There have been some emails recently asking me to help them on their forex trading because they are not successful with it. What they mentioned was that they have huge drawdowns and have a couple of losing trades and that they think their forex strategy is not woking anymore. They try to build some small profits, accumulated it and then lost it to the market again. So what is exactly happening to them?

Well, the truth is not because their forex trading system is not working anymore, you can trade with a very simple system that consists of only one indicator and can be successful too. But when you do not follow the rules of your trading system, money management and be disciplined, everything can go haywire. I can assure you that.

Let’s first talk about not following the rules of the trading system. Many people are always tempted to trade the market without following the exact steps of the system. It’s either they did not fulfil all the checklist before opening a position or they are just too anxious to go into a trade. If forex trading can be that easy, why do I still keep emphasizing that you need to follow the rules? Because we do need some technical analysis before we know whether a trade has a high winning probability, that’s why you MUST go through the checklist and follow the rules step by step. If almost every requirement is met but only one is not, you still do not go into the position because that only one requirement that is not met may be the reason that the trade may fail.

So the second part I’m going to discuss is money management. Again, I do not know how many thousand times I have repeated saying that you can only risk 1% to 5% of your trading capital per trade. A few of my subscribers asked for help as they have lost thousands of dollars( with a few thousand of capital) within a few weeks or less than 3 months. How can there possibly be so much losses if they have been following good money management rules?? For example your account has $3000, if you risk $30 (1% of capital) and go for $60 profit per trade, even if you have a bad success rate of 2 winning trades to 2 losing trades, you will still make $6o profits! Ok, the worst scenario is you lost 10 trades, so $30 x 10 = $300 only, how can you lose thousand over dollars if you follow the money management rules?? I hope I don’t have to explain this further.

Lastly, always be disciplined in your forex trading. Not matter how tempting the market condition may be, how well the price may be trending, do not chase after the price if it has gone too far. You can chase after the price if you are prepared to increase your stop losses, but that’s not the disciplined way to trade. Do not try to be faster than the forex indicators unless you are really experienced in the market and know how the price action moves. We always wait for the indicators to confirm before we take a trade, but more experienced trade will judge on price action when entering a trade.

I have always been getting emails from our subscribers asking me how to become a full time trader and what is the capital needed in order to be able to trade forex full time. Although I did mentioned that if you have a good forex trading system and you follow the trading rules, you can be successful someday. But I also did mentioned that you will need psychological control, discipline, money management and other stuffs to be successful in trading in the long haul. If you are thinking to become a full time trader, it’s good that you aim for it but you must understand the situation you are in now. Are you already trading very well currently and making consistent profits every month? Even so, are you able to overcome the psychological barrier of having to quit your full time job and switch to just trading?

There are many factors that you have to consider carefully before you step into the world of full time trading, it’s not as easy as it’s said to be. I really consider forex trading as a professional job because it’s just so specialised! Yes, everyone can learn to trade and start to money money too. But is he/she able to maintain good performance for years to come? It really takes up experience and some knowledge to sustain great trading performance. I have seen traders failed after a few years of successful trading…why? They became greedy and over confident, one mistake and they bust up the whole trading account. But that’s not the main reason why they quit, it’s the lack of confidence to trade that makes them fear trading again.

Another main factor that will decide whether you can go full time trading is the trading capital. Yes, you can trade with small accounts when you just started, but in order to become full time forex trader, you will need reasonable huge accounts. This is because you should only risk 1% to 5% of your equity per trade and therefore small accounts mean tiny loss and tiny profits, how to earn a full time income this way? Below are the 3 biggest reasons why small forex accounts will fail.

1) You Will Take More Risk. With a small account, you will have smaller gains in profits because you trade smaller in lot size. Most people will focus on the nominal value (like dollars earned) instead of return on investment (percentage growth). When you see you are doing well but the gains are small, you will be tempted to break the rule of money management and risk a huge percentage of your capital. Then one mistake will wipe out a large portion of your trading account. Therefore I recommend a five digit trading capital if possible.

2) Wrong Mindset. Most people will not treat their trading seriously if it involves only a small capital. They will think that if they lose money, they will only lose that bit. Not getting serious will get you a bad habit. Once bad habit is there, it’s hard to remove it. On the contrary, good habit takes long time to build but just a mistake to spoil it.

