Are these 3 Demons Haunting Your Forex Trading Strategies?

You want to be a successful forex trader. You want to retire from your 9-5 job and enjoy working from anywhere in the world. You want to spend more time with your family, and you want to provide your loved ones with the kind of lifestyle that they deserve.

Trust me. All this is possible when you invest in the forex market.

However, success in online forex trading, like all other good things, does not come on a silver platter. You have to work for it. You have to condition yourself for success. You have to change some habits, and adopt other habits of successful forex traders, and you have to open your eyes to what is really happening in the market.

What Limits Your Success as a Forex Trader?

A lot of forex traders in Kenya believe that they need an exceptional trading strategy or advanced education in finance and related fields to be successful in forex trading. Nothing could be further from the truth.

Good academicians do not always make good forex traders and people who develop incredible trading systems do not always end up profitable. Long-Term Capital Management (LTCM), a hedge fund management firm that was based in Greenwich, is a good example of how good academicians do not make the best forex traders.

LTCM’s board of directors included Rober C. Merton and Myron Scholes, two Nobel Prize winners whose contributions to the economic theory are among the most valuable in our century. Nonetheless, their articulate analytical skills and spectacular knowledge of the markets did not prevent the collapse of the firm in 1998.

It is clear that lack of trading knowledge was not the cause of collapse for the most reputed hedge fund firm in Wall Street. Instead, it was the 3 demons that finally got up with them and razed their firm to the ground.

These 3 demons, if not tamed, will also be the cause of your losses.

What am I Talking About?

Emotions.

If you trace the source of failure for every trader, beginner, intermediate and pro alike, you will realize that their failure is not caused by lack of understanding of the market. Majority of the failure in forex trading is rooted in emotions.

There are particularly 3 strong emotions, which is not tamed and handle cause the fall of many a trader.

Greed

The greed demon has to be the most tempting among traders. The demon has a long and luscious tongue that constantly whispers to you that unless you do act now, you will miss the most profitable trading opportunities in the market.

The greed demon is always on its feet. Like it is high on something. It is always urging you to enter into trades faster. It will cause you to lose focus as you rush to make trades that have not been carefully analyzed. You have to recognize this demon for what it is. It is an emancipated and empty-bellied demon since none of its exhortations for speed and greed lead to profits.

Every trader has a natural inclination to want to make money. Every trader attaches great importance to financial success. I wouldn’t be trading if I was not profit-oriented. In fact, no trader would withstand the pressure of the market if they were not driven by the desire to make money. The drive to make money, in moderate proportions, is healthy and a requisite driving force for traders.

The drive to make money, however, becomes unhealthy when it becomes the main driving force of your trading decisions; when it starts interfering with your trading decisions and trading strategies. Only logic should dictate your decisions in the market.

So, how do you strangle the Greed Demon and ensure you are making the right trading decisions?

The first step to strangling the greed demon is to ensure that you have developed a disciplined approach to trading. This will reduce the impact of impulse decision in your trading.

By developing a trading system and strictly following it from the very start, we can ensure that greed has no play in our trading decisions. You will be able to make your decisions based on a tested and proven trading setup.

Emotions can only thrive where fear and uncertainty are in plenty. To prevent fear and uncertainty, you need to make sure that you have developed, backtested and taken your trading system on a roller-coaster ride on a demo trading account.

Also, keep in mind that your desire, motivation and quench for profits will not actually make you achieve profits. There is nothing to be achieved by bowing down to the demon of greed.

Fear

You will recognize this demon by its sharp and shrieking voice that is always shouting to us of imminent dangers ahead. The demon injects second-thoughts and doubts on whatever trades you want to take.

The Fear Demon has the opposite role to that of greed. Instead of pushing us to trade like automation weapons, opening and closing positions with the speed of lightning, fear does the complete opposite. It tries to convince us that we cannot trade profitably, regardless of the meticulousness of our trading systems and the thoroughness of our analyses.

If they overcome fear long enough to get into trades, fearful traders will not wait for their positions to realize profits. They close positions prematurely, and end up making massive losses from drawdowns, commissions and broker spreads.

