New Forex Traders: Welcome to a World of Uncertainty
09/06/2010 12:01 am EST
It has been another week and another batch of new forex trading students for me. One of the aspects of meeting students in the flesh that I especially like is when I see them have the old "light bulb" moment. It is most gratifying to witness a novice trader making educational progress and knowing that when they leave the class to tackle the market alone, they are fully prepared for all the hurdles the market has to offer. They have been trained to protect their money with solid risk management techniques and been shown how to plan the trades without emotion as they look for only the lowest-risk and high-potential trading opportunities the market has to offer. The typical novice student usually comes to a class with a predefined perception of the markets, and it is my job to show them the reality of how Forex really operates.
In my quest to educate and advise my students in the most effective way, I always remain totally honest about the experiences that await them on their upcoming trading journey, and this includes preparing them for not only the good times, but also the bad. In any teaching environment, I always make it my goal to raise the bar of awareness among my students so they are fully prepared for all the potential outcomes of their trading career. I have found the most effective way to do this is through a series of "reality checks" aimed at not focusing on the potential rewards that the market has to offer, but rather the pitfalls and traps to be cautious of instead. You see, if we only think about making money and reveling in trading glory, it is very easy to fall off track and deviate from the key requirements of successful and consistently profitable trading.
Through my courses, I show the students how to analyze the market in the most objective fashion as many of my readers already know my own trading methodology is centered around the fundamental aspects of supply and demand. In my opinion, the most simple and effective process of low-risk and high-reward trading involves buying low and selling high. I like to illustrate the power of being able to spot the opportunities on any chart and across any time frame, and over the course of the week, I train the students how to do this for themselves. This week alone has offered us some truly impressive trades, a number of which have exceeded risk-to-reward margins of up to nearly ten-to-one. Now don't get me wrong, these don't come up every day, but if one remains as objective and disciplined as possible, results of this nature can be achieved by anyone who knows what they are doing. I see eyes light up in the room when the trades work out, and it is a truly great thing to witness a student seeing the world of new possibilities unfolding before them. However, each and every time I teach, I also get another common reaction from other students as well, and this could be almost described as a pang of fear. Let me explain.
Only this week in the class, I was showing the class a trade that I had identified a few days before and that had filled while I was teaching. It was one of those trades that met entry and pretty much immediately set off in the right direction, reaching a five-to-one profit target within a few hours. As I walked the students through the trade setup, a member of the class asked me the simple question, "What if the trade hadn't worked?" I replied by saying that it didn't matter, as I was risking just 0.75% of my account equity on the position, and to me, a stop out was no big deal. They happen time and time again and that is just part of the game. After my response, the student then said to me, "Was there anything to suggest that the trade was more likely to work than not?" I then responded by saying that the trade had met the requirements of my trade plan and that it had a high probability of working, but that I accepted that this also did not guarantee a win. Upon hearing this, the student's face dropped. He could not get his head around that fact that I seemed almost nonchalant about the outcome of my speculation, but I also knew from my teaching experience what else was going through his mind.
Here, just like many times before, I had a student who felt uncomfortable about the fact that there is never any guarantee of a trade working. He was looking for any telltale signs that would have warned him in advance if the position had a lower chance of turning into a winner. I asked him what was really behind his question, and to his credit, he said that he was searching for a way to prevent a loss. I admired his honesty, and only when a trader is completely honest with others, and more importantly, with themselves, can they really look for success in the markets. Making this crossover is about acceptance and realizing that trading of any kind will never be a process of absolutes. The sooner we can accept that nobody out there really knows what the market is going to do next, the sooner we can relieve the pressure to be right. Ironically, it is the need to be right that often costs the novice trader dearly, as they typically do not follow any kind of plan, jumping into the market and changing the parameters of the playing field midway through, all in the quest to be right. Let go and accept that this is an impossibly futile effort from the very start. Trading is just like life. We live our lives day to day and never really know what is coming next. Sometimes, unexpected good things happen, while other times, something bad occurs right out of the blue. Often we live out our days according to routine, and things mostly work out as expected, but we all know that surprises of some kind are always around the corner. This knowledge doesn't stop us from living our lives though, does it? Trading my friends is no different to life at all. Accept the risks, understand the rewards, and just take each day as it comes.By Sam Evans, instructor, Online Trading Academy