3) Makes You Want to Trade More. Most likely you will not be satisfied with the amount of profits you have made as it’s seem small. Most people will then think they are good in trading already and start to look for trading opportunities every day (instead of trading along the trend). There will not be quality trades everyday and the more you try to trade, the more mistakes you will make and then slowly your account will be reduced.

7) Build Up Your Confidence Slowly - By having a successful forex trading system, not only will you become more well-versed in forex trading but you will also become more confident when approaching a trading opportunity. But why do I say slowly? It’s good that you are becoming more and more confident as you win trades, but it becomes negative when you become over-confident over your successdul trades. What if suddenly you get into a losing streak? It’s possible that the losing streak will destroy your confidence completely and make you doubt your trading skills next time you identified a trading opportunity. It’s the best when you get one small loss once in a while, this is to make you wary of the forex market and train you to become emotion-free in trading, because there will sure be some losses in trading.

Do Your Homework - There is no free lunch in this world and it applies to forex trading too. If someone told you that forex can make you a lot of money fast and easy, then he’s not telling the truth. No doubt it’s not too difficult to profit from the market, but you’ll still need the skills and time to analyze the market before profits can roll in. Have a trading plan at the starting of the day, decide whether you are going to be a seller or buyer for the day and this will make your decisions easier. Although there’s no trading during the weekends, it’s the time for you to conclude what has happened for the past week and plan what you are doing to do for the following week. Most professional traders do that.

During the weekends, there’s no pressure from the markets, and there’s no need to make any trading decisions, so you can take your time to analyze how and what to trade the next week. If you have already planned to trade at a certain price level, then stick to it and not jump the gun when the market does not reach that level. You must practice self and emotions control, wait patiently for the opportunity to come and you’ll be rewarded. That’s how successful trading takes place.

9) Record Your Trading Procedures -You may think that it’s sounds amateur if you see this as a professional trader’s point of view. But if you really do that, you can see the difference between a normal, unprofitable trader and you, who are writing all objectives, mistakes etc down.

When you are opening a trade position, write down the reasons you believe that it is a good trade, go through the checklist and also write down if there’s anything that is preventing you this trade. Include in your writing journal the entry level, stop loss, profit target etc. By doing this, you will give yourself discipline and mental control. If you are too greedy on closing a profitable trade, write down why you did that and make sure you do not make the mistake the next time round. The above forex trading tips will only make you a more disciplined, risk controlled forex trader. Besides that, you will be surprised that you learn faster and succeed faster in this way.

4) Forex Charts With Multiple Timeframes - This is irregardless of the forex trading system that you use. By using technical analysis to trade, you will be spending a larger percentage of your time looking at the charts. Although there are different types of charts, but the data is almost the same with different visuals.

There are some charts that are very different and need to be analyzed. For myself, I like to use candlesticks charts. The timeframe of the chart you are using is very important. For example, if you are using a daily chart and it provides you a trading signal to trade, make sure you are also using a lower timeframe like hourly or 4 hourly to make sure they are going the same direction. A forex trading tip here is, use a longer timeframe to look for market direction and lower timeframe to enter and exit the forex market.

5) Success Rate Calculation - Besides having a successful forex strategy, we will also need to have precautions and plans because you will need to know if you have made the correct decisions. You should make an effort to calculate your winning and losing trades from time to time. It will be good to analyze the last 10 of your trades to make sure that you are still doing the correct stuffs. If you are still a beginner and have not traded much, look back at past data and see if you would have profited or lost if you done those trades. This will be a good guide on whether you are on the right track.

6) Money Management - I have mentioned this umpteen times and stress how important this can be, but still many people can’t manage it well. While it seems it’s not as simple as it may be, it’s all about how you look at the way you are trading. The first mindset you should have is not about winning but preserving your capital and try not to lose. There will never be short of trading opportunities and instead you have gained something from the trade, and that is experience. If you have already applied stuffs that you have learnt on trading, then do not be afraid to lose little money. You can’t avoid losing in trading, but what you can do is to make it small and preserve capital for future chances. From the losses, you will also learn a lesson and avoid that mistake in the future.

Another tip about money management is to know how to use leverage properly. You are advised not to risk more than 2% of your equity on your trading account. For example you have $1000 trading capital, you should not risk more than $20 for a trade. Do not be greedy to try to profit a lot from a single trade even you are very confident on a specific trade, nothing is 100% guaranteed. Using too much leverage which you can’t afford to lose will mean devastating to your account.