Apart from not taking trades and closing positions prematurely, fear also leads to more irrational decisions.

When dealing with fear, it is important that you realize the distinction between fear and conservative trading. A conservative approach to forex trading is usually a recipe for success. A conservative forex trader will be skeptical of all information he gets, but that does not stop him or her from taking action when his/her trading system shows that a profitable trade setup in in play. A fearful trader on the other hand is not only incredulous about the opinions of others but also about everything that his trading system tells him. He is always confused of what to do, where to look, and which trade to setup to take and which one to avoid.

A fearful trader does not trust anyone, not even himself or his trading system. He cannot evaluate the markets effectively as he has a gnawing mistrust of all trade analysis tools. The trader always ends up trading in a style akin to casino gambling; the outcome is always disastrous long term losses.

How can you strangle the demon of fear?

To avoid the calamitous results of fear, you must train yourself to realize that no trader ever became successful through randomness. You must be convinced that you are in full control of your choices. You must have a clear trading system that you adhere to until it proves that it is no longer profitable. All this is possible when you have a logical and sober approach to trading, something that can only be achieved through patient and persistent study of the forex market.

Another way to strangle the demon of fear is to avoid overleveraging your account and having a tight risk management strategy, such that a losing trade would not wipe out your whole account.

Euphoria

Euphoria is the queen of all forex trading demons. It promises infinite wealth in a limited amount of time.

Don’t be fooled.

Euphoria can only deliver destruction, disappointments, and destitution.

Euphoria works hard to ensure that you only see the rosy side of investing in online forex trading. It makes you think that you have somehow been blessed with the Midas Touch. It makes you think that everything you touch will turn into gold.

Most traders will least be affected by euphoria because many are aware that being successful in forex trading is no child play. While it is possible to make huge profits in a short time, such results are usually the result of many hours poured in studying forex and practicing trading on a demo account.

In case of many forex beginners who do not have background study or practice, euphoria usually results in despicable results. Beginners usually develop euphoria after a string of profitable trade setups that make the trader believe that all is rosy in the markets. As the trader gets comfortable, his analysis slackens, he takes larger unmitigated loses, and this is when the demon decides to strike.

The key to vanquishing this demon is to realize that no analysis or trading system is error-proof. A successful forex trader is always skeptical of his systems, although this does not stop him from taking trades as he bases all his decisions on logic alone. The successful trader realizes that the success of previous trades is not an indicator of profiting in future trades.

A successful forex trader does not get excited about his past performance. The next trades may or may not be successful depending on how diligently he has studied the market. Thus, the best way of killing euphoria is realizing that the success or failure of previous trades does not impact the outcome of the next trades. The success of every trade is only Dependant on how carefully you have studied and analyzed the market prior to opening a position.

Conclusion

The problems I have analyzed above are associated with trading psychology. In order to perfect your trading psychology, you must work to reduce the role of emotions in your trading decisions. You must understand that your success or failure is not a matter of luck, but a consequence of the choices that you make.

I have always pointed out that it is hard to get an unleveraged account wiped out from a single trade. If you lose all your money from a series of trades, then it is clear that luck has no role to play in that.

The best way to deal with the emotions that are associated with online forex trading is to develop a logical approach to trading. Study the market and understand its mechanisms. Understand the forces that drive price. In this website, I strive to equip you with the basic understanding of these factors and some more. To never miss any of the informative news, consider signing up for my newsletter.

 

5 Qualities of a Good Online Forex Mentor

One of the downsides of pursuing online forex trading as a full time career is the lonesomeness that characterizes online trading.

Unless you are a bigshot forex trader who reports to a bank in the morning, sits on a leather swivel chair and conducts meetings with clients the whole day, you probably won’t have the luxury of meeting other experienced traders.

But thanks to the internet, you can find a good forex mentor by doing a simple Google search.

There are hundreds of online forex ‘mentors’ on the internet. A handful of them are right here in Kenya. But not everyone who calls themselves a forex mentor is genuine. Some are out to grab your money and run. Some have never pulled any successful forex trade setups.

