My trading story - part 2

[Ek0]

Hello,
fficeffice" />>>
Im back again. I made a post about last year about my story begining trading and how I had doubled my account in a week. Well, I am now here to fill you in on the rest of the story and to let you know what Ive learned up to this point.>>
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To recap :>>
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Around this time last year, I began trading with $1000; I doubled my account in a week and posted about it. It is hilarious to me in retrospect because
another poster made some comment telling me to read a book titled something like "traders who end up moving milk cartons for a living" or something of the sort. Why it is funny is because after that I grinded that account into oblivion in two weeks.>>
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Oh! I bet you all saw that coming. >>
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Let me tell you why I did it and what I have learned. I have found so much information on these forums I feel like I should give back.>>
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Background and explanation of why I am posting in this style and manner :>>
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I am 20, will be turning 21 this year. No college degree, I almost finished my AA however I have been more interested with trading. Honestly at college I was turned off greatly when I would go into classes and felt like I could read the book myself and teach better than the professors. I consider myself to be pretty bright and others who know me in person will agree. I hope you take this post in serious consideration because Im not stupid and I have learned a great deal about the forex, trading, and how to become a better trading from starting from scratch.>>
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One thing about this post - Ive noticed people dont like to post actual numbers of gains and losses due to the fact that possibly they may receive criticism or whatever reason it is. However, it makes no difference to me and I think it will actually help convey the importantance of the psychological side of trading and investing. So I will make this post some what personal because I think it will help hit on certain points which other peoples posts dont do.>>
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Why I lost my account after making a 100% gain on my account (technical side) ->>
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I lost my account because I basically had not had enough experience and the psychological factors of trading blinded me.>>
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After I read the post about me moving milk cartons instead of being the guy in the ffice:smarttags" />lace w:st="on">Coronalace> commercials on the beach trading; I some what lost my edge. I dont blame them for my loss. They could have put it in different terms and to be wary. However it could have been the best thing to have happened. I truly feel now that if you havent grinded your account down once, you arent a true trader and are just waiting to lose your account sooner or later.>>
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What happened the week I made my 100% gain in a week ->>
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I was god of the market for a week. All of my calls were correct. My system was working for the environment flawlessly that week.>>
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Now, here is the most important piece of information that you can take from that last sentence.>>
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"My system was working for the ENVIRONMENT that WEEK.">>
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The market was basically range bound over all and I was using volume indicators (MACD,Stochastics, and RSI) with bollinger bands as my levels of resistance and support.>>
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I made tons of money with bad money management and taking risk. Many traders will say I was an idiot and got lucky.>>
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Thats where they are wrong. I wasnt lucky. My system worked FOR the conditions of the market and the reason I made money was because it was correct trading for the environment that week. I wasnt wrong. I was lucky that my system worked that week sure. However, I made money and retained profits. I dont care what anyone says... no matter how much risk a trader takes if they can make money and retain profits, they were trading well.>>
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I was trading well that week.>>
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SIDE NOTE : This is possibly one of the most IMPORTANT ideas ANY TRADER should accept and take into their philosphy, if you make money, are consistent, and retain profits over time; it doesnt matter if you are putting your house up for collateral to trade. Your system works and thats how you trade. It is your methodology and it works. You're an idiot to risk your life on a trade but if it works; no one can judge you, and Id want to know your system. If you are willing to risk financial ruin on your trades and you make money, retain profits, and are consistent... You are doing something right.>>
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SIDE NOTE 2: Dont trade money that you need. =] You will lose ultimately unless you get lucky. The psychological pressure you would feel would ultimately lead you to make bad decisions sooner or later and will make losing trades.>>
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Psychological side of why I lost after my week of 100% gain ->>
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The post the person made definitely had an affect on me. However I chose to try and take their warning into consideration instead of getting upset and brushing off their comment. Why? It was a valid point.>>
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The next two weeks the markets developed into more of a trend based type of market. My reversal calls werent working at all.>>
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I also felt as though I was amazing and could make more pips than the market was showing me that I should be trying for. I became greedy, I became arrogant, I lost all my money.>>
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However, what is funny is just how every trader probably goes through this and cant be told one way or another. I thought I was in control. I thought I wasnt attached to the money and I was in the perfect mindset to trade.>>
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Let me tell you how I was wrong.>>
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My mind set was "I made 1000 dollars in a week... this week, lets try and make two!">>
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I became DESPERATE looking for trades. I was trying to trade markets which didnt fit my system. I was trying to force my trades. I was opening myself up to trades just because I felt the NEED to trade. I needed to make money.>>
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I also thought that I wanted to be able to trade any environment. Which is a great idea, however, not such a good idea when you dont know how to trade every environment already.>>
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SIDE NOTE : What is the last paragraph trying to show? Stick to your system!>>
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If you are a newbie to trading, you will go through what I have gone through. Thinking I was in control when I was on a rampage of self-destruction of my ego, account, and progress of learning to trade.>>
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What I felt ->>

