Just One of a Thousand Insignificant, Little Trades
There is a phenomenon that almost every trader struggles with at some point in their career. For some, it even happens before they ever get started. For me, it was most prominent in my career when I was making the switch to FX from trading stocks and options.
And that is the ever-present, but occasionally more prominent fear of failure.
Fear can stupefy traders into in-action; allowing their trading accounts to sit idly while their dreams dissipate into the realities of indecision. Fear can affect us individually, and it can become a pervasive theme throughout markets, wreaking havoc across the globe; 2008 is evidence how poisonous this emotion can become.
In this article, I’m going to share with you some of the best advice that I’ve ever received on the topic of fear; a short, sweet axiom that I can utter to myself whenever I have a question about whether or not I should take that trade that instantly dissolves any fear that I may have.
Before we get to the quote, there is an important question that every trader needs to have the answer to at all points throughout their trading day. The answer to this question will add perspective to our fear; it will show us how insignificant this emotion can be and even more importantly – it will encourage us to battle through difficulties to get to the promise land. And that question is:
Why do you trade?
There isn’t one right answer to this question… The answer can be different for all of us.
Some of us just want to make a little extra money so that we can spend more time with our families, while others have plans and hopes for full-on global financial domination. The answer to this question is your driver. This is what can make the tough times easy.
Whatever the answer is, it needs to be important to you.
This is your goal. This should be posted on the top line of your trading plan as a reminder of what you hope to get out of all your hard work. It’s of vital importance to keep this in mind, because when we are trading, there is a litany of factors to stay on top of. Our primary objective can easily become obscured, which can lead to paralysis by analysis.
One Trade Won’t Make Your Career, but It Sure Can Break it
This is how the conversation came about with my friend in which I ultimately found the error of my ways. The friend, also a former stock trader, had moved into the FX market earlier than I had. He had adapted his game before FX was the prominent asset class it is today. He has since ‘retired’ and now spends his days on the sunny shores of San Diego or Hawaii, wherever his mood takes him. He still trades FX, but primarily for fun as he doesn’t really need to earn another dollar for the rest of his life.
Coming from stocks and options, I was a ‘patient’ trader. I would find a stock I liked and a reason I liked it (usually a fundamental story of some kind such as a biotech company with a product up for FDA approval), and I would then watch the technicals to find a comfortable way to play it. The inclusion of options, essentially, gave me the opportunity to ‘leverage’ my ideas. Trading in gaps was a near necessity if I wanted to catch the bigger moves, and because of this I comfortably developed myself as a swing-trader.
The FX Market can be intimidating
Even after trading in stocks for over nine years at the time I had moved up to FX, the speed of the Forex market was impressive. The fact that the market never closes was only partly as interesting to me as the amount of liquidity behind each of the major currency pairs. The availability of 400 times leverage (which has since been lowered to a maximum of 50 times leverage per Dodd-Frank in the United States), made these moves seem even more threatening.
Just as I had done with stocks, I was patient. I waited. I looked for an opportunity, a theme with which I could look to begin to build a position.
And when I finally found that theme, my first entry hit its stop.
I attempted to re-enter, thinking that my analysis was strong, and I now had an opportunity to enter at a better price. That got stopped out as well.
I worked through this uncomfortable, awkward period of trading a stock-traders strategy in a Forex traders market, and didn’t see results resembling anything close to what I had put up trading stocks. For the first time in a long time, I was looking at a negative profit line and I began to question whether I really wanted to adapt to the FX market, or whether I wanted to go back to trading stocks and options.
A trader’s psychology is of the upmost importance, I knew that then as I know it now, and I realized that I was starting to dig myself into the pit of despair that traders will occasionally find themselves languishing within.
So, I talked to my friend. And he started the conversation by asking me the very same question that I began this article with: “Why do you trade?”
I gave him my answer, and he then asked me –
“Do you honestly think you are going to achieve all of that with one trade?”
To which I replied, ‘well, no but….’ At which point he promptly cut me off.
He then went on ‘a lot of people like to trade because of the feeling of being right [which was not the reason I had provided him.] It’s not all that different than the reason people will sit in front of a slot machine throwing away their children’s inheritance one quarter at a time. They know that the odds are against them, they just want to feel that emotion of winning. It's an easy trap for human beings, who innately desire to be right, to fall into.’
