Sort of stuck... lingering questions

Beginner Questions
1

I’ve tried trading Forex on and off for a couple years now. One issue I kept grappling with was discipline. I would know my entry points and exits before starting a trade but sometimes would hold gains and/or losses too long. The biggest issue I had was leverage. My logical mind would target 5:1 risk. Then I would rationalize and say 10:1 is okay since this money is more speculative in nature. But then after some wins and over-confidence, some of my trades were as high as 20:1. Sometimes with multiple positions too. I actually was able to turn $1300 into $4700 in a month. However, I was highly disappointed in myself and closed my account. I know I got lucky and knew I lacked discipline.

I was always trying to develop my own system. I tried to create an approach that basically had two technical indicators and a fundamental indicator. When all three were green (or red) I acted. The problem with creating my own system was that I was constantly tweaking it rather than sticking to it. I also was not thinking of backtesting. (hard to backtest fundamentals). I have some background in statistical modeling as well and tried to develop some predictive regression models. I thought I could be more creative than the pros. Everyone uses variables like volume, moving averages, GDP, unemployment, etc. I thought I could find correlations with more unusual variables that no one was thinking of such as weather, economic news mentions, etc. Constant tweaking again made it hard to be consistent.

I’ve long been fascinated with global markets, economics, quantitative analysis and finance. I have an entrepreneurial background and have been involved in database marketing most of my career. I truly feel that I would be well suited to make a career out of Forex trading. I recently read a book that really resonated with me and outlined some systems that really made sense to me. I feel this will help with my discipline problem by following these systems and the backtesting requirements will be great for me to follow. I want to give Forex another try.

So why am I stuck? I read through just about every post in this forum. (glad I found babypips as there seem to be some great people here mostly). It really bugs me that I don’t know a single person trading professionally. Lots of advice about finding a mentor but I have no idea how to proceed and am skeptical about reaching out to folks found on the internet (no offense to anyone out there). I’m hesitant to reach out to authors of most books as they almost all sell some sort of training and I wonder why they bother with the few thousand from training fees when they can make “millions” in Forex. I also have issues with folks that talk about compounding or pip gains on a daily/consistent basis. You often hear things like, just 1% a day, will get you to a million in a year! Sounds very modest and achievable to get 1%. The key is to get 1% EVERY day which is impossible. I also wish I personally knew at least one person trading full time and making a living. I know about 10 that lost their investment. I even know one person that made a few thousand dollars a year on a $25,000 investment and is selling training classes (crazy to me to sell classes when I don’t think she is that successful). I know other industries/professions have low success rates too but I do personally know successful business owners, real estate professionals/investors, investment bankers, professional athletes, etc.

Having said that, I do fully believe that achieving financial independence is possible. I also believe I have the ability to get there. I understand it will take hard work, solid systems and probably most importantly, discipline.

I’m ready to try again. The only lingering questions I had were:

  • How can I validate that it is possible to earn a serious living ($200k+ annual income) trading forex? What is realistic initial investment?
  • Are there any groups or trading rooms in the NY area I could look into and possibly witness/meet actual forex traders earning a successful living?
  • I read a lot about benefit of mentors… how important is that? How does one go about finding one (a bit skeptical that successful forex pros frequent message boards to help newbs like myself). Or should I just follow the systems in the book I love?

Thanks for taking the time to read this rant.

2

Hi holisticdog, I’ll bite on this thread because I feel your pain: I went through a lot of this self-analysis myself. You seem to have a lot of the same hangups I did (or do still) have. The most important thing you should do is keep picking yourself back up and trying again. But don’t keep going around in circles. Why not try something radically different? At worst that attitude will show you something else that doesn’t work. At best, it will give you a breakthrough in your studies.

Discipline is hard to master. One thing I did that has been extremely helpful is to force myself to jump out of bed at 4:30am every morning. Believe me there are a LOT of mornings that this does not appeal to me. But I reserve the hours of 4:30am-7am for study and practice. Outside these hours, nothing is guaranteed. So in my bigger picture if I want to advance my forex career – then I need this discipline. Being vigilant about (literally) jumping out of bed has helped me in more ways than just the time it affords me to study.