I felt desperation, greed, and impatience. These three things led to making losing trades extremely fast. Losing trades lead to lack of confidence, broken dreams, hurt ego, and definitely a loss of motivation.>>
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The worse feeling when trading is desperation. I was losing money and felt the need to make it all plus some right away.>>
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Desperate to make money. Desperate to find a trade. Desperate to just break even. Desperate to make pips again just so I could gain some confidence back...>>
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Feeling desperation to trade and make money when you dont even believe in your system anymore and dont know why you are losing money is a fast track way to grind your account to nothing.>>
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If you have feel this way and keep trading like I did... lace w:st="on">Illlace> tell you this. You're better off buying something or taking it to the casino and putting it all on red or black at the roulette table because your chances are better there than trading when in this state of mind.>>
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Please take these last two parts into consideration. I have had no mentor and dont really think you need one. However, it took me quite a while to learn that I actually felt this way and costed me a decent amount of money. It was definitely worth all the money in the world. However, I may as well have paid a mentor $5000 to teach me this. Yes, within about 6 months I lost $5000. Now consider my income again, $30,000(before taxes) -$5000 = $25000 income for the year. (ouch.) >>
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The next few months ->>
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After those two weeks, I took a break. I didnt have much money so I had to start saving up again. However, I didnt want to quit trading because it is my dream to financial freedom.>>
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I started depositing small ammounts into my mini account anywhere from $250 - $500.>>
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I would grind those away almost instantly. I couldnt make a single good trade. I tried to forget about the two weeks of straight losses and continue trading. After a few more weeks I began to try and learn from my mistakes, however, I couldnt figure out why I had lost... At this point, I had not realized that I was extremely emotional those two weeks. I was blinded to it. I considered the fact that I was trading under margined, I was trading with too little capital, maybe my broker was corrupt, or maybe I was just an idiot who thought he could be a prodegy and failed. I was on tilt.>>
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Being on tilt - A phrase or word usually associated with poker. However, it can be applied to anything. Being on tilt is basically consistently losing at whatever you do and not being able to change your outcome no matter what you try.>>
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I was trading blindly trying to figure out why I was losing money. I just COULDNT figure it out for the life of me though. After probably losing $2000 more of my actual income, not gains. I considered quitting. Maybe I just wasnt cut out for it. The banks have information that I dont have. Something is wrong and I cant figure it out... maybe I should just stop and save my money...>>
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Trading blindly - Trading just to trade. Trading without a system. Trading without any idea of what you're doing.>>
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However, this is about when I had my eureka moment as described in soultraders post. I was talking to a good female friend of mine about trading and just about my dreams and life. She helped me realize why I had lost my ass finally with one simple sentence. She said to me "Why are you so impatient?">>
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After she said that, it just clicked in my mind. In retrospect, I was impatient, I was desperate, I was on the fast track to going broke. I realized why I was able to make $1000 in a week from a $1000 account. I realized why I lost my 2 g's in two weeks.>>
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The most amazing feeling is having that light bulb go off in your mind. However, I must say, it is the most difficult part of being a trader and overcoming. Trying to understand why you're losing even though you are blinding yourself to the answer. I truly feel everyone must go through this... and if you havent lost your account at least once or gone through this phase... you will sooner or LATER! Hopefully not later... =]>>
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After this, I felt more motivated. I didnt have a system still, however, I had an idea and understood more and felt capable of learning more about the forex and how to win. I felt like I could progress and this was the most important thing to me. When I was on tilt, I felt like I had reached my limits. At least now I saw a future with my trading and continuing on with the forex. =]>>
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Im currently at work so I will finish this post later explaining my methodology in detail. I am writing this now because I have been meaning to make this post for a long time. I just havent gotten around to it and felt the need to do it now or else Id never get around to it.>>
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I truly feel that this part of my trading story is the most important part because it lead to all my other realizations on how to make money in the forex.>>
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Please dont think you can make money without understanding yourself, the forex, and your system. The forex is a beast and will humble you as it humbled me. I write this section to hopefully help new traders see the light in the dark without having to linger with consistent losses for too long.>>
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Come back in a bit to read the rest!>>
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[Ek0]

and we are back...

