54 AM
6 Benefits of Investing in Cryptocurrencies
The birth of bitcoin in 2009 opened doors to investment opportunities in an entirely new kind of asset class - cryptocurrency. Lots entered the space way early.
07/13/2020 08:55 AM
How to Deal Low Volatility Days in Forex Trading
High volatility is a prominent feature of Forex trade. Traders and investors feel a thrill to deal in the high volatility days. Different strategies are applied to earn profit. The excitement goes beyond measure and it is a test of your trading abilities.
07/10/2020 12:50 PM
Strategy of Foreign Exchange Trading Today
Do you value your time and money? If of course, after that Foreign exchange is a simple source that will certainly assist you to increase your revenue of your service. Forex money trading is the modus operandi where you can have better return on your investment. There is no question that Forex is considered to be the primary gamer in the monetary market. It is the hassle-free way where one can trade International Money.
06/30/2020 06:40 AM
Forex Trading Forums for Trading Knowledge
It is said that knowledge and success are directly proportional to each other. More knowledge makes a person reduce the risk and achieve success. Knowledge in Forex trading is especially crucial. Stats say that as much as 80-85% Forex traders do not see success due to being ignorant.
06/19/2020 04:15 PM
3 Beginner's Steps to Become a Forex Trader
Issues arise if new traders become obsessed with pursuing gains, and this stress may result in mistakes that cause declines. Therefore, the primary guideline for becoming a trader would be to overlook unrealistic targets and objectives; the possibility of making money in currency with merely a couple of fast trades will be implausible. Running at a risky and overconfident manner can lead one to reduce your first investment.
06/19/2020 04:13 PM
How To Define A Successful Trader
Being a Forex trader allows you to work from nearly any place with an internet connection. Hotel rooms, cafes, and-thanks to the latest technological developments-even more, distant corners of the world. Forex traders are blessed with strong growth potential, and their lifestyles can undoubtedly offer a lot of enjoyment. But if you've ever taken this path, you know this gift does not come easily. The sooner you start, the faster you'll get there. So why not start trading now?
06/19/2020 04:13 PM
Learn How to Become a Successful Forex Trader
Forex Currency trading is available, enjoyable, enlightening, and provides traders plenty of chances. Despite this, most traders don't understand how to become successful traders and not attain excellent effects within this marketplace. A large proportion of Forex traders have been losing cash. Learning how to trade Forex and studying how to trade generally can be challenging. Therefore we've made this informative article for you.
06/12/2020 08:59 AM
Factors One Should Consider Trading Maxican Peso in Forex Trading
Forex trading involves the trade of many currencies. Currencies fall into different categories. Some are most actively traded while others have slight trade. Maxican Peso(MXN) is now ranked at eighth position in world liquid currencies. Obviously it is not that widely traded as the USD, EUR or JPY, yet it is highly liquid in the markets of Latin America. In the past few years, Maxican Peso has attracted the traders all over the world. It has become a vital financial instrument. It has evolved from a sleeping underdeveloped currency to one of the ten most traded currencies.
05/13/2020 05:25 PM
3 Reasons to Hire the Services of a Forex Broker
If you are looking for an excellent way of putting your money in a business, we suggest that you check out Forex trading. Making great return on your investment dollars is possible provided you have the skills and knowledge. In fact, the lack of these two things is the reason most people stay away from FX.
05/13/2020 05:24 PM
8 Mistakes To Avoid In Forex Trading
It's exciting to trade in the FX market, especially if you have access to the Internet. All you need to do is open your trading account to get started in the biggest financial market of the globe. However, if you commit the following common mistakes, you may find it difficult to achieve success.
05/11/2020 08:00 AM
Effective Analysis Types in Forex Trading
Forex trading is all about making a right choice at the right time. But you cannot do it with just guessing. Traders use different types of Forex analysis for profitable trading. You can also employ one of these types of Forex Analysis to earn profit.
04/28/2020 08:46 AM
Forex Trading Advice for Part Time Forex Traders
The most appealing feature of Forex trading is that it is 24 hour open market. You can trade 24 hours a day and at the same time, you can also set your own trade schedule as well.
04/27/2020 10:14 AM
Different Trading Strategies to Trade Euro
In Forex market, all the currencies are being traded. However some currencies are traded more frequently. Euro is the second most actively traded currency in Forex market. Euro is the currency of the European Nations.
04/20/2020 10:09 AM
Algorithmic Trading - Automated Trading System in Forex
The trade of a security applying some specific rules derived from historical information. It is an innovative type of trade that allows a computer program to follow a specific set of rules.
04/20/2020 10:09 AM
Best Tips to Make Money in Forex Trading
Focus, discipline and practice are the main factors that are essential to earn heaps of profit in Forex Trading. Emotions like anxiety, fear or greed can easily divert the attention, so the traders need to learn to deal with the emotions calmly and casually. Handling their own emotions in pressurized situations makes them "Ace" in Forex Trading.
04/01/2020 09:02 AM
How To Get Started With Forex The Real Way
There are numerous methods to learning Forex trading; you can read books, take online courses, or join a membership community of experts to get real-time answers. But pay attention to the information you consume. Read more inside this article.