He continued: “with your goal, you are going to need a heck of a lot more than one trade, aren’t you?”
I looked at him like the wizard that he had just become to me, and nodded in agreement.
He went on to say, “while you may need a lot more than one trade to get what you want, any one of those trades can easily drain your account, and end your game pretty quickly. So James, the answer is simple: You need to learn to be wrong more often because any trade you take is going to be but one of a thousand insignificant little trades in your career.”
One of a thousand insignificant, little trades
That line hit me like a freight train carrying a ton of bricks. It showed me where my perspective had become skewed when moving from trading stocks to FX; the fact that all of this additional leverage I now had at my disposal was not necessarily something that I had to use. It merely gave me more flexibility, which – like freedom, is best in abundance so that we can choose how or how not to impact our own fate.
More importantly that that – this phrase puts into perspective the fact that any one trading idea you have is, at its very best, a hypothesis. Nobody knows for certain what price will do next. There is risk in every single trade that we place, and every single idea that we have.
Counter Fear with Planning
The best way to counter fear in the FX market is planning. After the conversation with my friend, I built risk parameters into my trading plan that will not allow me to lose more than 5% in any given day, or more than 1% on any given trade idea. This is what allows me to look at every trade I place as insignificant in the grand scope of my overall trading career; because the most that it can hurt me is 1/100th of my account value.
Some ideas work out, others don’t. But worse-case scenario, I come back to the game tomorrow with at least 95% of today’s account equity, and a very real chance to move one step closer to my goal.
This part of my plan has truly made each trade I place but one of thousands of insignificant, little trades. There is a big reason that this is important advice. Because if we are ever to attain our goals, there is but one way to do it: By placing lots, and lots of trades. Fear is the enemy in that paradigm, and sitting on the sidelines is only wasting time. Even if it’s a surreal market condition, trade it on a demo account until you have a strategy that you feel is consistent enough to put real money to work.
Because the only thing you will never have the opportunity to gain more of in this world – is time. Time is the only asset available to you in a finite amount. You can make more money, you can buy more stuff, and you can get more of anything else. But you cannot get more time.
Trading gives us the opportunity to make the most of this precious time. Use it wisely.
How To Copy George Soros Forex Strategies: On August 12, 1930, George Soros was born. He began his career in the financial sector at Singer and Friedlander in London in 1954. Before he established Soros Fund Management in 1970, He worked at a series of financial firms. He is one of the 30 wealthiest persons in the world currently. His firm has generated more than $40 billion in profits in the last five decades. I would like to tell you that George Soros is also known for his compelling Forex trading strategies. So in this article, I will discuss with you the following vital points such as : - What are forex strategies? - What are the top Forex strategies that work? - How can you form forex trading strategies for yourself? - What is the Forex Trading strategy used by George Soros? What Are Forex Strategies? Forex Trading strategies are the collection of all policies and techniques. It helps in ascertaining the best timing to buy and sell currencies pairs. They are systematic practices that traders use to determine when to buy or sell a currency pair. Most forex trading strategies utilize trading signals that are created by proper analysis. Trade signals are a trigger for the action, to buy or sell a security or other asset, generated by thorough analysis. What are the top Forex strategies that work? Forex Strategies can be broadly sorted as follows : Fundamental Analysis Fundamental analysis is used in the forex market to study economic, social, and political forces that may impact the supply and demand of an asset. It involves approximating the economic conditions of a country, and the Strength of its currency. In Fundamental analysis, The traders investigate the country’s inflation, trade balance, gross domestic product, growth in jobs and central bank’s benchmark interest rate. Technical Analysis Technical analysis is concerned with the careful study of Price movement in the forex market. It mainly involves inspecting the past and recent behaviour of currency price trends on charts to determine what market conditions may develop. In technical analysis, the usage chart is very heavy. One can see that most technical analysts use charts for their evaluation. Trend Trading Trend trading comprises identifying an upward or downward movement in a currency price and choosing trade, whether to trade or not based on the positioning of the currency’s price trend. The most common methods used in trend trading are moving averages, relative strength indicators, volume measurements, directional indices, and stochastics. Range Trading Range trading is a forex trading strategy that works on identifying overbought and oversold currencies. It depends on being able to frequently buy and sell at predictable highs and lows of resistance and support. It depends on the perception that prices can usually be held within a steady and anticipated range for a given period. Momentum Trading Momentum trading strategy is a method where forex traders buy and sell currencies by the effectiveness of the current price trends. In this trading, forex traders speculate