What are the important factors that you should consider when choosing an online forex mentor?

Here are some qualities that a good forex mentor should have:

1. Credibility

Any good forex trainer should have evidence that whatever they are saying is real. A good forex mentor should have a track record of successful forex trading (3+ years). There should be records to back up his or her claim and students that s/he has mentored to give testimonials.

2. Inspiring

A forex mentor should be someone who inspires you; someone that you can look up to. In essence, mentoring should go beyond forex trading.

Conversations with your forex mentor should include your projected goals, aspirations, money management, and possibly faith and relationships.

Your online forex mentor should have your best interests at heart. He or she should be able to guide you towards your desired lifestyle.

3. Trustworthy

Trust plays a very big role in every form of relationship. If you cannot trust your forex mentor, that relationship is doomed from the very start.

You need to be able to open up to that person about your greatest fears and aspirations. You have to trust this person’s advice and judgement. You will most probably be adopting his forex trading strategy and he will be critiquing your trades.

Most importantly, you will soon be moving from a demo trade account to a live account. Do you trust this person enough to let him or her give you the proper advice on how to trade your money?

4. Honest

The forex market is unpredictable. Loses happen as frequently as profits do. If your forex mentor promises you 100% success, he is probably not being honest with you.

A genuine forex mentor does not sugarcoat the risks involved in online forex trading. It is his job as a mentor to help you prepare for the realities of the forex market.

5. Encourages independence

Don’t fall in love with the forex market who never rebukes you to try trade setups on your own.

A good forex mentor should be able to instill confidence in you and make you feel that you can stand on your own. After all, at the end of the day, you are the one to make calls on how you trade your money.

I am not going to tell you that finding a good forex mentor will be easy or that these characteristics will immediately be apparent when you start chatting with your mentor.

However, you can always try your luck by chatting and interacting with other online forex traders in Facebook, Twitter, and forex forums.

What Should You Learn from your Forex Mentor?

Many aspiring forex traders jump into forex training programs without understanding what is in it for them. Do you know what it is that you want to learn from your forex mentor?

If you don’t know what you want to get from your forex trainer, it will be very difficult for you to find a trainer who suits you. Do yourself a favor. Spend a few hours Googling information about forex trading and absorbing as much as you can before seeking a mentor.

 

Learning Online Forex Trading in Kenya

Online forex trading is something that you can do and make a lot of money. However, before you start banking the big money, you need to learn how to trade the forex market.

In this article, I want to steal you into one of the secrets about learning online forex trading in Kenya. I’ve had the privilege to train many beginner, intermediate and advanced forex traders in Kenya. In all of them I have realized one thing. Many think that their greatest hindrance to making profits in the forex market is because they have not learned a certain technique.

Nothing could be further from the truth.

Learning online forex trading has more to do with how you handle and deal with yourself. While it is true that there are a few technicalities you need to muster before you can begin to trade profitably, the biggest challenge is learning how to control yourself.

Fighting your perceptions

The first thing that beginner forex traders need to overcome is the perception that currency trading is a get-rich-quick kind-of-a-thing.

I don’t blame you if you are looking to venture into FX as a shortcut to immense riches. This perception is created by many websites that tout forex trading as a way to make money fast and get rich quickly. In real sense, these websites do not have your best interests at heart. They want to take advantage of your newbie vulnerability to steal money from you!

Forex trading is not a shortcut to infinite wealth. Don’t venture into it if you want to make a quick killing and retire within your first year of trading. You will be thoroughly frustrated.

It is important that you approach internet forex trading with the right attitude.

Getting Your Feet Wet

Once you have dispelled all the myths that tout FX trading as a get rich quick, it is time to get your feet wet. When you are learning to swim, you don’t dive into the water head first. You first get your feet wet, test the depth of the water, and slowly waddle towards the deep end. Anything short of that is a recipe for an untimely death by drowning.

