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If you would prefer to skip directly to the first section of the school you may do so here, or choose any section from the left menu. I started out in the industry as a typical retail trader, introduced by a friend I became confident that like so many things before, this was something I would master. I realized that it would take work. I opened a few small accounts at several brokers and made some money at some and lost money at others, but overall I lost a small amount of money. I came to realize that forex was an efficient market and a negative sums game that essentially required predicting the future more accurately than not. Surely it could be overcome but I realized the gains I wanted to achieve based on my available risk capital were not realistic unless I was willing to continually employ tactics that exploited broker anomalies, latency etc. and would essentially be considered cheating. These methods would go against my own personal beliefs and faith, and I realized I must travel another route to achieve my goals. I was forced to focus on other things where my talents could make a bigger difference than in retail trading, as I had no interest trading other people's money.

After a few years had gone by and I had experienced some business success, I opened a much larger account than the small ones I had initially opened. All the money I put into the larger accounts was risk capital, meaning while I was not exactly looking to lose it, it would not impact me psychologically in the slightest. The small account I had previously opened I was looking for very large gains relative to my trading capital, and my first motivation was certainly not protecting my equity. The second time around, with my much larger account I was much more serious. My primary motive was protecting my equity against loss. My trading was very infrequent, and it was only during certain times where I felt there was almost no way to lose that I would place a trade. I also didn't have the time to constantly pay attention to the market, so I'm sure I missed plenty of opportunities but in contrast I was not glued to my computer looking for opportunities and instead seeing mirages. Over the 2 years or so I traded my larger accounts I did well, making a lot more than I had lost the first time around. With so much work and projects at hand I eventually had to once again give up trading temporarily, but I do plan to return, and maybe even when I have enough time code some EA's based on ideas I have been documenting for years.

Below, I want to offer some of my own trading guidelines, but first I want to tell a story regarding retail traders I have encountered over the years. Many traders first enter the market believing this is their way to make it big, to fulfill their dreams. Indeed opportunities exist, if you can even keep up sustained modest gains of 30% per year with minimal risk people will be throwing money at you left and right. If you have significant risk capital and uncanny trading skills then your performance in the forex market may well trump your performance in other markets like equities and futures. Others like myself love anything that presents a challenge. Trading forex can be a very fun and rewarding activity when done responsibly, but then there is the times it is done irresponsibly. A few years ago when we had a live chat room, my partner and I had several phone discussions with a gentlemen that wanted to quit his job and trade forex full time. This gentlemen I believe had about $5000 in risk capital, although I would debate whether that was actually risk capital or just the sum of all his savings. He lived in the US, so while the potential winnings from 5K might go a little farther than say, Europe, they wouldn't likely be enough to live on. This person had no history of success, little trading experience, and obviously expected gains of around 100% monthly just to sustain his lifestyle. Here is the worst part - the man had a wife and kids. I told him absolutely not, this is the worst idea he could possibly think of and he needed lots more practice, a long record of success, and either more risk capital or people willing to invest with him. Needless to say, he did not listen and went ahead with his plan. He lost his home and has struggled ever since. To this day I do not know what became of him, but I have talked to many others just like this gentlemen, and everytime I do I feel terrible if they have a spouse and children. It is just downright irresponsible and unacceptable and I hope that anyone reading this will think twice before making such a radical decision. It is 100% normal to have thoughts of quitting your day job to trade forex, it is 100% normal to work hard and prepare for the day that may be possible, but in most cases it is a different story entirely to suddenly depend on forex winnings for your livelihood and savings. You have been warned :)

Now, onto some of the things that personally are important to me as a trader. These may differ from trader to trader and there is not always a right answer, but if you are new, or what you are doing isn't working, it is worth considering the points I make.

  • Forex Is a Particularly Risky Form of Investment

    Forex is indeed a risky investment and risk varies to a large degree depending on how much leverage is employed. The availability of high leverage is common in forex. There is market demand for high leverage and perhaps a few traders can successfully exploit the availability of high leverage, however we recommend that traders use no greater than 1:10 leverage. Even if your account has 1:100 leverage or even higher, you don't have to use it all, nor do we advise it. The huge losses that can occur as a result of high leverage are very likely to negatively affect your trading psychology.