I was always trying to develop my own system. I tried to create an approach that basically had two technical indicators and a fundamental indicator. When all three were green (or red) I acted. The problem with creating my own system was that I was constantly tweaking it rather than sticking to it. I also was not thinking of backtesting. (hard to backtest fundamentals). I have some background in statistical modeling as well and tried to develop some predictive regression models. I thought I could be more creative than the pros. Everyone uses variables like volume, moving averages, GDP, unemployment, etc. I thought I could find correlations with more unusual variables that no one was thinking of such as weather, economic news mentions, etc. Constant tweaking again made it hard to be consistent.

You’re definitely on the right track here – creating something from within yourself (vs. copying or mimic’ing). I think your biggest problem will be that you are just too damn smart for your own good. I am not being sarcastic about this – it’s true, your analytical brain will cause you much pain in this endeavor, because the market doesn’t move on a formula. It is an organic crowd. And crowds are generally stupid. Think fuzzy, not concrete.

I’ve long been fascinated with global markets, economics, quantitative analysis and finance. I have an entrepreneurial background and have been involved in database marketing most of my career. I truly feel that I would be well suited to make a career out of Forex trading. I recently read a book that really resonated with me and outlined some systems that really made sense to me. I feel this will help with my discipline problem by following these systems and the backtesting requirements will be great for me to follow. I want to give Forex another try.

Your fascination will provide the fuel you need for motivation, inspiration and persistence. It is critical to your success. You need a constant stream of breakthroughs to continue re-fueling this inspiration that comes from deep within. As a sidenote, remember what I said about looking at things radically different: did it ever occur to you that perhaps backtesting might be a total waste of your time?

So why am I stuck? I read through just about every post in this forum. (glad I found babypips as there seem to be some great people here mostly). It really bugs me that I don’t know a single person trading professionally. Lots of advice about finding a mentor but I have no idea how to proceed and am skeptical about reaching out to folks found on the internet (no offense to anyone out there). I’m hesitant to reach out to authors of most books as they almost all sell some sort of training and I wonder why they bother with the few thousand from training fees when they can make “millions” in Forex. I also have issues with folks that talk about compounding or pip gains on a daily/consistent basis. You often hear things like, just 1% a day, will get you to a million in a year! Sounds very modest and achievable to get 1%. The key is to get 1% EVERY day which is impossible. I also wish I personally knew at least one person trading full time and making a living. I know about 10 that lost their investment. I even know one person that made a few thousand dollars a year on a $25,000 investment and is selling training classes (crazy to me to sell classes when I don’t think she is that successful). I know other industries/professions have low success rates too but I do personally know successful business owners, real estate professionals/investors, investment bankers, professional athletes, etc.

That’s good that you absorb information like a sponge. Beware of information overload, though. Read only enough to satisfy your craving and inspirations. Then put the book down and go play on the charts. Let your genius brain find the synergies itself. You might surprise yourself with the things you discover. The materials and opinions you read here and in books are a foundation for your thought patterns. But you need to escape rational conscious thought and explore more deeply at the subconscious level to find those breakthroughs. The best way I know to do that is to put your mind at ease and just play.

By the way, stop making definitive statements like “…which is impossible”. This indicates your brain has closed a door that shouldn’t have been shut. You need an open mind here, and that means accepting that anything is possible.

Having said that, I do fully believe that achieving financial independence is possible. I also believe I have the ability to get there. I understand it will take hard work, solid systems and probably most importantly, discipline.

Try hard to force a radical shift in your thought process. You accept that financial independence is possible, a truth in your mind. But I would challenge that you may be incorrect in your belief that the following ingredients are what equate to that ideal: hard work, solid systems and discipline. Yes I agree those are valuable things to have under your belt. But I believe you already have them, so that means that either 1) you are wrong; or 2) there is more to be discovered about yourself.

I’m ready to try again. The only lingering questions I had were:

  • How can I validate that it is possible to earn a serious living ($200k+ annual income) trading forex? What is realistic initial investment?

$100. Because you must prove to yourself, without a shadow of a doubt, that you can produce consistently and reliably.

  • Are there any groups or trading rooms in the NY area I could look into and possibly witness/meet actual forex traders earning a successful living?

I don’t know. I’m also not sure if it would matter.

  • I read a lot about benefit of mentors… how important is that? How does one go about finding one (a bit skeptical that successful forex pros frequent message boards to help newbs like myself). Or should I just follow the systems in the book I love?

Thanks for taking the time to read this rant.