The same thing applies to online currency exchange trade. Here is a list of things that you need to do as you prepare to venture into forex trading:

  • Start reading

The first step to venturing into forex is getting an education. There are a few ways you can use to learn online forex trading, but whichever you choose, make sure that you are learning. You will need to learn the terms and lingo used in the currency exchange market as well as the strategies used to trade.

If you cannot manage to learn forex on your own, you may consider hiring enrolling for online forex trading classes in your town. Having a mentor to hold your hand simplifies the learning process and is faster than trying to learn everything on your own.

  • Research online forex brokers

All retail forex traders trade the forex market through forex brokers. However, not all brokers are born equal. Some are nothing but scams that will disappear with your profits after you’ve been pouring out your heart and soul on trades.

Some brokers require high starting capitals while others allow you to start trading with a small deposit. You will need to spend some time reading forex broker reviews and visiting their websites to understand how they operate.

Some of the things that you should keep in mind when researching forex brokers include:

  1. Check whether the broker is registered with the requisite authorities in their country of jurisdiction. This is a crucial step that will help you differentiate  real serious brokers versus those who are out to get you.
  2. What is the minimum deposit allowed by the broker? Is it an amount that you can easily raise without investing money that you cannot afford to lose? If you have less than $2000 to invest, you should probably seek those brokers who will allow you to trade in micro lots.
  3. Ease of deposits and withdrawals: You do not want to be stuck with a broker that can’t let you withdraw your profits easily. Which deposit and withdrawal channels does the broker offer? Are you comfortable with at least one of them. Keep in mind that many brokers will only let you withdraw your profits into the same account you used to fund the account.

If you have ease of mind with your broker, you will manage to allocate more time to analysis and fine-tuning your strategy. Doing your due diligence before settling on a broker goes a long way and can greatly enhance your chances of becoming the next successful Kenyan forex trader.

  • Open a demo trading account

After you have read many forex broker reviews and settled on a few that look promising, you will need to open a demo account to test how trading on their platforms looks like.

Many legitimate forex brokers (such as Easy Forex) will let you open a free demo account to pilot test their trading interface. They will even load the account with virtual money.

The free demo accounts allow you to learn more about the forex market and to practice trading with zero risk.

  • Test out some strategies

So far so good. Up to this point you should have some solid information about FX trading and a demo account. It is not time to put what you’ve been learning into practice. After you learned how to operate the demo account, it is time to test out some strategies.

I am assuming that you took step 1 very seriously and learned all that there is to learn in online forex trading. Which strategy did you think is the best to trade forex? Test it now.

I suggest that you spend a lot of time practicing trading strategies on the demo account. Devote time to your demo trades daily, and do not upgrade to a live account until you are making profits on the demo account. I repeat. Do not risk your ‘real’ money if you have not started making consistent profits on a demo account.

  • Open a live account

The final learning step is to open a live trading account. You will need a scanned copy of your original national ID card and a bank statement or utility bill.

Start by depositing a small amount into your real account and trade small lots. Better still, follow this link to get free $25.00 that you can use to start trading on your live account.

If you have gone up to this step without despairing, give yourself a pat on the back. To sum up what you’ve learned today, go slow when you are new to online forex trading. Take your time before you open a live account. Find a mentor to hold your hand. Practice on a demo account until you are sure of yourself, and once you open a live account, trade small.

Till next time. I am still yours trully. Patrick Mahinge.

Keeping Your Emotions Out Of Your Trades

In a previous tutorial, I talked about the importance of developing a solid trading strategy and sticking to it. These two skills, developing a strategy and following it, will determine how profitable you become in forex trading.

Unfortunately, very few forex traders in Kenya are able to practice this trading discipline.

But Why?

The answer lies in emotions.

Human beings have emotions that are hardwired into them. These emotions, which include fear, greed and pride, are strong beasts. You will need to understand how they influence your forex trading decisions and what you can do about them.

How Do You Keep Emotions out of Your Trades?

The short answer to this question is that you can’t get rid of your emotions.

As long as you are breathing and your nerves are alive, you are going to experience emotions. They are hardwired into you.