There are many different perspective on forex trading, some may only concentrate on fundamental analysis but some may focus on technical charts. There will be some traders who will take advantage of the leverage while others will keep away from it as the risks will be greater. You do not have to follow them, but these are general forex trading tips to keep you on good shape.

1) Basic Knowledge - This applies to whatever you do or whatever you approach in your life. How can you expect to fly when you have not even learnt how to walk? Especially for the forex market which suggests some high risk, you should know yourself, what are the risks involved and how the market works before you even trade. There are tons of forex trading systems out there, so choose your methods wisely. Define your short term and long term goals based on your character and personality.

Every forex trading strategy have its own risks and advantages. You will have to choose carefully based on the type of person you are. For example, if you are the type of person who can’t really control emotions well and very anxious whenever you trade, then you should go for a long term investment where you seldom have to monitor your trades.

2) Forex Broker That Suits You - This may be the biggest decision that you will have to make when you decide to step into the forex world. Do not rush into this because you will have to depend on your broker for the rest of your trading. Find a forex broker that really suits your style. So to do that, you will have to read up and find reviews on various brokers to find out their advantages and disadvantages. After that, extensive comparison have to be done before you choose one.

After you have narrowed down your selection to some brokers, you should be comparing their trading platforms. The trading platforms are very important because whether you are successful or not depends on that. You will find that some platforms are not user friendly and you will take a lot of time to figure it out. Try to find one which you feel very comfortable in using. Also make sure that the broker’s support and customer service will be there whenever you need it.

3) Selection of Forex Strategy and Application - There are only two primary thoughts when it comes to analyzing the forex market. One is technical analysis and the other one fundamental analysis. We shall look into technical analysis first. I’m sure you have always heard of ‘The trend is your best friend’. This is so because traders believe that the market will repeat its history and movements. There are many tools to help you to analyze the market such as levels and indicators. But there are cons as well. Most indicators are lagging and you should not just depend on that to trade.

Now the fundamental thoughts of trading. Many believe what gets the market really moving is the news of the specific country. This method is the tougher one as we can’t predict what will be the changes in a country. Not many traders use fundamental analysis as their main strategy nowadays though they still use it as a guide and reference. Whatever it is, choose the methodology that suits you well concentrate on it. Consistancy is the part of the game.

Many traders who have just start forex trading often believe that there are plenty of profitable forex trading systems out in the market. It is actually the marketing and ‘packaging’ that makes the forex products look very classy, fantastic and expensive. After all, it’s always the sleek graphics and salescopy of the products that captured one’s attention the most and the fastest. Of course people will look for prove and testimonials before buying the products, but like I say, those marketers out there can easily market their trading statement and testimonials in such a way that every traders would like to see. If you have realized, most of the prove are profitable, not much losing trades at all…why? Because everyone likes to see winning results

But it’s far from reality and I will reveal the truth. You can be sure that there are tons of forex trading products being sold online, new products are coming out like almost every week or month. But only a few products or methods are actually profitable in the long run while the rest are just too much hype. You may find some of the forex strategies very profitable in the beginning, but over several months or years, they can’t withstand the test of time with different forex market conditions and then failed eventually.

So why do so many forex trading strategies fail, which make up the 95% of the traders who ended up losing money? There are a few reasons. The first reason is the trading strategy may not be proven to be solid and profitable in the first place. In order to be proven a profitable trading system, it has to be tested out over years. Often you will find people trying out some methods, tested it only for a few weeks or months and claimed it’s the holy grail. However, the short-term good results do not last long and ends up losing money in the long run.

The second reason why many forex trading systems fail is because the market condition changes all the time. Although history does repeat itself, but the market is said to be in random walk conditions. Sometimes when you test out a system, you see some good results, but when the forex market condition changes, the system cannot be adapted to it and thus couldn’t generate constant profits anymore. This is a common problem and what can be done is to improve the system to suit all market conditions or just abandon it and look for a constant profit generating trading system.

If you have bought some forex products before and found it not profitable, you do not have to be too upset about it because you have to remember that most of them will probably end up losing money, so don’t set your sights too high on them. The trick is to learn some useful tips and strategies from there and try to use it to create your own profitable forex trading system.

If you’re new here and like what you read, please subscribe to my blog feed or sign up for free email updates for more forex trading tips and strategies.

You can also find out what I am doing now by following my Twitter here .

Recently, there are some discussions going on and that is, what is the real difference between trading forex for a living vs forex trading for wealth building. Actually it is just a thin line between both of them but we will discuss a bit since many people are getting confused about it.

