The lion is an extremely successful predator not because of
its size or power but because of its endurance and analytical skills. Patient
and very calculative, it presents us with the most important qualities of a
good forex trader. In this article, I will be sharing with you the importance
of this element of success and how we can emulate the king of the jungle in
patience and strategy.
Patience is something I learnt only after losing my money. In
my early days of trading forex, I was misled into believing that it was
possible for me to earn while I was learning. With no knowledge of how the
markets work, I wired $2000 into my trading account and was already calculating
how much I was going to make from my “investment”. After loosing 75% of my
money in two trades, I googled “how not to loose money in forex” and the
results showed me what I should have done before going live. I learnt never to play with the markets
but sadly my hard earned money was gone before I was even able to understand
It took eighteen months of demo trading and strategy testing
before being able to convince myself to try again but this time starting small.
I had learnt all about money management, and was more than willing to apply it
but the memory of my first account was still fresh. This forced me to make
mistakes again. I was overtrading and didn’t wait patiently for my trade setup
to play out instead I was entering and exiting the market compulsively. I
looked again at my methods and was able to see that the cause of the problem
was actually me and not my trading method. The lesson of having the patience to
wait for the right high probability & low risk opportunity to enter my
trades has been the single biggest factor in me moving from a mediocre trader
to a consistent, profitable trader.
I have listed seven points to help you step up your trading
from good to great.
The first and most important is to get good forex education. Do not rush to trade before getting
educated. Learning the hard way is unnecessary and avoidable. The lessons the
market will teach you would cost you. You need to have clearly established your
trading edge before you can exercise the patience that is required to consistently
execute your trades. Patience is totally useless unless you know what you need
to be patient for.
Have a trading plan
and trade according to that plan – All of the best traders plan ahead and
are prepared. They have a detailed trading plan, plan their trades out, and
trade according to their plan. However,
that doesn't mean that they are always trading. Novice traders often rake up
losses because they think they must constantly be entering, exiting, adjusting,
etc. It is important to be prepared, but
sometimes it is best to patiently sit tight and do nothing in the market. Just
because the markets are open 24/7 doesn’t mean you should always be doing
Wait until your trade
setup plays out - do not anticipate a play out. Many traders loose money
this way. Use your patience pills at the right time; do not take the medicine
after death. The lion stalks his prey with unrivalled patience and waits for
the perfect opportunity to pounce and when he does he rarely misses.
"The big money is made by the sittin' and the
waitin' -- not the thinking. Wait until all the factors are in your favor
before making the trade." - Jesse Livermore
Use your sixth sense
- The advantages of accurate guts are indisputable. George Soros, arguably the
greatest trader of modern times, depends heavily on his guts. He once wrote in
one of his books “I rely a great deal on animal instincts, when I was actively
running the fund, I suffered from backache. I used the onset of acute pain as a
signal that there was something wrong in my portfolio. The backache didn’t tell
me what was wrong – you know, lower back for short positions, left shoulder for
currencies – but it did prompt me to
look for something amiss when I might not have done so otherwise.”
While you may not pray to have backache like the legendary
investor, you have animal instincts – that inner feeling that you get telling
you that you are in the wrong place. It could also be a good tool for trading.
Be a currency stalker
- The lion targets the smallest or the weakest in a whole herd of animals
and stalks it. Be a currency stalker. It is easier to trade with pairs that you
are very familiar with. I have been looking at GBP/USD, EUR/USD & GBP/JPY
5min charts for at least 5hrs everyday for 5years now. I literally breathe
those three. I know what forces move them, their relationships and all. This
puts me in position to make a very good call and apply my trading methods.
Trying to master every currency pair could be confusing. Pick a currency pair
and stalk it.
Know when to cut your
losses – If you are already in a trade and you see that things are going
badly it pays to retrench. Do not wait to get lucky. To remain in the game, you
have to be willing to endure the pain. George Soros was one of the best loss
takers in the business. He didn't care whether he won or lost on a trade. If a
trade didn't work, he was confident enough about his ability to win on other
trades that he could easily walk away from the position.
“There are a lot of
shoes on the shelf; wear only the ones that fit. If you're extremely confident,
taking a loss doesn't bother you." – George Soros
Lastly, it pays to be
aware of central bank activities especially in closely monitored currencies
as I stressed in my last article “CENTRAL BANK CURRENCY INTERVENTIONS AND 2012
EXPECTATIONS” - In today’s markets central banks have become more active than
ever before. In 2011 alone there were almost half a dozen interventions and
from the little I have seen 2012 will be no different.
Happy New Year!