Forex Success Recipe

Managing Disappointment in Forex Trading

2013-04-23T13:07:00.002-07:00

One of the biggest challenges in forex trading is managing disappointment. In this article we will discuss how to neutralize any onset of trading disappointment This destructive trading emotion is the source of both trading losses and a large amount of stress.

Let's look at how disappointment can ruin even a good trade. For example, you enter a short forex trade on the EUR/USD and the price quickly hits your profit target of +40 pips. You feel pretty good about your results until you see that the price keeps going and you could have had a much larger gain. So now instead of viewing your +40 pip gain as a positive thing you now start to view the trade as a negative because "You could have had more."

So, if you're not a disciplined trader, you start to look at ways to get back in the market to "earn the pips that you just missed". Your next trade is a loss, so now your disappointment is snowballing because you could have had +125 pips on the 1st trade, or at least the +40 pips that you originally took - but now you are at only +15 pips for the day because of your most recent loss. If you're not careful at this point your disappointment could result in even more losses.

I can easily cite this example because it has happened to me more than once. However, I have learned a few simple (not necessarily easy) steps to help keep trading emotions in balance.

Solutions

Let's begin by determining why we are disappointed in the first place. Disappointment comes from an expectation. My wife, who works in the counseling field, has often stated that an expectation is a premeditated resentment. I believes this applies to trading too. So, if we expect ANYTHING from the market we are setting ourselves up for disappointment & resentment. So the 1st step is remove all expectations with regards to our trading.

Secondly, once you feel any sense of regret or disappointment after a trade - Close your trading platform until the feeling passes. This could be a short time period or even for the rest of the day.

Once your emotions are more balanced re-open your forex trading platform & WAIT for the next good trade based on your clearly defined trading system.

So you're saying simply stop trading once disappointment sets in?

Yep! Like I said it is simple but not necessarily easy.

A good test to use is if you're still thinking about your last trade...

then you're not quite ready for your next trade.

Why Forex Expert Advisors Don't Work Long Term

2012-07-28T07:44:00.001-07:00

Maybe you're like me and have spent countless hours & money testing various mt4 expert advisors - only to find that they don't work long term. They all seem to work for a period: weeks or even months - but then the EA becomes very unprofitable.

The main problem with expert advisors is that most of them will work for only certain market conditions and as markets evolve over time (sometimes very quickly) the EA doesn't adapt to be able to remain profitable. The forex trading market is a living breathing organism with a mind of it's own. Yes, trading is based on patterns and trying to predict what will happen next based on the currency's trading behavior - but what do you do when the trade patterns are constantly changing?

The concept is great - plug in a $99 piece of software and allow it to make all of your trades. Then sit back and watch your account grow into a million dollars in the next 12 months.The goal is to generate profits in the forex market without becoming attached to a trading screen all day. However, I believe the old adage "if something seems too good to be true - then it probably is" definitely applies to using MT4 expert advisors.

Some trading systems use a high stop loss of 300 pips and they are able to "show" great gains for awhile. But sooner or later these automated 4x trading methods all experience high losses. Our goal with Forex Success Recipe is to have a higher avg win than our avg loss.

All of our real-time trade alerts are generated by a live trader using a live account not simply by a piece of software. Now we have some of our trading strategies that are semi-automated but it is our experienced trader that decides when to use any particular strategy.

We actually use a set of free expert advisors, but these EAs don't place any trades - they simply help us manage the trades after they are placed.

In conclusion, to further illustrate my point - please visit the New York Craigslist site & look at accounting/finance jobs and see if there are any trader jobs listed. You will find (most of the time) companies that are still hiring live traders. If the companies with the latest trading technology and the most sophisticated algorithms are not simply trading with bots then that should tell us something.

Manage Daily Risk With Free Forex Trading Expert Advisors for MT4

2012-07-16T09:10:00.002-07:00

For quite some time we have been using a set of FREE MT4 expert advisors to help manage some aspects of our trading. We do NOT completely depend on an any EA to issue new trades but for things like setting TP & SL, moving stop loss to break even, and managing daily risk - these are great free tools.

We found these from a company called MQLHome.com. We thought we would pass this information on to our Forex Success Recipe subscribers & blog readers. There are actually 5 free EA's and they all can be found at this web site.

One of free 4x EA's that we use is called the MOMT 5 EA. We use it to manage our max daily risk. To use this MT4 EA - install it on your trading chart per the instructions. You will be able to set the max daily gain and the max daily loss. We do not use the maximum daily feature - so we simply set that value very high.

To calculate your maximum daily loss for your 4x acct - simply multiply your account balance times your preferred daily risk amount. For example, if your forex trading account has a balance of $2,000 and your only want to risk 5% per trading day - then you would input $100 in the "Loss_Limit" input field.

Now once your cumulative loss for the day reaches $100 - the EA will automatically close any other order that is opened for the rest of the day. This is a very powerful tool to prevent a large daily drawdown from taking place in your account.

The Sport of Forex Trading and Developing Mental Acuity

2012-07-13T19:32:00.003-07:00

Here is one of my forex trading rules: "Know when I am done trading for the day - and stop!"
To illustrate this, let's think about sports for a minute. Both Forex trading and sports involve a high degree of mental focus. However, all sports include some type of limits. For example, in football you have 4 downs to get at least 10 yards and in baseball you get three strikes before you're out. Also, basketball gives you 24 seconds to make the shot or at least hit the rim.

Can you imagine any one of these games without the limits or the rules? It would be chaos and certainly not any fun to watch.