Here’s the first defination for trading forex for a living. If you are using the profits of your trading to pay for your daily expenses like food, housing rent, tax, utilities bill etc, then trading is like a job to you and the profits you earned is the salary you are getting. You put all your time in it and you take home the pay (although some full time traders do not spend too much time in front of their computer). On the other hand if you are trading forex to build your wealth, then you mostly you will not be using the profits of your trading to pay for your daily expenses. Instead, you will be trading on longer term and treat it like an investment and keep on building on that.

So What Are The Approaches For The Both?

1) Mindset - If you are trading to pay for your living expenses, then that means you will have to make a certain amount of profits every month, and that income has to be somehow constant. Of course there will be some months you’ll be making more and some months lesser, but there can’t be too much variation or else you risk not being able to pay the daily expenses. So what does that mean? It means you really have to be an experienced and skillful trader before you consider being a full time trader Even that, you’ll need to have some savings as precaution because a very good trader can even lose money sometimes. A trader who builds wealth from trading, on the other hand, is able to afford some drawdowns because he does not use it to pay for general expenses.

2) Trading Frequency - Those who trade for a living tends to look for smaller profits and trading on regular basis. But my advice is, you can even trade for a living with larger profit taking targets because you only look for quality trades and not high frequency small profits trades. But full time traders do not necessary have to trade everyday to be considered trading for a living. Traders who aim to build their wealth will not trade too often. Once they find a short or long swing opportunity, they will go in and wait for a few weeks, or even months to take their profits.

3) Risk - Drawdowns do not affect wealth builders too much because their know future profits will make up for it and make even more than that, so they are taking bigger risks. For a trader who trades for a living, his forex strategy have to be different. A drawdown will mean the account size can reduce and that puts pressure on the trader as the future income will be affected. Therefore, he has to using a forex trading system that have smaller drawdowns and of course the position sizing will have to be smaller.

If you’re new here and like what you read, please subscribe to my blog feed or sign up for free email updates for more forex trading tips and strategies.

You can also find out what I am doing now by following my Twitter here .

Recently, there are a few emails asking me how do we trade news when we do not even know what’s the outcome of the news releases/fundamental reports. It’s not only just that, how are we going to handle different sources of potentially high impact news and reports that are going to hit the forex market. So below I’m going to share on how to handle those in forex trading.

I understand how frustrating it can be when there a constant stream of data/fundamental reports that is releasing every now and then, and it may hinder your decisions for your trading. Forex traders seemingly have loads of stuffs to keep track before executing their trades like countries’ economic data, who is going to speak that will affect the market etc.

Well, I’m going to give you an example here. A stock trader only has to worry about the earnings reports of a certain company, but whereas retail sales reports may be useless to them. For a forex trader, he has to worry much about interest rate change, employment and unemployment figures and some other stuffs but do not really have to worry on what the president of European Central Bank (ECB) have to say. It is possible to narrow down on the items that will have an impact on the forex market that you trade because you can choose the calendar events that that you need to focus on for a certain currency pair. You can refer to a very popular news calendar in forexfactory.com. If you are trading USD pairs, then you should look out for any orange or red coded USD news as it will affect your trade. Below are the 3 ways to approach news events.

1) Predict ahead of the news releases, speech etc. and get into position.
No one can predict where the forex market can go and what the news releases may be. So this is definitely gambling to me and I’ll never recommend this to anyone if you want to trade forex the right way.

2) Avoid the news event by waiting and not trading.
This is the best forex strategy for me when I’m a short term trader. When there is a news events coming up, I will not trade 2 to 3 hours before the news are released, this is to keep me out from unexpected results and choppy markets. Sometimes the market will be very volatile and it can only be challenging but NOT profitable for most traders. So it’s better we stay out of the unpredictable and see how the market moves after that.

3) Trading in a timeframe where intraday swings do not have much impact.
This applies to traders who are not using intraday as their strategy. Instead, they are using short swings and long swings as their trading strategy. The approach here is that when you use swing trading strategy, you will have larger stop loss and these kind of intraday swings are just small fluctuations. But of course, you have to be able to take huge stop loss and your forex trading system must be proven to be able to take in these small swings. If your system can do that, it means the news releases are already factored into your trading system.

If you’re new here and like what you read, please subscribe to my blog feed or sign up for free email updates for more forex trading tips and strategies.

You can also find out what I am doing now by following my Twitter here .

