How to make FX trading work for you part 2
The final stages of a trader
This is the second part of a two part series on 'how to make FX trading for you'. Part 1 is here for those finding this article by an internet search. It is aimed at those people who are trying to evaluate if trading is for them or not. I used William Shakespeare's 'seven stages of man' to create a template of the five different stages of an FX trader. In the last piece we covered two stages, 'Birth : The horrible world of the rookie' and 'Toddler: Finding your feet'. In this article we shall cover the three remaining stages starting with 'Adolescence and growing towards maturity'.
Adolescence: growing towards maturity
The teenage years can be painful. You are trying to find yourself and most teenagers are not sure who they want to be yet. They try to imitate a few of the latest stars, try to be like the 'cool kids' in school, and may cringe whenever their 'uncool' parents pick them up. For this age of life I am reminded of the quote, apocryphal or otherwise, attributed to Mark Twain. This quote really sums up this stage and attitude of life:
"When I was a boy of fourteen, my father was so ignorant I could hardly stand to have the old man around. But when I got to be twenty one, I was astonished at how much he had learned in seven years."
Funny, and relatable. You know some things, but lack the conviction to really follow through with your trades. You are now competent enough to make your own decisions, know and understand how the FX markets work and the gaps in your knowledge have now largely disappeared. Alongside the basics, which are firmly down, you now understand how the equity markets impact risk sentiment. You get the effect of Quantitative Easing on a currency. You can see what is supportive for gold and silver and have got it down how the commodity currencies are moved by shifts in the commodity markets. You know what the yield curve is and what is signifies etc etc. The gaps are few and far between. However, you are still not making money or you are making small % returns money and hovering around break even.
What to do as a Adolescent
Well done. You are nearly there now. All the hard work is starting to pay off and you are within reach of your goal. Some key things to do here:
- Try and develop a consistent routine and surround yourself with other traders who are committed to the same goal as you.
- Develop conviction. From here you know how the market moves. You now need conviction. Stop bringing the stops to break even when you are only 5 pips in profit. Stop taking 2 pips of profit out of fear. Stop getting in and out and then into a trade as you flutter between opinions. Work out your plan and execute it to the best of your ability. Also, look back at those trades that you shouldn't have taken and assess what you actually did wrong. Be specific and use it as a learning curve. See this very simple sheet below which I use in my one on one coaching webinars for HYCM clients to help traders do this:
3. Actually do point 2.
4. Do not over use leverage. If you overuse leverage at any stage you will change the way your mind relates to trading and you will risk training your brain into a fight and flight response. Whenever you think about trading your mind will just associate it with stress. Good for fast actions, not good for well considered and measured trades. This was brought home to me when I set my new phone alarm one morning before a stressful event. Now, whenever I hear that ringtone from that day, I feel a level of stress. It is strange the way the mind impacts the body, but it does.
Let's now move on to the next stage of growth, 'Adulthood: Walk humbly'.
Adulthood: Walk humbly
You know that you know that you know. You have persevered through ignorance, mistakes and failure to find success. Success here, for the purposes of this article, is the ability to make consistent annual returns in the market. Leverage is now your tool, rather than your downfall. You stay out of nothing moves and your conviction levels are good. You learnt it through experience. If you have got here from a retail perspective you honestly deserve a medal. You have self taught yourself a profession. I applaud and respect your hard work and know what that took to work down an extremely lonely road.
What to do?
Now it is all a matter of working on your trading pyschology and not destroying yourself in a moment of madness. All the mistakes of previous stages are still open to you and you can still fail through bad decisions. In other words leverage can still kill you. Don't get tempted.
Now is also a time to give back. You can be a 'successful trader' but a fool of a person. Aim to give back to all the traders who helped you get where you are today. Is there a new kid in the firm on the desk? Give him a 5 mins of your time and teach him a few things. See a guy in a forum who is making a real effort, but making an obvious mistake. Show him the right way. Pass the knowledge on, as it was first passed to you.
Conclusion and the death of a trader.
So, there we have the five stages of FX trading. How long does each one take. Well, there is no set amount of time. It will largely depend on how good your trading environment is and support you receive as to how long you spend at each stage.
The canny among you will realise that I have only covered four stages. The final stage of a trader is the final stage for all of us. Death. Live life in light of your death. Trading is just one part of life. My younger brother died young and very unexpectedly on December 05 of this year (2019). It was a big shock and great sadness and a reminder of the brevity of life. All traders die, so live your life in light of that coming death and manage your money well. Do what you can, with what you've got to be a good guy. Here is a conclusion to an article I wrote for the site in September 2019 titled, 'Talking about the M-word' which seems a fitting way to end this piece:
Money is your tool
You see, money is your tool in this world to serve others. It may be just your family. That's ok, and that's good to provide for them. Ideally you provide for yourself, your dependents and have some more for those who need it too. So, you see, you have no money to lose. Don't approach trading as though you have money to 'lose'. Yes, you have money to risk. That's different though.You should always try to make the most of what you have got. Taking a risk is part of life and as soon as you enter (or even don't enter) a market you are taking on risk. You can't, and shouldn't try to, eliminate all risk. Instead, you manage it.
So, this is how I view my accounts. Whether I am trading my fund's accounts or my private account for my family. My aspiration is this: 'May I be a good steward of the funds entrusted to me'. So, copy me, and tell those trying to take advantage of you to go and take a long walk down a short pier. You have no money to lose, only money to manage. So, be a great boss. Your own.