Trading is a funny game and often goes against the grain of human thinking. Generally speaking if you study something long enough and research it using the latest techniques and professional tools available you have a good chance of being right. This is the very type of mindset thinking that people bring into the trading arena and lose.

A few years ago I knew a trader who lost over $50,000 in 3 hours trading futures and dinted his confidence in a big way.  He  employed a friend  who he’d worked with who is an incredibly bright guy. He had previously designed extremely sophisticated town planning systems throughout the world. A very bright guy indeed. The trader that had lost the money said to me one day that his opinion was that his mate had the perfect skills and technical ability to develop a system to get all the money back he’d lost. It was at a relatively early stage in my trading career and I didn’t know much better but all I kept thinking was, I hope he shares it with me if it works.   Needless to say it didn’t, but the talent assembled to research and put together a trading system that showed incredible returns when back tested never materialised when traded live.  Their opinion was wrong.

I have also had countless computer programmers approach me and tell me that they can automate the way I trade and have such strong opinions on their ability to make fortunes if I would only show them how I trade exactly. Their opinion is that it’s able to be automated. You can’t automate human intuition and experience and this is why banks use humans to make decisions and not computers.

The bottom line is when you are a trader your opinion about the market does not matter, what matters is the opinions of millions of others and the opinions of the large institutional investors and banks who will buy or sell after you. You may have an opinion but what really matters  is do the major players have the same opinion as you. You have to be prepared to be wrong a lot when you first learn to trade and accepting losses as part of the learning curve can be tuff, especially if you are not managing your money well, which 90%  of amateur traders don’t.

You just went to a seminar, read a book, joined a trading company and they taught you a strategy that supposedly works. So what happens next? Your start to form an opinion about the trades and that raises your expectation levels.

In reality if you are a buyer the only way price can move higher is if people come in after you and are prepared to buy at a high price. Unless you know who those people are and exactly the time they will buy and how much, it is of little use to you to form an opinion on what is going to happen, because that opinion will raise an expectation and if that expectation is not met, you take it personally and often can’t accept the fact you were wrong. How can I be wrong? It always goes up, they said it did and I saw it with my own two eyes.

What you need to do is learn a to trade a system and forget about forming opinions in the market. Just trade your system and if you have an opinion, leave it at the front door because in most cases when you are learning to trade your opinion is going to be wrong, but if it is a solid system, if you just continue to trade the system the chance of you making money is significantly higher than forming opinions and expectations. These opinions and expectations also cause traders to jump out early for their profit or loss, skip trades or worse remove a stop loss because their opinion says it’s going back up.

Trading can be rollercoaster, but it's important to have the nerve to sit back and enjoy the ride.

The Freak Out Trader can be both a winning and losing trader, but is always a newbie trader as a Freak Out Trader NEVER makes it to professional status with consistent profits.

The Freak Out Traders emotions are let loose to the extent that when they have wins their excitement drives them to freak out and get so excited they think they are bullet proof. The Freak Out Trader also experiences depression and freaks out on the losses too. What is going on subconsciously is that they don’t realise it yet, but the reason why they are freaking out is because they are not in control. The market is in control. They are usually trading too much money, trading too often and don’t really understand the system they are using. These examples usually come down to inexperience and their attachment to money and certainty we all have when we start trading. As a trader you need to have a detachment to the money and learn to trade the probability rather than the expected certainty that humans have when we enter the trading arena.

If a new trader experiences a few winning trades to begin with they are lulled into a false sense of security. They begin to think that “this is too easy” and begin to trade larger sums or over trade and take multiple positions. This false sense of security often happens in simulation as traders rarely lose in simulation. They trade probability well but don’t know they are doing it, they follow the system as there is no fear of loss. They don’t know it yet, but  they have gotten lucky and truthfully have no real idea about what they are doing, especially when they trade real money. Any mistakes are magnified 10 fold with real money. The first few trades a newbie trader makes with real money there is a 90% chance they got out of the trade before the profit target was reached or they altered the stop loss or profit target a number of times. They rarely did this in simulation as they felt comfortable, because there was no fear of loss and they followed the rules.  Now of course if they do get lucky and their trades are successful while they are fiddling, this can be one of the worst things to happen, as it creates a false sense of security. They think they are in control, when the real truth is they are far from it. The Freak Out Trader is steadily growing inside and will shortly explode.

They are about to experience what it is like to be ambushed as a trader from within your own mind. When the short winning streak comes to an end they lose control emotionally and freak out. I have seen this happen time and time again and unless you are prepared to learn to trade probability and learn to manage risk of 0.05% of your trading account and learn to build up your mindset muscle, you will fall victim and likely become A Freak Out Trader.

To test right now if you are a Freak Out Trader ask yourself these questions…

1. Do you get out of trades early whether for the profit or stop?
2. Do you adjust your profit and stop loss levels?
3. When you look at your trading statement are the wins always smaller than the losses?

If each win you have is not bigger than the average loss, if you don’t use a risk calculator, if you don’t learn to trade probability for months first and learn to experience winning streaks and losing streaks and build up your trading mindset muscle, you will fall victim to becoming A Freak Out Trader.

The only way to avoid becoming A Freak Out Trader (who usually lasts less than 6 months trading a live account) is to do the following.

1. Trade 0.5% on each trade and trade with a small account.
2. Learn to master one signal and own it emotionally and understand it’s probability through your own hard work learning the signal.
3. You must feel comfortable with each trade and be totally at ease win or loss, and have faith you know the probability.
4. Trade it consistently each time it presents itself with real money maintaining your risk vs reward and make sure the winners are always bigger than the losses.