    Besides the availability of high leverage and the massive loss of capital that can result from over-leveraging, forex is risky because the market has a very high probability of moving both ways, both up and down on any given currency pair. While this can certainly be considered a good thing at times, like when you are on the right side of a trade, it makes speculating on the direction of currency pairs a complex affair relative to markets like equities where there tends to be upward momentum with occassional crashes.
  • The Odds are against You

    You pay your dealer or broker a cost for every transaction, whether that be in the form of a spread on the amount you can sell and buy at, a commission, or both. Similar to how in a casino the house has only a very slight edge, so it is true in forex and this is referred to as a negative sums game. If you continually enter trades without a strategy that overcomes the odds being against you and turns the odds in your favor, your account will dwindle down to nothing. Those who talk about limiting your risk, that's great, but all limiting your risk will do without a winning strategy is delay the amount of time it takes for you to lose everything. How much the odds are against you depends on your trading strategy and broker. A trader using a 1000 pip stop loss and looking for a 200 pip take profit will be must less affected by transaction cost than a trader with a 10 pip stop loss and 10 pip take profit. If the spreads is 2 pips and your TP and SL are both 10 pips, it means you need to lose 8 pips to lose the trade or make 12 pips to win the trade. This is a HUGE house advantage. Besides trading style, the way your broker operates can make an impact as well. Some brokers employ dirty tricks like freezing their servers and price feeds, throwing in bad ticks intentionally (note that bad ticks will inevitably be thrown by any broker in rare cases but the honest broker will restore your trading account as if the bad tick never occurred) to make you lose, passing on slippage that benefits the broker but keeping any slippage that benefits the trader (again, slippage is inherent in financial markets but it should be about equal in favor of the trader and broker). Even some of the biggest most highly regulated brokers have been caught cheating clients and going completely bankrupt leaving their clients with nothing, at the same time trading with a small, undercapitalized broker is obviously not advisable.
  • Margin, Margin Calls, and Leverage

    It is important that you understand leverage and position sizing and it's impact on risk and margin requirements. There are many good resources for this on the internet, and a read through our school article at https://www.cashbackforex.com/en-us/school/tabid/426/ID/435512/leverage-lots-and-margin will help to educate you. Ensure you are always aware of the available free margin on your account. Once you have no available free margin in your account, all of your positions will be closed out automatically. This is referred to as a 'Margin Call' and occurs BEFORE your account equity reaches 0. If you are trading with low leverage and reasonable stop losses your available free margin should not be a big concern, although you should always monitor it.
  • The Downsides of Trading with Small Risk Capital

    It is important you trade both with money you can afford to lose, and enough money that small percentage gains will 'feel' sufficient. Trading with money that you cannot afford to lose or will negatively impact your life or mental state in any way is very likely to negatively affect your trading psychology. One example of a very bad idea, in our opinion of course, is to trade using retirement funds that you are likely to need in the future. Another bad idea is quitting your job under the presumption that you can make adequate money trading forex when you have failed to do so on a live account for a lengthy period of time already. Trading with an account that is very small can make small percentage gains feel like they are not worth your time, causing you to employ higher leverage and risk to try for larger gains, and the larger losses that may result are also likely to negatively affect your trading psychology. The caveat here is that you should not deposit a large sum of funds until you have gained the necessary trading experience and established a reasonable likelihood of success. When trading on a small account, it is imperative you do not fall victim to the desire to make money as a higher priority than protecting your account equity.
  • Remember that analysts are entertainers first and foremost

    Their primary job is to get traffic to a website or television station, or in some cases attempt to persuade the market to trade a certain way that benefits them. Their primary concern is not necessarily making money and typically there is no proof a particular market analyst has a track record of making money trading the markets. Also, let's say they were traders but would typically only trade once per week, yet they are forced to write an article every day and have to come up with something to say. Reading good solid analytics from professionals can certainly be helpful, just be mindful of their first order of business. In the forex market, analytics are filled with lots of amateur analysts that you would do well to stay far away from.
  • Learn basic automated trading coding skills

    Even if you want to only be a manual trader, my opinion is that learning to program in a way that allows setting up trading strategies and performing historical backtests is a great tool. You may or may not employ it in actual trading, but you can learn a lot from it by coding some of your ideas and seeing how they do when backtested. Coding in languages like MQL4 is relatively simply, it will be a bit uncomfortable at first but using the right resources to learn from and with a solid day or 2 of work you should have a firm grasp on it. You may visit our school section about automated trading and coding in MQL.
  • Focus on strategy, not simple technologies

    Men especially, at least in my opinion, love the idea of adding tons of technology to their trading arsenal. By this I mean lots of extra screens, maybe a tweaked out computer. No doubt for the specialized high speed guys they may need some special equipment, but for the vast majority of traders these things won't help you, it's not going to help the market go the way you want it to go.
  • Don't get competitive