Okay, so I have explained the psychological affects trading can have. It is probably the most important thing to consider.

What you will learn after having traded for a while is that making money in the forex is easy. Retaining your profits is hard. Anyone can make good trades. How long can you make your run go?

I know people say there is no such thing as "correct" trading, however, I personally feel there IS a definition.

Correct Trading - Entering the market with a planned strategy during optimal conditions where the possibility of a gain greatly outweighs the risks of a loss.

This to me is correct trading.

My methodology-

In the short term - Taking note of resistance and support levels and entering the market based off volume indicators showing whether the trend will continue or if it will reverse.

As price heads towards a resistance or support, there are only two things that can happen, break, or reverse.

I use RSI, MACD, DMX, moving average crossovers, and price action to consider whether or not it will reverse or continue.

Use a 30 min chart, 2 hour, and 4 hour chart. I will ALWAYS use 4 hour charts to find resistance/support levels for a range trade. I always take into consider the position of price on the weekly and the daily charts. However, to find the most pertinent levels for my range trades, I will always base it off 4 hour charts.

After I have found a pair which I find to be range bound between either a trend channel, bollinger bands, or is at a support or resistance. I will turn to my volume indicators to find whether or not it will break mostly on the 30 minute and 4 hour chart.

From here, I have adopted much of the bunnygirl crossover strategy into my technical system for short term trading. I look for EMA crossover, MACD divergence, strength or weakness in RSI, and divergence in price action.

I truly believe that the most optimal times to enter trades are at support or resistance levels.

Why?

You will automatically have a better position on placing your stop loss and will be able to minimize losses by entering at these points. I personally place my stops at the point where I consider my trade invalid and I know my trade is incorrect.

Depending on the chart you use and the time frame of your trade whether it will be short or long you will need to change your stop accordingly.

So, recap.

Find a pair that is range bound, find correct support or resistance, wait for price to hit either one of them. Wait to see if a break is confirmed or divergence confirms signs of reversal.

The environment for indicators to be read optimally for range trading or short term trading must be based off faster charts, 30 min - 4 hour charts. Remember, volume indicators are for reading volume. You have to understand that in a slower market, the volume indicators arent exactly useful because there IS no volume. Learn to find when indicators are useful and how they change in different environment.

Once again, LEARN WHEN INDICATORS ARE USEFUL. Most of the time they are useless and I prefer price action over them any day.

Find signs of reversal or confirm of break by using your indicators. Indicators work well in certain environments in the short term.

Be cautious and WAIT for price to confirm either way with a moving average crossover, some sort of confirmation of price action. Why do you need to wait for it to confirm? This is because at points of resistance and support there will be profit taking and you need to filter this and make the decision of whether reversal or break will happen.

I honestly do not write how big of a stop loss to use and etc because its always different, I can explain more in detail about when I consider a trade "invalid" however, I am not here to write a book. I believe having the methodology and understand of how to use your system and why is more important so that you can adapt to the market and be a winning trader.

I dont know if anyone finds this useful at all... therefore if you do please let me know and I will possibly write more on how I trend trade and how I consider trades to be invalid etc.

Good luck new traders... Trading is easy... Getting to the point where trading is easy is a whole new test of yourself in terms of discipline, critical thinking, undestanding, and decision making.

Once you learn how to read the charts and understand whats going on... its a breeze. =]

[Ek0]

One more post to stress the importance of the psychological side of trading and how to retain profits...

Making pips, money means nothing in the forex if you cant retain profits. Anyone can make a winning trade. During my losing streak I had a 200 pip day and even a 300 pip day. It doesnt mean that I withdrew any of that money from my account.

Learning how to enter is not important. Learning when to exit and when NOT to enter is more important.

To me personally, until you withdraw that money into your bank account you still have not made any profit.

Consider that. It is not important to enter, but know when NOT to enter/exit. Retain those profits... be consistent... make money.

