Shares Magazine
November 15, 2007
By: Marilyn McDonald
Welcome to week 5. It’s time to pull a Dr. Phil. It’s time to get inside your own head. Let’s find out, are you mentally prepared to trade? During week five of the IBFX and IBFXU series, we are going to take a closer look at some of the things you need to do before you make your first trade.
One of the first things you need to do before you place your first trade is to determine exactly what you want to achieve. Create your own trading plan. Get out a piece of paper and write it down. Do you want to eventually live off your trading? Or are you just trying to outperform your savings account. Be as specific as you can and then pin this up by your computer.
Once you have created your own trading plan, take 4 or 5 minutes and review your goals before you start clicking that mouse. This will help you keep your goals in mind as you trade. If your goal is to make 20 pips per day then you will start each trading day with that particular goal in mind. It is easy to get wrapped up in the emotion of the moment and forget your larger picture. Taking a few minutes before the day starts will help you focus on your goals.
Be aware that when you start trading, particularly if you are new to trading, you may be confronted by negativity from your friends or relatives. They simply don’t understand what you are doing or the language you are now learning. Some people react to new situations with fear and frustration. You should join a traders group, whether it be online or in person. Make sure you have friends and associates that understand the new language you speak and can possibly help you learn from their mistakes.
Another nugget of wisdom I have for you is to remain focused. Every new trader will hit a wall. They will become over confident and lose a lot of money, potentially even their entire account. This usually comes after a series of wins. The true test of your character as a trader is going to be what you do with yourself after this happens. Do you quit? Or do you dust yourself off and build on the hard lessons that you have learned? Your actions at this stage of the game are going to help form what kind of trader you will grow to be. My advice for this situation is to lean on your fellow traders. Anyone who has been in the market for any length of time has been through this. This is what separates the men from the mice (so to speak).
If you are having emotional responses to your trades it is time to pay attention. During these times, walk away from your computer if you can. When you lose your emotional detachment you have lost your perspective. You are now far more likely to place bad trades, second guess yourself and close out everything at a loss. Take a break, get out of the house, and come back when you can look at the charts and your account impassively.
Another caveat for you is to beware of greed. This is one of the seven deadly sins for a reason. Greed can cause you to act impulsively and irrationally. Set your goals for the trading session, achieve your goals and be grateful for another day of trading successfully.
You should also track your progress. As long as you can see that you are progressing down your projected path then you will continue to stick to your trading plan. This also gives you the confidence you need to see that you plan is working. Don’t deviate from your plan, remain steadfast and you can achieve your goals. Think slow and steady and you maintain your trading edge.
Set profit targets for yourself. I like to make 10 or 15 or 20 pips and get out. Do I miss out on some terrific moves? You betcha! Do I make a profit while some people lose everything they have gained because the pair retraces? You betcha. I am happy making a bit of money and getting out. I don’t get too greedy mostly because it makes me nervous. Decide how much you think it will go up or how much will make you happy and set that Take Profit level.
Limit your losses. Setting a stop loss can allow you to decide how much you want to lose. This one is a toughie. Because if you set it too close in volatile conditions the market is likely to dip down, bump you out of your trade and then reverse back up and make a profit. However, they will save your behind if you simply read the market wrong and make a bad decision.
There are plenty of sites out there willing to tell you where to place your take profit and stop loss orders. I am not going there… I will simply default to my mantra… read everything you can get a hold of, try it out on a demo account, and make your own decisions. You can download my workbook – Create Your Own FX Trading Plan from my website – www.marilynmcdonald.com. This will take you through the step by step thought process you should follow when you are setting up your own trading plan.
Interbank FX is an off-exchange retail foreign currency broker and can be reached at www.interbankfx.com. It’s free Forex education site can be found at www.ibfxu.com. And Marilyn McDonald is an author and foreign exchange trader. She can be reached via her website at www.marilynmcdonald.com