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Wednesday, May 14, 2014

Set and Forget Forex Trading 2

Less is more in Forex: ‘Set it and Forget it’

So how does the aspiring trader achieve consistent profitability trading the Forex market if we are genetically primed to over-complicate it? The very first step in this process is just accepting the fact that you cannot control the uncontrollable Forex market and checking your ego at the door. The Forex market does not care what you have done in your life before; it has no emotion and is not a living entity. It is an arena where human beings act out their beliefs about the exchange rate of a certain currency pair. These beliefs are a result of emotions, and human emotion is very predictable when it comes to money. The point here is that the people mentioned in the previous section who are doing extensive amounts of research and trying to find the “holy grail” trading system are the ones who are trying to control the market and thus trading based off emotion. These people are providing the predictability for the professionals to take advantage of.
The paradox here is that professional traders may actually do less technical and fundamental “homework” than amateur / struggling traders; pro traders have mastered their trading strategy and they simply stick to their daily trading routine and see if their edge is there. If there edge is not present, then they just walk away for a while because they know that the Forex market is a continuous stream of self-generating opportunities, thus they do not feel pressured or anxious to trade. If their edge does show up then they set their orders and walk away, accepting the fact that any further action will probably work against them because it will be a vain attempt to control the uncontrollable and would not be an objective action.
The logic of set and forget forex trading is this; if your trading edge is present then you execute your edge and do not involve yourself further in the process unless you have a valid price action-based reason to do so. Traders that decide to mess with or tweak their trade once they enter it almost always kick start an emotional roller coaster that leads to over-trading, increasing position size, moving their stop loss further from their entry, or moving their profit target further out for no logical reason. These actions almost always cause the trader to lose money because they were not objectively thought out, but were instead influenced by an emotional reaction that was caused by trying to control the uncontrollable.
In the chart below, we see an example of how many traders get into trouble by being too involved with their trades. As the market retraced back toward the entry point of the pin bar sell signal, emotional traders would have probably exited for a very small profit or near breakeven because they felt “scared” or “nervous” that they might lose money on the trade.
emotional trading In the chart below, we can see that just as the market got to about the low of the pin bar sell signal where most traders would have entered, it stalled and then fell significantly lower back in-line with the downtrend. Disciplined traders who do not “meddle” in their trades for no reason would probably have still been short and would have clearly made a very nice gain. Note how a traders could have waited for an opposing obvious price action buy signal to exit the trade…this is exiting on logic and price action rather than emotions like fear or greed.
patient trading

Make Money and Save Time by Doing…Less?

It is a well-studied fact that traders who trade off higher time frames such as 4 hour, daily, and weekly charts and hold their positions for multiple days, make more money in the long run that traders who “day trade” off intra-day charts. The reason many people are attracted to day trading is because they feel more in control of the market by looking at smaller time frames and jumping in and out of positions frequently. Unfortunately for them, they have not figured out that they have the same amount of control as the swing trader who holds positions for a week or more and only looks at the market for twenty minutes a day or even less. That is to say, neither trader has any control over the market, but day-trading and scalping gives traders the illusion of more control. The only thing we really have control over in trading, is ourselves.
The ironic fact about Forex trading is that spending less time analyzing data and finding the “perfect trading system” will actually cause you to make more money faster because you will be more relaxed, less emotional, and thus less likely to over-trade or over-leverage your trading account. Many people are attracted to speculative trading because they want a way to make money that is “less difficult” than their current job, but they soon forget about that and start spending countless hours digging themselves into a huge psychological trap that most of them never dig out of. All you basically need to do to consistently make money in Forex is master an effecting trading method, develop a written out trading plan based on this method and have a solid risk management strategy, you can then check the market one to three times a day for ten to twenty minutes each time. If your edge (price action strategies) is showing up than you set up your entry, stop loss, and target and walk away until the next scheduled time to check your trades.
Trading in this manner actually elicits a snowball of positive habits that work to further perpetuate your trading success. This entire article can be summarized by the following two sentenes: People who spend more time analyzing market data and trying to perfect their trading system inevitably induce a cycle of emotional mistakes that work to increase their trading failures and eventually result in lost money and lost time. People who realize that the market is uncontrollable and build their trading plan around this fact will inevitably arrive at a “set and forget” type mentality that induces an emotional state that is conducive to on-going market success and consistent profitability. The trading method used is not as important as the psychological or risk management aspects of trading, but generally speaking, a method that offers a simple high-probability edge such as the price action trading method, is the best method to use to maintain your “set and forget” mindset.

Success in Forex = Learning + Practicing + Update Knowledge

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