It was by far one of the most exhilarating, exciting, emotionally consuming and useful in terms of lessons learned episodes of my life. It was also one of the most difficult endeavors I ever started, in terms of energy and effort.
What follows is a little list of all the things I learned during these 6 months. But before diving into it, a few introductory words, for those who have no idea what forex trading is in the first place. If you do have an idea about forex trading, you can safely skip the next two paragraphs. Forex means foreign exchange rates, and forex trading means buying or selling foreign currencies in pairs.
If public companies have shares that you can freely buy and sell on the market, then countries have currencies. Now, a company share value is an expression of what people agree to pay for it, based on a number of criteria: Consequently, a country currency is evaluated against another country currency, based upon a set of criteria too: I only traded majors, crosses have usually a lower liquidity.
Very simply put, forex trading means you can do only 2 things with these pairs: Using whatever capital you want to invest, that is. If you buy, then you expect the price of your pair to be bigger in a certain amount of time. If you sell, then you expect the price of your currency to drop.
You open a position at a certain price, and set your attitude: Once opened, each position will generate a profit or a loss, depending on your choice long or short and on how the market moves. The market goes up, so now for your initial investment, you can get back 90 EUR. Suppose the market goes down and your position is now worth 70 EUR.
You just lost 10 EUR. Of course, these paragraphs are only scratching the surface literally, the amount of information about forex is ginormous. There are a lot of other things to be known or learned, from technical analysis, like candlestick charting, price actions, and so on , up to the trading mindset, like avoiding revenge trades, sticking to a trading plan and so on.
The first thing you need to know about actually trading forex is that this is a 5-days-in-a-row type of activity. It starts Monday at 0: There are few financial hubs involved in the process, and the most important are for those trading the majors, that is: Forex trading never really stops, so as the world goes round, the price will also be influenced by the specifics of the prevailing financial hubs.
The most important part of the day traditionally is the overlapping time between London and New York, because you can allegedly get the highest liquidity, hence the most predictable models.
There are 3 types of information which are influencing this market: Technical analysis tries to isolate recurrent or predictable patterns based on past behavior. Fundamental analysis tries to connect the major economical indicators to the value of the currency from GDP variations, up to more obscure economical data.
I traded mainly on technical analysis. Seemed the safest one for me. There are heavy advocates of the fundamental trading, as well as the news trading. Trading by technical analysis means also that I had to spend a lot of time studying charts and trying to create reliable predictions.
In itself, this activity was very rewarding. I learned tremendously and many things I discovered during this process would have never entered my universe, without the risk taken to just dive in. This stuff only can be applied in many areas of my life. Now, you have a bit of an understanding of what forex trading means. Nobody can control the markets. But there are a few who are taking a profit from them. It never was, of course. The illusion of control is one of the biggest lies our ego tells us.
Just because we have a basic understanding of our universe, all of a sudden, we start pretending that we can control it. We start to believe that we can control everything in our lives. To some extent, we can. In technical terms, that means you have to create a specific point at which your losses will be stopped, even if you are around. In terms of life that means: Make a short projection of what is the worst that may happen, in the worse scenario, and stick with your plan.
If the shit really hits the fan, just leave. In technical terms, it means you have to create a point in your position, where the potential profit will be automatically cashed in. If everything goes according to the plan, that is. What does this mean in real life? It means you have to curb down your expectations.
Keep everything in perspective. And keep it transparent too. Once you reached that point, cash in and move on. Forex trading should be a very detached and cold activity. Apart from the enormous amount of information that he has to process, a trader must also process and control his emotions: Those who can master this skill are usually the winners in this field.
What does it means in real life? A little bit of control must be exerted continuously on emotions. Not on how they are formed, but on how they are shaping your real life actions. Imagine someone acting exclusively on emotions. Emotions are fundamental for our own psychological balance and a healthy expression of them is desired. Greed is when we do nothing, but we expect everything.
In the forex world, greed is one of the two reasons people are losing money the other one being fear, see below. In real world, greed is one of the two reasons people are losing life. In terms of forex trading, fear manifests the moment you close a transaction too soon, hence not getting enough profit from your trades. Fear makes you lose money by not letting yourself cash enough of what you deserve.
In real life, this translates into trust. Trust that you judged a set of circumstances well. Trust that you will be rewarded for what you are, not for your momentarily perception. Trust that things will eventually go as you stated.
As you may see, it takes a lot of work to balance greed and fear. Both are the engines of the forex trading world, and both are shaping our lives at a very deep, sometimes unconscious level, each and every day. Of course, some days are better than others.
During a trade you may see a lot of swings back and forth. Before stabilizing on a trend, the market moves many times. You may have a lot of detours, a lot of stalled moments and sometimes, it may seem that the road is not leading you anywhere.
You should always cover your ass as much as you can, but avoiding risk all together will never work. No risk equals no reward. What I really learned was something more subtle: Every risk you take can be calculated and can generate a certain set of results.
Another way to put this is: If I risk that amount, this thing will happen. If I risk the other amount, another set of things will happen. The result will be mind-blowing: Very, very difficult, but manageable, if you pay enough attention to all the bumps and to all the possible routes. Every trade should have a lifetime. The longer you stay with a trade, or with a single way of trading a.
When you get too trapped into something, being it a relationship, a business, a forex trade, you lose balance. As of today, I get to work on 3 big areas: Whenever I feel trapped into one area, I switch. It will never happen. Of course, there will be losses. But the sooner you get out of that losing trade, the smaller the losses will be. For me, that was the first big moment when I realized forex trading is a very, very difficult business, and you have to embrace it with a very clear mind and attitude.
I was guilty of clinging to the past. Like the past was holding everything that my present needed. The past is dead.More...