An Excited Newbie

I’ve been looking at Forex for the past few days and spent a lot of time going through the BabyPips school and playing a little bit with the demo account.

Although I’ve made some gains, it was mostly due to blind luck - I was fooling around with the FXCM platform and made a profit of $2,500 on some trades, only to lose $20,000 overnight (all in demo mode, of course - I took to heart the suggestion that I should spend a few months at least playing with the demo software before investing any real money).

Anyway, I guess I’m posting to share my excitement because overnight I finally made my first successful [U]educated[/U] trade!

Yesterday evening, I thought I saw a double-bottoms trend forming for the USDJPY pair (thank heavens for BabyPips explaining different types of charts and expected trends). Excited, I bought $33,000 (I’m working with a $736 virtual deposit, since I know I won’t be able to invest $10,000 when I go live, so I prefer to work with around $1,000 to keep it as realistic for me as possible).

I bought at market rate at a point where I thought the double-bottom trend reaches the second trough; I figured that, if my assumption was correct, there was nowhere for the trend to go but up.

In fact, here’s the 15min chart (red is the level at which I bought the currency at market price, green is the TP):

What followed then was hours of agonizing waiting, checking the price every few minutes and gasping in horror every time the price dropped somewhat due to tertiary trends.

Then I gave up, went to bed, woke up this morning - and found myself $122.73 virtual dollars richer.

In this scenario, money isn’t the big achievement - I realize that a gain of $120 is nothing by FOREX standards.

The important part is that this is the first time when I actually closely looked at the chart, saw the emerging pattern and assumed that it’s going to follow to its logical conclusion.

In short, the first time when I actually made money based on an educated assumption, and not thanks to sheer blind luck.

Woohoo!

Congratulations George! You did a great job!

My only concern is that you may be risking too much of your money per trade, but I can’t tell for sure because you didn’t say what your stoploss was.

That win is a 16% account gain, which is great if you got it because of a high risk:reward ratio, but it’s very dangerous if you got such a large win from over leveraging yourself. :slight_smile:

Phil,

You’re correct - in retrospect, over-leveraging was somewhat of an issue. I did leave a margin of around 80 to protect myself from tertiary trend fluctuations (which did occur); in retrospect, it was not enough and I added another $1,000 to the account as a precautionary measure because I was going to bed and didn’t want to get a margin call overnight.

So yes, I agree it was an issue; I think if it had been real money I was working with, I would’ve dumped some of it before going to bed to grow the margin not only to ensure profits, but, most importantly, to ensure that I was able to see the trend through to its conclusion and see whether my expectation of the trend was correct (which it was).

So while it wasn’t an ideal trade by any stretch of imagination and contained newbie mistakes, I think it accomplished its primary goal - to give me first-hand practice in analyzing and predicting trend patterns.

I understand what you’re saying. I think it’s better to demo trade exactly the same way you would if it was real money, but as long as you realize it wasn’t an ideal trade by money management standards then it was a success! :smiley:

Nice chart!! :smiley: :smiley: :smiley:

Well, George, enjoy your excitement for a few more minutes. Then, I have some bad news for you.

  1. Your success on your latest trade [B]was[/B] blind luck. You thought you saw a double-bottom forming. A double-bottom can only be identified [B]after[/B] a new up-trend is well underway. What you did was try to pick a bottom, and you were lucky and got away with it. Try this same thing ten times, and you will fail about 5 times, because it’s a coin-flip. Picking tops and bottoms is often tempting, but you should train yourself to avoid this practice.

Keep your seat-belt fastened, because there’s more.

  1. You bought $33,000 with a $736 account. [B]Let’s see, 33,000/736 = almost 45:1 ACTUAL leverage used on this trade.[/B]
    Yes, I know it’s just a demo account, but you’re supposed to be practicing for the real world. If you trade like that with a real micro account, you won’t last a month. You should study what the BabyPips School has to say about leverage, and you should search this Forum for several useful discussions on leverage.