that an asset price that is moving powerfully in a given direction will remain in that direction until the trend loses depth. Swing Trading Swing trading is a medium-term trading strategy that involves taking trades that last for a period from one day to a week to several months to profit from an anticipated price move. It falls in the category of active trading, where traders search for intermediate-term opportunities by way of different technical analysis methods. Breakout Trading Breakout trading is a strategy where the forex traders try to determine a trade entry point at a breakout from the earlier specified price range. If breakout prices are higher, a trader may buy more currency pairs, and if it is less than, traders may sell the currency. Retracement strategy It’s a short-term reversal in the trend, a withdrawal in an uptrend or a recovery in a downtrend. A market rarely moves higher or lower in a straight line. After a market has made an initial thrust, we often see a turnabout, a retracement in price. Reversal Trading Reversal trading is a strategy where the traders attempt to foresee a reversal in a price trend with intentions to assure entrance into a trade ahead of the market. Momentum and volume indicators are the most common tools used by traders in a reversal trading mechanism. Position Trading It is a forex trading strategy that carries out over a long period. Position traders usually for their strategies by carefully considering long-term macroeconomic factors of different economies. These types of traders utilize both fundamental and technical analysis for buying and selling currencies in the forex market. Carry Trade Carry trade is a type of forex strategies that pursue enlarged gains by taking benefit of interest rate divergence between the countries of currencies traded. Simply we can say that carry traders may choose the currency of the country that has the low-interest rate to buy the currency of the country that has a high-interest rate. Pivot Points Pivot points are Indicators that are used by the floor traders in the forex market to estimate potential turning points. It is used in forex to establish resistance and support levels based on an average of high, low and closing prices in the previous trading period. Forex Day Trading Strategy Forex day trading strategy is concerned with buying and selling of currency within the same trading day. It involves taking advantage of their capital to acquire a currency pair and selling it as soon as the forex price changes in a favourable position. Forex Scalping Strategy In this Forex trading strategy, the trader buys or sells a currency pair and then holds it for a short period to rip the profit out of it. It works on the system of trading currencies based on a set of Real-time analysis to make a profit. Contract of Difference or CFD Cfd or Contract of difference favours traders to profit from the price movements of an underlying asset, without actual ownership of the asset. It is an irrevocable contract between a trader and a broker to exchange the price divergence of a currency for a specified period. What is the Forex Trading strategy used by George Soros? George Soros, who is among the best forex traders in the world, follows a global macro strategy that is based on macroeconomic analysis. In his forex trading strategy, he bets one-way on the movements of currency rates, commodity prices, stocks, bonds, derivatives, and other assets. He also suggests that one should always learn from every trade and keep a trading journal with them to record their learning. And also progress as a forex trader. George Soros also suggests that the most common forex trading strategies are based on either technical analysis or fundamental analysis or are a combination of both. How can You Form Forex Trading Strategies for Yourself? Now, I will outline some steps that will help in formulating Forex Trading strategies for yourself. The steps are as follows : Determine What Sort of Forex Trader You Want To Be - The choice of what type of forex trader you want to be will entirely depend upon. What you wish to gain out of trading currencies in the forex market. - You need to decide if you want to pursue forex trading for the short or long term to achieve profits. - You wish to be a scalper, day trader, swing trader, position trader, algorithmic trader, and event-driven trader. Choose Methods of Studying Markets. - If you are comfortable with technical analysis. Then you should adopt it, and if you are satisfy with fundamental analysis, you should embrace it. - The point here is that you should choose the evaluation method that can help you in quickly understanding the trends in the forex market. Make an Assessment of Your Financial Capabilities. - It is fundamental when it comes to starting forex trading, and you should form a trading system based on your financial conditions. - It is essential that when you are developing a forex trading strategy, you take into consideration financial risk. - You need to make a firm decision about how much money you can invest. Find a Suitable Currency Pair - You should carefully choose the currency pair while formulating a forex trading strategy. - For traders to secure maximum gains and minimise loss, this step is very vital. Seek Expert help in Formulating Forex Trading Strategies - If You find it Difficult in Crafting forex trading strategies, you can always seek expert advice in this matter. - For this, you need to search on the internet to find a professional financial consultant or analyst. - He/ she will devise a trading system that you can use for trading forex. Conclusion Formulating a forex trading strategy before jumping into the world of forex trading is very significant. If you are still confused about forming forex trading strategies. Then it is highly recommended you should seek the help of experienced traders.