The rules in sports also provide the athletes a "mental break." Sometimes a coach will even step in and put an athlete on the bench - even if for a play or two. The coach is not necessary punishing the struggling player, but rather the coach is actually helping the player. Coaches understand psychology very well and often the player will come back with stronger mental acuity after his time out of the game.

Well, since Forex trading doesn't have any built-in rules - we have to create our own.

This is another crucial piece of Forex trading psychology. It's important to set some type of limits on each trading day. The currency markets are open 24/5 - so they do not provide any type of limits to prevent over trading. In addition, most traders do not have a coach "to take us out of the game to give us a mental break."

Therefore, we must be able to manage ourselves and know when to STOP trading for the day.

Here at The Forex Success Recipe, we use some specific rules to control our risk such as using a Max Daily Risk. If we ever reach -50 pips for the day - then we stop trading for the day.

However, some trading days require more of a subjective rule. For example, when we are negative from a few trades and then we still manage to at make at least a few pips - then we will often take the small gain and call it a day.

This can be compared to a football team that is on the 5 yard line and keeps struggling to get into the end zone. After multiple attempts and the failure to score 7 points, they will go for the field goal and settle for the 3 points. Even though the team didn't get the touchdown, they are still mentally better off by at least getting some points.

Even trading days with little or no gain should still be viewed as positive trading days. Maybe not in financial profits - but rather in the preservation of your mental acuity. Keeping your trading mind sharp is a must for your long term forex trading success.

Shopping Trip Reality - Free Forex Trading Tips

2012-05-03T11:04:00.002-07:00

This article deals with a very basic concept of currency trading that for some unknown reason seems incredibly difficult to master (speaking from my own trading experience)

I like to use simple scenarios to explain some of the huge forex trading pitfalls:

Shopping Trip Reality

Have you ever felt like you "missed out" because you left too many pips on the table? You might be happy with your +50 pip gain - that is until you see the currency trade go +150 more pips in your direction. What about when you "cut your losses short" only to see the trade reverse and go back in your original direction.

The reality is you will NEVER get all the pips that the market has to offer - it is simply impossible. The quicker you accept this - the more brain cells you will save from being stressed out.

I call this tip Shopping Trip Reality - because have you ever gone to the grocery store and walked out mad because of all the groceries you didn't buy. I mean there is a WHOLE STORE that you could have had - right?

This seems silly but it's the same with forex trading. Get in the market & take the pips that you can and then leave the market (in other words shut off the your trading platform for the day)

The next time you find frustration creeping back into your mind because of the "pips that you missed" - simply think: Shopping Trip Reality.

How to Stop Self Defeating Forex Trading Habits

2012-04-21T07:18:00.000-07:00

Trading is about 5% mechanical and 95% psychological. If you can win the mental battle then you can win at any type of trading (forex, stocks, bonds, commodities, etc)

Here is today's Mental Trading Challenge

Stop trying to "Beat The Market"- Trading isn't a video game!

I remember when I was younger I would play Pac-man or Galaxian at the local arcade. I would keep trying to get a higher score until I ran out of money. Fortunately I never took too much money with me to the arcade. This mindset is ok when you are playing a video game - but it is Not OK when trading.

This concept seems simple - but what is the first thing most people want to do after a losing trade? Most traders want to hurry up and trade again to win back their previous losses. This is called Revenge Trading and it almost never works! If you are revenge trading then what you are doing is continuing to pull another quarter out of your pocket to play the game again - except the trading losses are a lot more than a handful of quarters.

This mental trading obstacle can become an even bigger challenge when trading the Forex Market. This is due to margin availability, the speed of the market, and the ability to place a lot of (losing) trades in a very short period of time.

Here Are Some Solutions:

Have a well defined trading plan that you are committed to following 100% of the time
Decide how much you want to risk per trade and per day. For example, you may decide to risk 2% of your account per trade and a total of 6% per day.
I have found that using a max daily risk saves me from the self defeating behavior of revenge trading.
Close your forex trading platform when your max daily loss occurs. This removes the temptation to get back in the market. Clear your mind and try again tomorrow
Use a proven and effective forex auto-trading strategy. This method will completely remove your emotions from your trading.
Learn more about Trading Psychology by reading a book called Trading In The Zone by Mark Douglas. This book is a must read for any serious trader.

Missed Train - Free 4x Tips & Strategies

2012-04-18T18:40:00.001-07:00

This is another article that deals with a very basic concept of currency trading that for some unknown reason seems incredibly difficult to master (speaking from my own trading experiences)

I like to use simple scenarios to explain some of the huge forex trading pitfalls:

Missed Train

How often have your turned on your 4x trading platform and seen that you "just missed" a good entry point. I mean if only you were looking at the charts 5 minutes earlier - you would have surely gotten in the trade and it even looks like it would've been a good trade too!

So what do you do? You decide, that even though the price is 20 pips away from your original entry point, to still get in the trade anyhow. I mean it really seems like the trade has potential - right?

WRONG! What too often happens in these situations is the trade reverses right when you enter because you are now entering the market at the wrong price. Logic has left the building and you are now trading from pure emotions.

You have entered the trade because you're feeling that you just missed out on a great opportunity.

I call this tip Missed Train - because have you ever just missed a train? Did you jump down on the tracks and begin chasing the train? What if you REALLY needed to catch that train - would that have caused you to actually Chase The Train?

Any sane person would say: "No! I would never chase a train down the tracks!" But how many of us perfectly sane & intelligent forex traders chase a trade that we just missed.

The next time you allow emotions to take over because of the "trade entry that you just missed" - simply think: Missed Train & wait for the next TRADE to come along.