Are You a Reasonable Trader?

OK, if we're playing poker, say I have $100 bucks and my opponent has $10. I can bet 5 bucks per hand all night. He has to match the same dollar amount to stay in the game. He has to risk half his money on a hand he believes in, or I can take his ante every hand. I can bet $20 and force him "all in" or he folds and gives up the pot. He's driven out of the game quickly.

In forex you don't have to match the dollars. You can trade a penny a pip and still grow a micro account by 10 or 20% per month or whatever. Everything is proportional.

I opened a commodities account with $7000 many years ago. That's not enough to trade full contracts with proper MM -- in other words, there was a minimum trade size. A few bad trades and it was over.

That's a good point for beginners to understand. When I started in retail forex a few years ago there was no such thing as a micro lot. Had I understood the principal of MM I would not have entered the market undercapitalized. As it was, I took the advice of a self aclaimed guru who said that you could make money with a $500 account while paying $1 per pip on EURUSD. I didn't understand that a 50 pip stop would equate to risking 10% per trade. That's high even for an experienced trader, let alone a beginner who is more prone to panic attacks.

Fortunately for beginners many retail brokers are realizing that they need to offer micro lots in order to attract the new, better educated traders.

Yup. And sometimes the trade still loses, that's trading.

Use one of your old blown accounts for those "impluse" trades. I've taken an account from 33 up to 47 dollars in the last month or two with trades I didn't want to take on my main account. Wish I'd done as well in my main account! But I'm following proper MM in the real account.

Anyway, back to the point, for newbies, YOU WILL HAVE LOSING TRADES. Period. Every trader has them, it's part of trading.

Therefore, you must use proper money management if you're going to stay in the game long enough to learn. That assumes you're going to trade real money, which I recommend, in SMALL amounts. Real money makes you pay attention, and you'll learn faster, even if it's just pennies. Demo accounts have no meaning, so the lessons won't either. If you can't open a live account, ok, but think of the demo as real money and when you lose, "feel" that money flowing from your pocket.

That leads to my next point, about being a "reasonable" trader. You must have reasonable expectations. Allow at least 1 to 2 years to start seeing consistent profits. Then you need to grow the account on a sane gradient, go a step at a time, either adding a little money or just growing it as it goes. It may take another year or two before you are making a living. A few years after that, if you're good at it, you'll probably be rich.

Take it on a gradient. That keeps your head on straight, and also works along with the laws of nature. If you make money 3 months in a row and decide you're ready to mortgage the house and plunk it all down and trade it, sure as hell that will be the month you take your loss, either because of the pressure of having to perform, or just the law of averages of the market -- everyone has losses at times.

What I'm saying is, if you make 10% per month for 3 months on a $500 account, then take a 10% loss on a $50,000 account, you've taken a hit and sabotaged your progress as a trader. Take it on a gradient and allow time to grow.

Hmmm, and I thought that would be one of my next points

Ok, now that I’m back on track, first I want to provide a link that illustrates the importance of effective communication:
http://www.youtube.com/watch?v=pMhICbFn2JI

If you have something to contribute to my thread, please send a PM and I’ll decide if and when it gets posted. Trading is a complex subject and even though I acknowledge the existence of much valuable information in other threads, I wish to present information in an organized, non-confrontational manner.

Now, to get back to the structure of retail Forex brokers, I first will say that I do not wish to recommend any brokers or convince you to avoid specific brokers. Please don’t PM me with such requests. I wish to speak only in general terms and thus avoid any opinionated discussions. The important thing here is that we make up our own mind about matters concerning our trading activities. That is, after all the main point of this thread. Using reason to aid in our decision making process.

As I’ve said before, we as retail traders are at a severe disadvantage compared to our counter parts, the retail brokers. Yes, I meant what I just said. We are trading in most cases against the retail brokers, not against other traders, as we are lead to believe. Why are we at such a disadvantage? Several reasons exist.

1. The broker sees the size and placement of our orders. Oh, I know that crap about the legality of such action, but retail Forex is a self regulated industry. Retail brokers are being fined for various inappropriate actions quite often lately, but that doesn’t put them out of business. Just go to the NFA website to see the spankings that they hand out in most cases. Only when a case involves fraud does the Federal government step in and really punish the perps.
2. Retail brokers control the software we use and have teams of analysts working to make certain that they don’t loose money. It’s common knowledge that retail brokers must constantly balance the number of long and short positions in each major pair or else they risk being caught off balance by an unexpected change in price that goes against them. I’m not saying this is bad or good, that’s just the reality of the situation.
3. Many new traders are undercapitalized and this can lead to many other problems that I will not discuss in detail, for now. Small stops can be grabbed by dishonest brokers in the blink of an eye. The undercapitalized trader has little recourse but to report the incident. About that, I will refer you to the CFTC web site. Read carefully about what happens to most complaints especially the ones coming from small traders.
4. Besides the analysts and software issues, there is one overwhelming fact about the Forex. It’s all about the money. Large sums of money always attract the underworld, the low-lives, scam artists and frauds. In other words, we are swimming in a sea full of sharks.

The retail market in Forex is aware that traders are becoming more educated and that the Federal government is watching them evermore closely. Even so, is it reasonable to assume that retail brokers will change substantially and offer a more level playing field? My opinion is this. You can’t remove the spots from a leopard without doing severe harm to it. The leopard will fight to keep it’s spots and merely try to cover them up.