A huge aspect of trading highly leveraged Forex markets is emotional and numerical control. The first deals with psychology.
The second deals with how much of your cash you put at risk on any trade.
Veteran inter-bank foreign exchange trader Thomas Fischer, MBA has granted a rare glimpse into the arcane world of Forex trading he prospered in for 22 years – that can offer the disciplined investor high returns. He’s going to talk to us today about discipline.
We’ve been digging into Forex deep so if you don’t understand anything in this Forex article series don’t forget that you have the opportunity to ask me questions personally as a student of my advance stock investing course, “How To Build Your Million Dollar Portfolio From Scratch” you’ll get a link to it at the end.
Onward we go with our interview…
Q. In the first part of this article you mentioned that, “When you have a winning trade take profits and try to ride the movement/wave for as long as possible locking in profits as it moves in your direction.” This gets me thinking of how I teach Forex trading. I explain how fundamental analysis, parity conditions and so forth, help in forecasting the major trend on a monthly and weekly chart [to spot longer term opportunities]. Then I explain how technical analysis can be used to drill down into a disciplined strategy [for entries and exits] on the daily chart. Your comment of movement/wave gets me thinking of things like Fibonacci rulers and Elliot waves. Could you elaborate on what you mean by movement/wave?
A. I was educated as a trader in the good old days without technical analysis. We had voice brokers and could get the feel for the market listening to the screaming and shouting. I do realize however that today all traders use technical analysis and it does give you an indication where a certain currency pair is moving. I guess the charts become self-fulfilling because everybody is watching the same charts. It is however important that you pick your own instrument/chart and get to know the background. I.e. Candlesticks, Elliot Wave, head and shoulders formation, Fibonacci etcetera and use that for your Forex trades. You should not jump around and use different charts haphazardly that will only lead to a lot of trades – and mainly losing trades. In JGAM we actually use all the different styles and tools. We use Fundamental analysis for picking the currency plays and technical analysis for actually pinpointing the entry/exit points. We use tight stop losses and defined exit prices for the more speculative trades and mental stop losses for longer fundamental currency investments. You can always log on to our homepage http://www.jgam.com for our latest currency and other investment ideas. I am sorry if I was a little unclear about my movement/wave statement. I did not refer to a chart but the movement of the currency pair and by wave I meant it metaphorically i.e. that you like a surfer staying on the wave for as long as possible.
Q. In the last article it almost sounds like people can’t make a living at this when you say, “You can never just log on to the computer and make a profit for a new suit or an expensive dinner with your wife – the market doesn’t work that way.” Is that true? If not what results can people expect who remain disciplined and stick to a good strategy?
A. You can make a living, and a very comfortable living as well, by trading currencies. What I meant was you cannot simply say ‘oh I am going to make some money today for a new suit or dinner’ and then make a profitable trade. You have to stay disciplined and execute trades according to your strategy and charts which are not dictated by a desire for a suit or gourmet dinner.
Q. You made the bizarre statement in part 1 of this article that, The worst case scenario is that the first trade you make is a winner, what do you mean by that?!
A. I know it seems like a strange comment but I have seen it happen so many times to beginners. The first trade is a bull’s eye and then you think ‘oh this is easy’ but it is very difficult to keep hitting bull’s eyes. There is some truth in the statement that you learn from your mistakes. If you start with a loser you will probably think ‘what did I do wrong’ and begin to trade more disciplined. When I joined the trading room back in 1978 my manager said to me, ‘I expect you to lose a million in the first year but learn from your mistakes and become a profitable trader.’ I am not saying you should expect to lose a million but a couple of losers may be the best education you can get.