  2. You said you were “fooling around with the FXCM platform” — something I know a little about, because I trade with FXCM.
    If you managed to lose $20,000 in a $50,000 demo account, while you slept, you were either (a) grossly over-leveraged, or
    (b) trading without STOPS, or © both. One thing is for sure, you were definitely “fooling around”.

I don’t mean to kill your enthusiasm. But, practicing to hit the jackpot — which is what you seem to be doing — is not going help you to become a forex trader. This is not a business in which you can make an educated guess, like you did with that double-bottom, and then bet the farm and get rich quick. Has anyone ever done it that way? Sure. And people have won the lottery, too, But, that’s called gambling, not trading.

Most new traders think that it’s boring to go for small, consistent gains in a tiny account. So, they try what you’ve been trying. So, cheer up — even though you’re doing it wrong, you’re not alone. And these bad methods of yours can be corrected, before they become bad habits. You should work on that.

You have a TON of stuff to learn, not the least of which is MONEY MANAGEMENT. Train yourself to become an expert in money management. It’s been said that a trader who practices brilliant trade selection and lousy money management, will crash and burn; whereas a trader who practices mediocre trade selection and good money management, can survive and prosper. Good money management can make the difference between life and death for your account.

This is all meant to be constructive criticism. I hope you will take it to heart.

Clint

Clint,

Give me a moment to go dry my hair after that cold shower…

Ok, done.

  1. You’re spot-on. I took a look at the market this morning and had the same problem that you described - while I thought I saw double-bottoms, they were actually V-shaped trends or, worse still, trends that just kept going down and down. Certainly looking at the existence of an upward trend makes sense - even if it cuts into the profit, the risk of a false bottom is much lower.

  2. Agree with you on leverage as well.

  3. For FXCM, yes, I was trading without stops (and yes, I know it was a stupid thing to do) - but in all honesty, that was my second day of, ahem, using FOREX (I wouldn’t use the term “trading” because it really doesn’t apply in this case), so, in my defense, you really can’t expect me to know even the fundamentals at that point. It was a learning experience and I think I learned from it. With that said, I agree with you complete - stop-loss is essential, as exemplified by the $20,000 overnight loss.

  4. Totally agree with you on the money management aspect.

To wrap it all up, I really appreciate the criticism and feedback you have provided - while some of it was unexpected (though no less valid), a lot of it was similar to what I was already thinking in analyzing the trade.

Clint
Did you had to spoil his excitement :smiley:
I think he is off to a good start, first have fun with Fantasy numbers then slowly go to reality and still have fun with it.
Happy Trading

George,

Sorry for the cold shower. Normally, I wouldn’t be that blunt with a brand-new newbie. But, you are obviously approaching this trading thing [B]with your brain fully engaged[/B] — unlike some people on this Forum, who are either too dumb or too lazy to do the hard work of learning to trade.

And because you are constantly thinking, and analyzing, and questioning, I’m sure that you can take constructive criticism, and use it to accelerate your progress.

You have the right attitude. In a couple of months, you will probably be miles ahead of some of these folks who have been dabbling in the forex market for years.

Study everything you can get your hands on, starting with the BabyPips School. Then, try to find answers to your questions
[B]on your own [/B]— because that kind of research is the best way to learn. When you can’t find answers to your questions, then ask them here. There are lots of knowledgeable people on this Forum who look forward to helping you.

You’re going to hear a lot about [B]Money Management[/B], and the [B]Psychology of Trading[/B]. You might as well start looking into those topics right now — along with everything else you are trying to absorb.

Don’t think that you will learn everything you need to know in a month, or even in a year. If you’re cut out to be a trader, you’ll be studying and learning for the rest of your career.

(I think you can look forward to warmer showers, from now on.)

Clint

wow!!! WHAT A WAY TO DESTROY A GUY

Joke