I had a mentor once and her help was invaluable in getting me to look at things differently. So I have nothing against mentors. With that said, I’m not sure you can equate the price of a mentor to the quality of the wisdom that would be imparted on you. For example FREE might be better than expensive in this arena…

3

Thank you for your sincere and genuine response. There are many great suggestions I’m taking to heart as well… maybe not the 4:30 am one :slight_smile:

I also like the idea you reinforce about creating something that suits myself. I’ve always had a nagging issue with technical analysis as it felt more hindsight driven rather than predictive. Although, I started feeling that if enough people and institutions relied on technical analysis it can become a self-fulfilling prophecy. Plus, when you hear of some of the great successes with people like Soros, Templeton and Buffet, I’ve yet to read or hear them talk about cups and handles. I figured if there truly was a consistent winning technical system based system, the top billionaire lists with be crammed with them. I’m not suggesting to ignore them but I will use them in a more holistic fashion rather than being reliant on them. That just feels better to me. Things like the earthquake in Japan, you can almost count on it hurting the Yen. I’d say there is still downward pressure with the nuclear meltdown possibility and more quantification of the tremendous financial impact on the country. A chart doesn’t help much in this case.

I actually feel better about forex pursuits after reading your post and it is making me reflect on my style and personality as well. You are right about being closed minded about absolute terms and you caught the use of “impossible.” I actually wrote “nearly impossible” and changed it. The reason is that I’ve seen so many extrapolations of things like “just 1% a day gain for 5 years and you’ll end up with $10 million dollars!” I know that technically it is not impossible to have 1825 days of consecutive gains but the odds are so infinitesimally small that I called it “impossible.” I would rather talk about more realistic expectations where people are using methodologies that give them slightly more wins than losses. Or their system might have more losses but the size of the wins are larger. I don’t want to treat this like gambling and would be thrilled with gains in the 20-50% (double S&P 500) range annually and consistently. By some posts, you would think this is incredibly conservative but most money managers still don’t beat the S&P 500.

I’m saving your responses and will give this another go with a small amount and a fixed set time daily for analysis and thoughts on the global market. I probably continue to learn more about myself through this process.

Thanks again for your valuable and candid input. I read other posts on here asking similar questions (or portions thereof) and some of the comments were quite negative and cynical. Trading forex sometimes feels like a lonely task and I was sort of looking for a sounding board.

4


a couple things more for you to consider:
[ul][li]I don’t think 1825 days of consecutive gains is impossible at all; but be careful with your line of thinking: each day of trading in-and-of-itself may not be relevant to your bigger-picture objective
[/li][li]How do you define a win and loss? If you only look at every trade individually, maybe you should look at things from a different angle. The percentage of winners to losers is somewhat irrelevant in the grand scheme. Check out some of Van Tharp’s writings on expectancy. I personally like to view trades as groups of ideas. An idea can have multiple components and it can take several changes of landscape before I will scrap an idea. Working together as a cohesive team, a group of trades can complete what I call a single trade idea. In this sense, the team creates a winning situation based on the original concept. My motivation for the trade (ie bias) does not change unless I decide to scrap the idea. (This style may not appeal to you, but I am mentioning it here as an example of an alternate way to smooth through the individual account metrics, which in-and-of-themselves do not make a trend in your trading career.)
[/li][*]Avoid negativity at all cost. It is never fruitful, especially when you associate it with your trading dreams. Babypips forum is one of the cleanest trading forums I have ever found in this regard.[/ul]

5

This is probably nit picky. I completely agree it is not totally impossible. But to put some perspective on this…
If you were flipping a coin and had a 50% chance at heads. You would have a 1:2 chance of picking heads with 1 flip. If you flipped the coin 2 times, you now have a 1:4 chance of being right both times in a row. Being right 4x in a row is 1 in 16. Now, for arguments sake, let’s say you are a superstar trader and your odds are better than 50%. Let’s say 80%. Now, with 4 trades, you have a 1 in 2.4 chance. Not too bad. However, with 30 consecutive days of gains, the odds are 807 to 1. Very difficult but I could see this happening. Doubtful but possible. Go to 100 days and the odds go to 4.9 billion to 1. If everyone one earth traded Forex, you might get someone that actually has 100 straight days of 1% gains. A full year is 2.3 with 35 zeros! I don’t even know what this is called. I think this is 230 duodecillion. Probably over thinking this one.