    Another one I believe men are probably much more prone to than women and one more reason women typically make better traders. Often competition can push us to our limits and help us to grow, but in trading the opposite is true. People are far more likely to talk about their winners than their losers, and a few of those people may indeed actually have a lot more winners than losers and be making positive cash flow trading forex. You must resist the temptation to compete, to place a trade simply because they just won one and now you need to win one. Your entries and exits are what comprises your edge on the market, anything that adversely affects your decisions about these entries and exits threatens to place you in a trade you really don't want to be in, and you will likely be sorry for it later.
  • Ride the horse in the direction it's going

    More often than not, when the market is trending there is a good reason for it and it is likely to continue. Of course, if this was always the case everyone would be a winner, but make sure you have a good reason for trading against the prevailing trend.
  • Trade Strategy and Risk Management

    Sometimes the market is quite sure where it is going and trots on with confidence, while sometimes there is no clear direction and the market bounces around. Personally I like to use very large stop losses places well outside where the rate is likely to go, thereby taking advantage of the ups and downs without being stopped out. I have to control my risk which means these stop losses which could be 500-1000 pips cause minimal damage to my account if they are hit. This is where risk % comes into play. It is often cited that one does well to risk 2% of their account value on a single trade. Personally, I think this risk management has to be based on trading style. For instance, one of my trades may last far longer than someone else's trade and may take profit several times within that period, since often my take profits would be lower than my stop loss in order to catch the market moves of a couple hundred pips that are more likely than a couple thousand pips. I don't believe it makes sense to risk only 2% with a such a small chance of losing and with a trade that statistically should win many more times than it loses. Based on my confidence, I could risk up to 10% on a trade, and if needed I will wait however long it takes for a price that has run against me to return so I can exit at break even. At the same time if fundamentals and market sentiment changes so much it becomes clear that I should take my position off the board, I am willing to do that. Typically, I like to place my stop losses behind strategic locations that are far off and should at least cause a bounce of they are met. Nothing in trading is concrete, this is just my way of dong my best to get an edge on the market. As you can tell, such a strategy won't yield 1000% per year, but then who can show a strategy that has made 1000% per year sustainably on a live account with a significant amount of money in the account that did not involve cheating the broker and the money was able to be withdrawn :) This strategy is of course only one of many, many strategies and I am not advocating that anyone adopt it, rather I am simply sharing my thoughts and experiences.
  • Wave Psychology Cause and Effect

    Remember when trading a market you are trading largely against the collective pyschological makeup of a group of diverse people with diverse interests and lives. Sure, there are players out there hedging for commercial reasons and central banks intervening for their own reasons, but by in large markets move on collective psychology. I see humans as something like herd animals, sheep if you will, and I see resolve as something ever-changing, unable to remain consistent. Sure, fundamental events can change the direction of the herd but I believe just as much in the ability of the herd mentality to make its own collective decision to turn as waves of collective emotion inevitably manifest, beyond precise comprehension at least for me but present nonetheless. What I am saying is that sometimes economic realities cause psychological effects, but just the same I believe psychological realities cause economic effects or at least the perception of economic effects. This one people might call me crazy for, or have no idea what I am talking about, fortunately it is the only point I make like this.
  • Use Limited Leverage but Recall Unleveraged Rates

    When thinking of the possible market movements and the randomness of some movement I like to think about forex not in terms of leveraged forex where we talk about fractions of a pip out to the third or fifth decimal, but more like dollars and cents. In the real world, how big a move is it when the EURUSD goes from 1.40 to 1.39, or even 1.4 to 1.3. These might be considered huge movements depending on the perspective of each trader, but the reality is these are not extremely large movements in terms of % change, they only appear so large to the retail trader because positions are leveraged, sometimes way too much!
  • Infrequent, High Probability Trading

    Last but far from least, only trade when you have a very strong reason to believe your planned entry and exit has a high probability of overcoming the fact you are entering the market starting with a loss, with the odds against you. Personally, I don't believe such a situation can often arise solely from a simple candlestick formation or technical pattern, much better is when fundamentals and technicals strongly converge to say the same thing. To me, it seems there are times that there are just so many variables pointing to a certain currency pair going a certain way. It may be weeks between these times, even months, but invariably that time comes when there is a high likelihood of a currency pair traveling one way vs the other. If you can properly identify these moments and have the patience to wait for them, you just might have a good chance at becoming a profitable forex trader.

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