What most newbies must go through when trading Forex

Hi all, i stumbled on this article on my research after loosing some money in my demo account (started intentionally with $300 to about $57 in two weeks). I realised that this article sumed up what i and most other newbie traders go through. I have scaled through stages 1-3 and hope to move on to 4 & 5 very soon. Please enjoy this....

(Courtesy: Soultrader)


Step One: Unconscious Incompetence.

This is the first step you take when starting to look into trading. you know that its a good way of making money cos you've heard so many things about it and heard of so many millionaires.Unfortunately, just like when you first desire to drive a car you think it will be easy - after all, how hard can it be?? - price either moves up or down - what's the big secret to that then - lets get cracking!

unfortunately, just as when you first take your place in front of a steering wheel you find very quickly that you haven't got the first clue about what you're trying to do. you take lots of trades and lots of risks. when you enter a trade it turns against you so you reverse and it turns again .. and again, and again.

you try to turn around your losses by doubling up every time you trade - sometimes you'll get away with it but more often than not you will come away scathed and bruised

Well this is stage one - you are totally oblivious to your incompetence at trading.Stage one can last for a week or two of trading but the market is usually swift and you move onto stage two.

Stage Two - Conscious Incompetence

Stage two is where you realise that there is more work involved in this and that you might actually have to work a few things out.

you consciously realise that you are an incompetent trader - you don't have the skills or the insight to turn a regular profit.

During this phase you will buy systems and e-books galore, read websites based everywhere from Russia to the Ukraine. and begin your search for the holy grail.

During this time you will be a system whore - you will flick from method to method day by day and week by week never sticking with one long enough to actually see if it does work. every time you came upon a new indicator you'll be ecstatic that this is the one that will make all the difference.

you will test out automated systems on Meta-trader, you'll play with moving averages, Fibonacci lines, support & resistance, Pivots, Fractals, Divergence, DMI, ADX, and a hundred other things all in the vein hope that your 'magic system' starts today.

you'll be a top and bottom picker, trying to find the exact point of reversal with your indicators and you'll find yourself chasing losing trades and even adding to them cos you are so sure you are right.

You'll go into the live chat room and see other traders making pips and you want to know why it's not you - you'll ask a million questions, some of which are so dumb that looking back you feel a bit silly. You'll then reach the point where you think all the ones who are calling pips after pips are liars - they cant be making that amount cos you've studied and you don't make that, you know as much as they do and they must be lying. but they're in there day after day and their account just grows whilst yours falls.

You will be like a teenager - the traders that make money will freely give you advice but you're stubborn and think that you know best - you take no notice and over leverage your account even though everyone says you are mad to - but you know better.

you'll consider following the calls that others make but even then it wont work so you try paying for signals from someone else - they don't work for you either.

This phase can last ages and ages - in fact in reality it can last well over a year - My own period lasted about 18 months.

Eventually you do begin to come out of this phase. You've probably committed more time and money than you ever thought you would, lost 2 or 3 loaded accounts and all but given up maybe 3 or 4 times.

Then comes stage 3

Stage 3 - The Eureka Moment

Towards the end of stage two you begin to realise that it's not the system that is making the difference.

you realise that its actually possible to make money with a simple moving average and nothing else IF you can get your head and money management right

You start to read books on the psychology of trading and identify with the characters portrayed in those books.

Finally comes the eureka moment.

The eureka moment causes a new connection to be made in your brain.

you suddenly realise that neither you, nor anyone else can accurately predict what the market will do in the next ten seconds, never mind the next 20 mins.

You start to work just one system that you mould to your own way of trading, you're starting to get happy and you define your risk threshold.

You start to take every trade that your 'edge' shows has a good probability of winning with.

when the trade turns bad you don't get angry or even because you know in your head that as you couldn't possibly predict it it isn't your fault - as soon as you realise that the trade is bad you close it . The next trade will have higher odds of success cos you know your simple system works.

You have realised in an instant that the trading game is about one thing - consistency of your 'edge' and your discipline to take all the trades no matter what.

You learn about proper money management and leverage - risk of account etc etc - and this time it actually soaks in and you think back to those who advised the same thing a year ago with a smile

you weren't ready then, but you are now.

The eureka moment came the moment that you truly accepted that you cannot predict the market.

Then comes stage four

Stage 4 - Conscious Competence

Ok, now you are making trades whenever your system tells you to.

you take losses just as easily as you take wins

you now let your winners run to their conclusion fully accepting the risk and knowing that your system makes more money than it loses and when you're on a loser you close it swiftly with little pain to your account

You are now at a point where you break even most of the time - day in day out, you will have weeks where you make 100 pips and weeks where you lose 100 pips - generally you are breaking even and not losing money.

you are now conscious of the fact that you are making calls that are generally good and you are getting respect from other traders as you chat the day away.