In fact, your decision to learn how to trade forex is driven by emotions. There is nothing as uplifting as entering into a trade and exiting with a tidy sum of profits. It makes you feel like you are high on steroids. Just accept that as long as you alive, you will be experiencing some pretty intense emotions when you are trading.

What’s the Secret?

You can’t block out emotions. The secret is to understand them, know where they are coming from, and device a plat to deal with them. Of course this is easier said than done, but I have a few tips that should help you:

  1. Put your eyes on pips, not dollars and pennies: Don’t let the exact amount of money you are making or losing on a trade distract you. The market does not know how much money you had put into a trade, but it knows where the current price lies.
  2. Swallow your pride: The forex market is not about who’s right when. It is all about making money. There is only one way to measure your success in forex trading. Are you making profits or losses? Nothing else matters.
  3. You are going to lose money in some trades: Take it to your head. No trader is immune to loses. Just like making profits, taking loses is part of the routine in the forex market. What you need is a solid risk-management strategy to ensure that you loses do not exceed your profits.

3 Pillars of a Highly Refined and Disciplined Trading Strategy

To be successful in forex trading, you must develop and refine a disciplined trading strategy.

Regardless of the type of trader you are, you will need to sculpt an organized forex trading strategy.

A solid trading strategy is what marks the difference between making money and consistently losing money in forex trading.

What is Your Plan?

A forex trading plan is an organized approach to entering, executing and exiting trades in the market. Do you have one drawn out?

Here are the 3 pillars that you should include in your forex trading strategy.

  1. Position sizing: Position sizing is something that you need to plan for before you enter into a trade. How large will your position be? By carefully planning your position size, you will always know how much money you have at stake.
  2. Where to enter the market: One of the biggest blunders that forex traders in Kenya (and around the world) is to enter trades blindly. The MT4, with its ease of use, is very tempting. However, if you love your money and sanity, you will not click on any of those buttons just anyhow. You need to determine exactly where you are going to enter the market and what you will do in case the market does not reach your predetermined entry point.
  3. Setting stop loss and take profit orders: The third pillar to developing a solid forex trading strategy is to understand how and when to exit your open positions, both when you are winning (take profit) and when you are losing (stop-loss).

That’s it!

If you muster these 3 things, you will consistently make profits in the market. You will minimize your losses and enjoy watching every trade that you make. The opposite is also true, ignore these 3 pillars of a solid trading strategy at your own peril.

These three pillars are what stands between you making profits or losing money on the forex market. It is unfortunate that many beginner and experienced forex traders in Kenya open positions on the market without paying heed to any of these.

Do you have a game plan? Is it written down? Can you explain to a 8-year old what signals you will use to enter a trade, what position you will hold and where you will place your stop loss and take profit orders? If you find yourself fumbling for the words, you need to go back to the drawing board. Refine your trading strategy.

Trading without a plan is like driving with a blindfold across your eyes. You might be able to fumble and start the ignition, but will you keep the vehicle straight on the road? Will you be able to park it?

Don’t break any of the forex trading rules, or the market will break you.

Following Your Forex Trading Strategy

[pro_ad_display_adzone id=”12455″] It is all good to have a solid trading strategy developed, but what ultimately determines your profitability is whether you follow the strategy. No matter how good you think your trading strategy is, it won’t work if you do not follow it.

Your emotions are one of the greatest threats to your trading strategies. At time, emotions will bubble, making you lose focus of your strategy. At other times an unexpected piece of market news will surface, making you want to abandon your trading strategy. Whenever you abandon your trading strategy, you become as good as the guy who entered into the forex market without any plan.

Developing a solid trading strategy, and then sticking to it, are two of the most important skills in forex trading. If I was to name one characteristic of a successful forex trader, it wouldn’t be killer technical analysis skills, aggressiveness or gut instincts. It would be a well-refined trading discipline.

Forex traders who lay down a solid trading strategy, and then follow it are the ones that survive on market from one season to another.

Before you do anything else today, make sure you have drawn out a trading strategy. In the next lesson, I will be showing you how to distance your emotions from your trades.