03/24/2020 09:00 AM
Powerful Methods to Develop Into a Successful Trader
In case you've got a passion for cooking, then you're going to be excited to experiment with various dishes. Because of this, you might consult with online and offline movies or YouTube cooking stations. While cooking those foods, if something goes wrong, then you may note down it and attempt with various mixes or add in a few of your particular ingredients the next moment. After a couple of attempts, you'll have the ability to have to make the dish taste suitable for you. This scenario also applies to commerce from stock markets.
03/17/2020 09:30 AM
5 Benefits of Trading Cryptocurrencies
When it comes to trading cryptocurrencies, you have to speculate whether the market you have chosen will go up or down in value. And the interesting thing is that you never own the digital asset. Actually, the trading is done with derivative products like CFDs.
03/09/2020 01:01 PM
6 Tips to Help You Improve Your Investment Strategy When Trading BTC
If you want to invest in Bitcoin, make sure you consider a lot of factors. This decision should be based on solid technical evaluation and comprehensive analysis. You don't want to risk your hard-earned money.
03/09/2020 01:00 PM
5 Benefits of Investing in Bitcoin
If you are interested in investing money in Bitcoin, we suggest that you read the benefits of this currency in this article. According to many research studies, Bitcoin investors are the most successful investors in the world. For instance, founders of Richard Branson, eBay, PayPal and Yahoo have invested huge sums in this currency.
03/09/2020 01:00 PM
4 Methods to Earn Bitcoin for Free?
Although there is no way of becoming a millionaire overnight, we have a few tricks to help you earn free BTC. However, keep in mind that these methods still require you to invest a lot of effort. If you are not going to spend fiat, know that you still need to spend a lot of time doing easy tasks or exchanging your private information.
02/24/2020 10:12 AM
International Regulations for Cryptocurrencies Will Create Win-Win Situations
Different set of regulations rolls out varied returns for global players on the basis of respective laws of their country. A universal crypto-regulation or a regulatory authority may help ease problems in a single go.
02/21/2020 12:06 PM
An Economics Education by Bitcoin - Part IV
This is the fourth in a series of articles intended for those who already think they know what Bitcoin is, but haven't yet traded in it. There are so many nuances involved in the trading of Bitcoin as to make it tremendously educational. In this article, we'll explore Bitcoin exchanges and arbitrage opportunities. We also touch on the economics of mining.
12/05/2019 02:17 PM
Could This Be a Great & Extreme Reversal?
False Break Reversal The FBR is one of the great reversal patterns. They show up time and again but can catch us out because we've been conditioned to stay with the dominant trend.
11/04/2019 10:33 AM
U.S. Dollar's Effect on Commodities
Beginners in trading, often ask why the U.S. dollar affects the price of many commodities in the market.
11/04/2019 10:33 AM
Trading Indicators: Fundamental or Technical Analysis?
One of the key indicators for a successful Forex trade is by correctly predicting the upcoming price movement of a market. There are various strategies that are used when trading. Some traders follow patterns and some follow the various news to guide them in their decision-making.
11/04/2019 10:32 AM
What Is Forex?
One of the most intriguing markets in the world right now is the Foreign Exchange Market. What people popularly call fx trading, currency trading or Forex exchange happens in this market. In the most simple explanation, the foreign exchange market is where currencies are traded.
11/04/2019 10:32 AM
CFD Trading Benefits
Contracts for Difference (CFD) are attractive trading instruments to many traders. This financial derivative has numerous benefits that draw the attention of amateur and expert traders. CFD trading is very flexible and an efficient alternative to traditional investing.
11/04/2019 10:23 AM
Forex No Deposit Bonus: 7 Forex Trading Tips for Beginners
Once you have done your basic research, you may want to start investing in the Forex market. In the beginning, you may be overwhelmed by different tools, strategies and options that are available. However, the good news is that you can follow the tips given below to get started.
10/31/2019 10:21 AM
The Giant Money Spigot
While the main stream media is so concerned with Trump and the pending impeachment process the Fed meanwhile continues to funnel money to Wall Street to the tune of $690 Billion a week. Either the media is in collusion with the Fed to keep this information from reaching the general public or they are too preoccupied with Trump, international affairs and then again they could very well be just too blind to see what is actually happening to the economy. The New York Fed is currently loaning $120 Billion a day to Wall Street Securities trading...
10/24/2019 06:12 PM
5 Tips to Consider Before Investing in Bitcoin
In 2017, Bitcoin experienced a lot of growth and people made a lot of money in the process. Even today, Bitcoin is one of the most lucrative markets. If you are just a beginner, you may want to do your homework before putting money in Bitcoin.
09/19/2019 02:28 PM
4 Benefits That You Can Enjoy If You Invest in Bitcoin
Bitcoin is a type of digital currency based on the peer-to-peer network. It was introduced in 2009. What makes this type of currency different from the common currency used is that it is not centralized or dependent on any banking or government authority.


home | site map |