You still have to work at it and think about your trades but as this continues you begin to make more money than you lose consistently.

you'll start the day on a 20 pip win, take a 35 pip loss and have no feelings that you've given those pips back because you know that it will come back again.

you will now begin to make consistent pips week in and week out 25 pips one week, 50 the next and so on.

this lasts about 6 months

then comes Stage Five

Stage Five - Unconscious Competence

Now were cooking - just like driving a car, every day you get in your seat and trade - you do everything now on an unconscious level.

you are running on autopilot. You start to pick the really big trades and getting 100 pips in a day is becoming quite normal to you.

This is trading utopia - you have mastered your emotions and you are now a trader with a rapidly growing account.

you're a star in the trading chat room and people listen to what you say. you recognise yourself in their questions from about two years ago.

you pass on your advice but you know most of it is futile cos they're teenagers - some of them will get to where you are - some will do it fast and others will be slower - literally dozens and dozens will never get past stage two but a few will.

Trading is no longer exciting - in fact it's probably boring you to bits - like everything in life when you get good at it or do it for your job - it gets boring - you're doing your job and that's that.

You can now say with your head held high "I'm a currency trader"


Thanks Mr. Soultrader!

Hope this was helpful.

Thanks for sharing this article

Excellent article! I'd like to think I'm at least fully in stage 3... but if I were honest I'd say I've got one foot in two and one in three.

...AggieTrader...

Hi bro, why you repost Dial thread…(take a look at http://www.forexfactory.com/showpost...20&postcount=1) ??? Good stuff really, but a repetition still repetition. I don’t know, it seems that it comes from moneytec first (http://www.moneytec.com/forums/f14/l...-trader-12879/).

anyway, still sharing is caring.

As I said in the Moneytec post, it's textbook NLP. I think traders can only benefit greatly from NLP.

Nat

Hmmm...
Driving a car looks Easy from the Outside. [I can't see !: Turn on the wipers. You know how to do that, don't you?]

Haven't checked Diall's Stickies but realisticly, it doesn't matter.
What matters is that New Traders Read This, wherever it may be posted.
It may not be precise for me but I have to admit that it is in the vacinity.

{I think the bit about the MA's is rhetorical }

Tryin' to move it to 94% fail.

tanks 4 d article very educative

Yup, that article sums it up pretty nicely.

I went to medical school as a 'mature' student. Having never been into studying of any kind, I regularly used to loose sleep and panic at simply the idea of having to know all this 'stuff' - not to mention the apparent importance that my knowledge would eventually bring others...BUT... now, on a regular basis where my mind seems apparently to have an inexaustable ability to recall 'stuff'. i realise that the pain, the financial and time investment of going to college; the way in which those years utterly consumed me, taught me the best lesson - stick at things and they begin to make sense, even though you won't always know why.

Its easy to forget that I talk with my peers in a language completely incomprehensible to the layman, a language that filled me with fear and insecurity when I first encountered it. But really I have a head full of specialised knowledge that just seems to, well, be there! A long time ago I used to be a motorcycle despatch rider in London - it's hard to imagine that after 8 years of that I had a map of that city imprinted in my brain - often it would be very difficult to give directions to someone else, but in my own head I could visualise any route to anywhere and know how long it wold take me.

An earlier post made a comparison with driving a car - everyone can remember the follish fumbling for the gearstick, but not only do you become more than adept at changing gears, you eventually develop your own unconcious feel for a change; your own style, as it were. As for the 'rules of the road', these too become ingrained and we even add our own ones to them.

So I'm getting to my point!

The ONLY rule that forex seem traders agree on is to protect and limit your losses. That's it! No matter what chart, what indicator, what time frame or what day of the week, you must pursue your own style (method), and if you find it and it works, then stick to it.

If you like to look at mint green candles on a one minute chart with retro font bid/ask buttons then go ahead if it makes staring at the thing easier, becasue at the end of the day, youre not going to see any of the supposed patterns that the market throws up unless you're actually looking at the data; drinking it in. Eventually, just like driving through the rush hour, you will find patterns, and they don't have to be flags or triangles or anything that anyone else has talked about - it's YOUR chart and YOUR style and the only thing that can tell you you're messing up is the bottom line.

Inherent in having your own style, however, I think engenders a certain amount of loneliness, which is probably why I'm writing this now! There's a compulsion to 'help' and 'invlove' others, but like in life, all advice is bad advice!

I recently tried to invlove a friend in forex trading, who regularly placed spread bets on the Dow and FTSE - he now thinks I'm mad! But the absolute beauty of forex trading is that it's the sort of Jazz piano of investment - so long as you stay in time then just about any note will do, but it's impossible to explain, you just have to do it. Ask a martial artist, a carpenter, a racing driver or any 'specialist' how they do what they do and they will have probably forgotten how.. they just can.