The Role of Interest RatesCustomers, investors and buyers are vulnerable to have a huge impact on their financial status since their businesses and economy conditions are unavoidably affected by interest rates. More specifically, the changes in interest rates affect the costumer’s purchasing power, the company’s cash flow on a daily basis, and the bank’s loan and credit activity spearheading, in such a way, the global market. The next few paragraphs will give you an idea on the matter of interest rates on the global market. How does it work?The interest rate is the amount of money that a lender charges to a borrower for the asset's use, to put it simple, interest rates are related to the amount of cash that is in circulation. No matter where the interest rate comes from: a corporation or another depository organization or banks (institutional level), from customers acquiring goods and services like their homes and cars (retail level), the truth is, they all become part of the global market place and it can be eventually considered as the soul of the market.The central bank is the essential foundation of the economic system, as it controls lends funds which are, in many cases, holding another depository institution or the government overnight. This lending and borrowing activity produces liquid interest rates that are intended to produce economic growth and safety.The monetary policy and the market force as such, both play an important role within the economic activity worldwide: monetary policies, generally dictated by the central bank, are in charge of stabilizing prices and reducing unemployment rates by accomplishing the most accurate measures and producing the most liquid interest rates. If there is more purchasing demand out there (respective to the amount of cash in circulation), the amount of money or interest rate will be more worthy.What About The Change in Rates?Whenever interest rates vary, the lending level between all the banks and other entities may vary as well. Now, in order to determine the difference in the bond's yield (DV01), one has to calculate the interest rate risk which represents 001% in a 1000 basis points. The result would ultimately be marked as a change in interest rate.The important thing to understand here is that this sort of “economic behavior” is ultimately determined by the banks when they borrow and lend money to each other (or other entities like companies and individuals). The perfect formula for banks to decrease interest rates is when there is a sensation of slow growth and stable prices. On the other hand, they will increase interest rates when the formula combines a sensation strong growth and rocketing prices. This is how this interchangeably operation will affect the soul of the interest rates at the market.
Developing a profit strategy and setting a protective stop is inevitable in every investment. Just as protection of capital or the money you invest is important, so also is necessary the protection of your profits for the money earned. In due analysis of the most effective exit systems, it is found that as the price of stock increases, you can move the stop loss higher. And in case of downtrend, the price will trigger the stop and a sell order will be executed. However, the basics of successful trading lies in the fact as to how close to the price the stop should be set. While setting the stop loss, care should be taken that stops are not set too close to the current price. Because, there remains a possibility that the variation that takes place in the market can set off a stop, even if not a real downtrend in price. While people do a lot of research on the kind of investments, they should make and do a lot of work and diligence on when and where to buy; it is exit strategies that most of them give a slip. However, it is one of the fundamentals of investment as it is impossible to plan future investments and trading unless you specifically know how you are going to take your profits and make an exit. Just as we all know that, stock prices always follow corporate earnings, resulting because of stock investing and buying by traders when companies are making money, thereby propelling stock prices higher. Similarly, in event of companies showing slower earnings growth, stocks fall. All you need to do for successful exits is to chalk out practical exit strategies for setting stop. A few of the most implemented strategies are defensive market timing, hedging bets and to think globally. While traders are more focused trying to make big profits, the larger issue is however to avert bigger losses. There are ways to undermine the best time to sell, from using technical analysis techniques like moving averages, etc. You can use defensive market timings by placing defensive stop losses. In this method, your broker can be instructed to sell shares on hitting a predetermined level. Considering the strategy of hedging bets, it is found difficult to hedge a collection, with a range of arrangements that balance each other out. However, there is always the alternative known as inverse funds, which are designed to rise in value even when the stock market goes down. And in cases even when the funds falls, on the occasion of stock market rise, they can tender security without compelling you to sell your existing positions. In the most adventurous trading, you can think globally for setting stop and target. In case, stock prices pursue earnings, the best way to defend your stock portfolio is to make sure to go along with companies, whose earnings are on the rise. Similarly, if U.S stocks are not doing well, traders can always look out for options in the Asian Markets and vice versa.