If you apply the above 4 points you will put yourself in the class of trader who is not likely to fall victim to the Freak Out Trader mentality.

All the best

One aspect of trading that you must understand and take on board RIGHT NOW is this. The market is only a two horse race. Buyers and Sellers are the only horses in this race and the price is either going up or down. How simple is that. Yeah I know what you are thinking, it has to be more complicated than that, ITS NOT!   Simply looking at a trend and placing a trade with a trend has the probability of continuing in the direction of the trend rather than reverse and go the other way. But why is it humans consistently try and build systems and indicators that over complicate things. The more complicated you make things the less likely you will make money, period.

What you need to do is find a simple system that has the balance of probability on its side and simply play it with great money management. The worst case scenario will likely be that you will not lose money. But if you try and over complicated things, jump from one strategy to the next and don’t work your way through the losing and winning streaks of the simple system, you will never make money trading Forex consistently.

The KISS principle is not taught often enough (keep it simple stupid) and if most traders simply committed to a simple system that trades with the trend, managed their risk to a minimum, ensured their profits are always bigger than their losses (even if it is by only 5%) you chances of making money are significantly improved.

It’s important to review your results and try to be as honest as possible with yourself. Run through each trade you took and make sure it actually is inline with your Trading Plan. It’s human nature to make excuses for those trades that you jumped out of early or took because you had a gut feeling, but unfortunately the only person you are deceiving is yourself.

As you may have read about in Narelle’s bio, some trader’s like to keep their partners involved with their trading results for Accountability. This is great advice to find yourself a Trading Buddy, and can be a very productive excercise. So if you don’t yet have a Trading Buddy to review your trades with, then reach out to someone you know and include them in your trading evaluation.

Opening an Account

When you start trading Forex, open an account with no more than $1000 dollars. In fact, you can open an account with as little as $200 if you wish. You can add more money to your account in time with your success and profits but here’s an iron clad guarantee. If you can’t turn $1000 into $2000, there is no hope that with more money such as $20,000 that you will turn  that into $40,000. It rarely ever happens and for those that do, it’s usually luck.

Forex is an unique market where as the price moves from one pip to another pip you as the trader can chose what each point is going to be worth before you enter the trade. For example if we are buying shares on the stock market each share will have a specific value, for example $1.20. You can’t alter it.

When you invest in Forex, the trading platform will ask what you want each pip (or point) to be worth. In other words if the EURUSD is trading at 1.1976 and it moves to 1.1977 that is one pip. You can chose the smallest volume to be 0.01 which is essentially .10c. You could have each point be worth $10,000 if you account could handle it.

That brings me to the point of traders making or losing pips and applying the real return on investment.

Here is an example trader John.

John takes 10 trades in a month and makes a +400 pip result with a 60% success rate of hitting his profit target.  You would assume that John would be pleased with this result. He can hold his head high as a  winner, he made +400 pips and a nice profit.  Or did he?

John took 10 trades and risked 0.5% of his trading account on each of the winning trades. He gets 6 of his trades correct and 4 incorrect. The profit target on each winning trade is +100 pips. A total of +600 pips and a return on investment of 3% (0.5% * 6 = 3%) . The other 4 trades he gets incorrect and each losing trade is only -50 pips however each losing trade he risked 1% of his account not 0.5%. A total of -200 and loss of 1% on each trade which is a total of -4%.

So what is John’s real result.

The result is +400 pips (+600 – 200 = +400)  A positive result…… but hang on a minute!!!

On the 6 winning trades he made 0.5% on each winner which is +3% return on investment. But on the losing trades he risked 1% which is -4%. What is John’s total return on investment?

His real result in return on investment is -1% even though his pip total was a handsome +400.

So my point is that even if a trader says they have lost -400 pips in a month does not mean they made a loss on their account, just as when someone says they made +400 pips does not mean they made a profit. What is the only measure of success in Forex is what their ROI (return on investment) was on the trade, not the pip total.

Later this week I will share with you what a professional risk calculator looks like and how successful traders manage risk in Forex and focus on ROI and not pips.

If you are interested in attending a live introduction to forex trading, then there are still some limited places left for Sydney on the 16th of June, and Melbourne on the 17th of June.

Due to the high-demand we are also going to be visiting Perth on the 26th of June.

So if you are interested in learning more about the LTG GoldRock Program or want to learn about why Forex is such an attractive market to trade… then we encourage you to take 2hrs out of your week and attend one of these live workshops. You never know it could be exactly what you have been looking for…

To book your seat at any of the Live Events then please click on your chosen event below…

Sydney 16th June, 2010

Time: 7pm – 9pm

Venue: Hilton Sydney, 488 George Street, Sydney

Click here to register your free seat today.

Melbourne 17th June, 2010

Time: 7pm – 9pm

Venue: RACV City Club, 501 Bourke Street Melbourne 3000.

Click here to register your free seat today.

Perth 26th June, 2010

Time:  2:30 pm – 4:30pm

Venue: Hyatt Regency Perth, 99 Adelaide Terrace, Perth.

Click here to register your free seat today.

Remember the Golden Rules

I look forward to continuing to work extremely hard in June with the entire LTG GoldRock trading team and staff. Our aim is to always provide you with an outstanding level of education and a highly professional team that you can rely on, and together we can work on the constant development and fine tuning of your trading plan that will continue to give you the very best opportunity for long term sustainable growth in Forex.