The forex market is abound with metaphors for life and is a strong reflection of it aswell. Remember, that interbank driven, snake of price data on your screen IS the world economy, and us lot with our 30/50K incomes from it are merely catching the crumbs that fall off the big cake of money that passes from east to west on a daily basis, but it's not bad for a few hours work now is it?

I'm gonna go now before you die of boredom. Hypocritically, I will offer on piece of specific advice for beginners, but first, here is a list of the things that are true, that you will come across again and again when seeking advice.

Protect your losses

I pressed post when i hadn't finished!

the list.....

1) protect your losses

2) mental state is fundemental - know thyself

3) keep records

That's it! My aforementioned hypocritial piece of advice if you're new is, when opening a practice account, the first thing to do is dump EVERY penny over and above the amount you plan to eventualy capitalise your live account with.

There's plenty of logical advice about not trading with ridiculous lot sizes because you never will, so whats the point of operating with a 100,000 dollar account if you're only going to start with 2 or 5 thousand? \with 100,000, a monkey could make money placing a 1 lot trade and sit on the vast margin until a swing in the right direction produces a win.

Thanks for listening - it's certainly helped me!

best of luck

Febo

This newbie is between steps 2 and 3. This is a good article-THANKS!

Really Awesome article...
where i am right now anyway?
but one thing i must emphasize and add for this article

1. DONT BE GREEEEDY
2. CUT LOSSES IMMEDIATELY
3. DONT TAKE REVENGE PROFIT WHEN YOU LOOSE MANY TIMES, PATIENT IS ANOTHER KEY

Who was the creator of those 5 steps?

I read those steps everywhere and I see all traders respect them and have those steps like "the paradigm to follow".

The guy who invented those 5 steps must be a genius, really.

I challenge this statement. I could easily write an EA that uses a simple MA-based entry, and being a robot it will always "get its 'head' and money management right". But would it be guaranteed to be profitable for a lifetime? I seriously doubt it.

Heck, if it was that easy to be profitable, we could all be forex millionaires. And the big banks and funds could save themselves millions in salaries by dismissing all of their highly paid analysts, and running these EAs instead. LOL.

One could perhaps argue that MA-based entries, if applied with some discretion (e.g. don't trade during periods of congestion, low volatility, the Asian session, just prior to high impact news, etc etc) could be marginally profitable. But, if I may be pedantic, the article did state "a simple MA and nothing else", and in any case I contend that this discretion has more to do with the "system" than "getting your head or MM right".

The first post is quite true =)

Though, dont think it will ever be boring for me =)

In fact, stages 4-5 is the most fun/interesting section..... =D

Slightly off-topic, and this is a generalized observation that applies to many of the articles that are posted here at FF........ but I'm amazed at the number of folk who say "the whole article was brilliant; the writer is a genius", instead of apparently thinking through each and every part of it for themselves. Still, I guess this is the Rookie section.

One thing that I've come to realize: just because somebody utters one profound truth, creating a moment of epiphany for the reader, it doesn't always necessarily mean that he's 100% right about everything else. (And of course, this observation also applies to things non-forex...... that's how a lot of religious cults start, for example - people blindly and unthinkingly following the advice and practices of a single individual). My experience has been that, to become profitable, the aspiring trader needs to put in many hours of study weighing up the pros and cons of several different angles, and gradually develop (and prove) an approach that he feels comfortable with himself.

great post, agree 100% with what you said

LOL, I agree with BOTH of them. Now that I've done that; I can feel that the post is right. I've for sure hit at least the first phase. I am probably too ignorant at this point to know where I am in the spectrum, but I'd like to think that I'm somewhere around 2-3. In any case, I'm not sure that agree with the person that thought they could write a bot that would do MA trading as welll as a seasoned trader. I believe that there are a myriad of things that those guys look at that they don't even know they are looking at, and that *I* certainly couldn't put into a system.

I've been looking at this for god knows how long...well look at my join date!!!

I've only ever done one $25 account but that was a bit out of the blue and a bit of fun

I've never committed big money and I never would until I'd traded successfully (not just profitably but no major swings that were essentially mistakes).

I've never bought ebooks but have read plenty of websites. Babypips is always where you start and FF is probably a good a resource as any.

The thing is though, I have tried to take in so much information over the years, my brain is overloaded so I feel I've done a full loop

He he, im knowingly transitioning from stage 1 to 2 and actually going back now to demo account trading.

Being an apprentice system whore, Im looking for some good reference material on using the charts, basic stuff, Ive been warned off getting all technical with 30 lines and 20 underlines on each chart.

I believe I can do this Forex Melarkie....but I know I cant do it yet.