If there is anyone who told you that he/she can predict the forex price movement, you will not believe them if you are smart enough, because it can only be a lie. Science cannot move prices and neither can anyone. But when it seems so difficult to make money in trading, you can do so not only by using your forex trading system, but also by price movements.

Well, if you do not know the real reason behind why forex market is unpredictable, let me tell you. Institutional traders, banks and other huge institutions can decide what is the price of any currency pairs. Don’t get me wrong, I do not mean that they can control it, but they trade big volumes and so the prices are pushed down or up. Therefore, all of them are humans and you cannot predict what they think..which leads to uncertainty.

I know recently, there are lots of hypes about automated forex trading systems, or they called it robots. Those guys who created it know that there’s a big market out there, and they try to use all sorts of marketing gimmicks to make people believe that the robots can actually predict prices in advance. Well, if anyone can know the prices in advance, then there will be no market at all because everyone wins and no one loses…do you realize that!

Having said all of the above, one can still profit from forex trading if you can calculate the odds and trade from there. Though you cannot predict human nature, the emotions for greed and fear are always present in trading. For example, you see many trading opportunities, but are all of them have high odds of winning? If not, then you have to filter those low odds quantity and go for a high odds quality trade. With constant discipline and money management, you can do well in trading. I know we all want to have the perfect forex strategy, able to pick market tops and bottoms, but let’s face it, it’s simple impossible.

So I have a trading method here which not too many people will use, because everyone wants quick and fast profits. Take a look at a longer timeframe forex chart, maybe daily or weekly chart, and you will see trends that last for weeks or months. Most of the trends start and continue from highs and lows. You can trade breakouts according to the support and resistance levels for that currency pair. Once it breaks out of those levels, there is a high possibility of success. Get this clear, you are NOT predicting or forecasting the future price, but instead you are trading the reality of price changes. Most traders can’t trade breakouts because they think they have missed the opportunity, but remember that opportunities always arise.

If you’re new here and like what you read, please subscribe to my blog feed or sign up for free email updates for more forex trading tips and strategies.

You can also find out what I am doing now by following my Twitter here .

Hey guys,

I came across an interesting article, so I thought that you might want to know more about the article below

I am not a big casino gambler, but I have been at the venues in Las Vegas and Atlantic City, as well as in other casinos worldwide. I have observed a myriad of gamblers at the poker, black jack, roulette and craps tables. An interesting characteristic among gamblers is exhibited to me time and time again. It is this: The gamblers who appear to have money they can afford to lose usually are the ones who can win. The gamblers who appear to be using their rent or grocery money (or what I call “scared money”), and really should not be gambling, are usually the ones who lose.

You may ask, “How can you tell who is gambling with scared money and who is not?” Facial expressions, reactions to losing bets and to winning bets, and other “body language” are dead giveaways to me.

The “scared-money” phenomenon I see in casino gambling can be applied to futures trading. Those traders who are using grocery and rent money in their brokerage account and “must win” on their next trade, or else they will be forced out, have a huge emotional burden to carry. That burden certainly affects their trading psychology and ultimately their trading success.

The most common reason for scared-money trading in the futures markets is undercapitalization or being over-leveraged. A person with a $20,000 trading account should not be trading full-size S&P 500 futures contracts. A couple of moderate daily price moves against an S&P trader with an account this size could find him getting a margin call from his broker.

So, what factors determine whether a trader is trading with “scared money?” Is there a certain income or savings level a person must attain to not trade with scared money? Does one have to be wealthy to trade futures successfully? The answer is: There is no single right answer. It depends on the individual trader.

I hearken back to the all-important “psychology of trading” with an example. A person with a modest income and a prudent money-management plan can trade futures and do so without using scared money.  He or she can trade options (buying them, not selling them), or trade smaller-sized contracts offered at the Chicago Board of Trade, or even trade regular-size contracts such as soybean oil, where the “tick size” is relatively small in dollar amount. In fact, I submit that a good percentage of speculative futures traders worldwide fall into the above category.

Conversely, a so-called wealthy person with a higher income and/or savings can still trade scared money. If the better-capitalized trader holds his purse-strings too tight and cannot accept the fact that even the best professional futures traders in the world can and do have losing trades,then he, too, is trading “scared money.” I think we all know of at least one wealthy Scrooge who totes his money sack on his back and doesn’t even tip the waitresses or bartenders. Certainly, individuals like that are not good candidates for successful futures traders.

by Jim Wyckoff