If you want to know more in detail, I can explain and am more than willing to. If you also are a profitable trader and would like to discuss strategy Id love to. Post in this thread or email me IMEDYES@gmail.com

I will post my trend trading strategy or at least the methodology behind it later.

[juol]

Thanks for sharing your story and the reply. I know it is one of the Psychologically stressful work to do, but you couldn't learn from the good things that happen to you anyway.

[pmha]

Hi good story,

Did you mean buy at support and sell at resistance ?

Volume? there is no volume in the forex market.



good luck

[Ek0]

Originally Posted by pmha

Hi good story,

Did you mean buy at support and sell at resistance ?

Volume? there is no volume in the forex market.



good luck

Yes, I didnt read it over because it was so long and I was tired.

Well... oscillators are factoring rate of change and momentum... so I guess you could say volume in the forex is the volume of buyers and sellers.

I suppose I could have used the term incorrectly.

Ill be posting my trend methodology later on... Ill post it in detail if people want to know.

[pmha]

Thanks for your reply,

Using support and resistance in that way is definately the best way to trade

ie. in an uptrend buy on a retest of support and in a down trend sell on a retest of resistance, trading this way allows for reasonable stop losses .

Of course this follows the methodology of buy the dips in an uptrend and sell the rallies in a downtrend.

It would be interesting to for you to post your method for finding these areas, as most traders use pivots etc for s/r which personally i find are for amateurs.


pmha

[Ek0]

Originally Posted by pmha

Thanks for your reply,

Using support and resistance in that way is definately the best way to trade

ie. in an uptrend buy on a retest of support and in a down trend sell on a retest of resistance, trading this way allows for reasonable stop losses .

Of course this follows the methodology of buy the dips in an uptrend and sell the rallies in a downtrend.

It would be interesting to for you to post your method for finding these areas, as most traders use pivots etc for s/r which personally i find are for amateurs.


pmha

You bring up a good point which I will discuss my method of doing it.

My hardest problem when first begining trading was that I didnt understand how to frame price. Bollinger bands did not always work. Pivot points and general S/R levels did not work. (Hes right, these are pretty much useless in a sense...)

One thing to remember... NOTHING works always. I stress to you, always take a mental snapshot of the market and see what the market is doing. Range bound? Trending? Is there a reason that its range bound? Is there news?

You MUST ALWAYS look at the market before doing any sort of trading and understand what you should be looking for in that pair from past price. Categorize it the pair and price and if you cannot... I suggest you stay out.

S/R levels, how I find them, and how I use them...

Historic points in price (4 hour, daily, weekly, and monthly)

I will ALWAYS before entering a trade look at the following time frame charts to see where price is at. I have found historic highs and lows are extremely relevant and are taken into consideration by all traders and banks.

Zoom out on these charts... draw support and resistance levels on points of consolidation. The more times a line is tested gives the line more relevance that yes... this is a pertinent point in price which means that it is being considered by the market.

Highs and lows are extremely pertinent especially on the slower charts, daily, weekly, and monthly.

Compare current price to where it is in comparison to these support and resistances. If not near any on the slower charts such as monthly or weekly... head to faster charts and try to find them on 4 hour charts. I would not try to find S/R on charts any faster than a 4 hour chart.

Also, I keep track of fibonacci levels on these charts also.

100 EMA

I have found the 100 day ema to be an extremely relevant barrier. (To give credit, I took this from the bunnygirl crossover strategy). As she has said, I will never trade towards the 100 EMA unless there is space to make enough pips or I truly believe that it will break the 100 day ema.

Try throwing it onto a chart, you will see how price actually does react around the level of the 100 day ema. To me, it is an extremely relevant resistance or support.

EMA Crossover - (5 crossing 20) Also taken from the bunnygirl crossover strategy.

When the 5 EMA heads towards the 20, this is another support or resistance and only three things can occur.

1.) Bounce of the 5 ema off the 20 (usually tends to happen in a trend)
2.) Crossover leading to basically possible gains until the next support or resistance.
3.) It bounces or crosses and consolidates. Basically... the lines merge or move sideways.

I have found this to be extremely relevant.

Bollinger bands and trend channels can also be useful. I would consider a bollinger band or trend channel to be relevant once the price as bounced off the higher and lower lines at least twice. From there you have to consider bounces and breaks.

Trading support and resistance levels is the way to go. If you dont understand... I will start saving pictures of how I draw out my charts and post them. Just ask otherwise I will not. =]