How do you define a win and loss? If you only look at every trade individually, maybe you should look at things from a different angle. The percentage of winners to losers is somewhat irrelevant in the grand scheme. Check out some of Van Tharp’s writings on expectancy. I personally like to view trades as groups of ideas. An idea can have multiple components and it can take several changes of landscape before I will scrap an idea. Working together as a cohesive team, a group of trades can complete what I call a single trade idea. In this sense, the team creates a winning situation based on the original concept. My motivation for the trade (ie bias) does not change unless I decide to scrap the idea. (This style may not appeal to you, but I am mentioning it here as an example of an alternate way to smooth through the individual account metrics, which in-and-of-themselves do not make a trend in your trading career.)

Great advice. I tend to view most of life this way so why not trading. I might launch a marketing program across several channels. I would view the outcome of the program holistically as either successful, no impact or failure and rarely would I single out a specific channel or tactic. Granted, I’ll learn from the tactical failings but in terms of viewing the whole program, I tend to look bigger picture. Hmmm… In thinking about this sort of conceptual definition of win/loss, it does put a different perspective on the point mentioned above. I’ll check out the link to Van Tharp’s writing as well.

Avoid negativity at all cost. It is never fruitful, especially when you associate it with your trading dreams. Babypips forum is one of the cleanest trading forums I have ever found in this regard.

Totally agree on both negativity and babypips. I chose to post here because after extensive reading, it felt the most welcoming and legitimate.

6

I personally don’t believe that 1825 days’ consecutive profits is realistic. There will be some who claim that it can be done - and let’s agree to disagree, I am not inviting a debate on that in this thread as that is not the point - but in any case I think that that is the wrong way to look at it. I look at trading only monthly and annually. Is it possible to be profitable for 12 consecutive months? Absolutely, many traders achieve that. Is it realistic to aim to be profitable for 52 weeks in a row? Of course it is possible, but in my experience there will be flat weeks. For instance, I made a loss this week, I misread the impact that the Japan 'quake would have on the AUD, and lost 2% on two poor trades. As I was avoiding trading on many pairs because of the 'quake, that leaves me with a net 2% loss this week (one win, three losses, 1% risk each time). Many people made money this week, but my point is that even a trader who goes to work expecting to be up on the month can have a bad week without it affecting the overall plan. I am still up on the month and will be when month ends.

I had many of your same concerns when I first started trading. Time and experience do help overcome them. This site can be a very reassuring place to spend time. I also have a mentor, but I learned trading through a formal course, I would not know how to go about acquiring a mentor I trusted from a standing start. A mentor helps but is certainly not essential, so I would not get hung up on that point.

The way I view my trading year is: August and December will be a little slow, the market will also be less predictable, so tread carefully during these times. The rest of the time I target a double figure % return, which I hit each month, but to be honest with you when I started out I was looking for 5% and once one gains the confidence to increase account size even 5% can be a nice living with compounding at some point. That is only a net five winning trades per month. And once you are hitting 5%, in time the return will naturally increase as you develop a feel for how to run a trade. Spotting the setup is less than half the challenge, that is the easy bit. Making it work for you is where the money is. I took 10% in two trades last month - a year ago I would have spotted the same setups but only played them for 2%.

Anyway, this has descended into a ramble (I’ll blame the small text box!) but I hope that some of what I have said is helpful. You do sound as though you are approaching this in the right way, and are alert to many of the key issues, and have realistic expectations (indeed, you might look back and think them overly realistic if you stick with it!) so I would say that it sounds encouraging for the future.

ST

7

Thank you SimonTemplar. I’m actually feeling much better about re-entering Forex. I’ll take it slow and try to focus on discipline and consistency. I’ve still got much to learn but agree time and experience will help overcome concerns. I’ll set aside some dedicated time each day for true analysis, research and trading. This will help me.

It fascinates me to think about global ramifications of events like the Japan quake and how all this intermingles. The coupling of economies as well as independent factors. For instance, during the downturn in the US a few years ago, the news and media was bombarding US citizens with bleak economic outlooks for the US. If one limited their view to US based media, the only conclusion was to short USD. However, I had to remind myself to study other countries too and you start to see that EUR was actually as bad if not worse off… then Greece shook confidence… plus the idea that US is still a “safety” and it gave me a totally different perspective. I digress. None-the-less, fascinating to think about.

Thank you again for your insights. It helps to know that there are actually people out there doing this for the long term with some sort of consistent track record.