xThe Three Laws of successfuL Trading The Three Laws of successfuL Trading
YourTRADINGedge http://www.ytemagazine.com/ MaY/Jun 2010
Mario Singh on how to become consistently profitable in the forex market.
The Three Laws of successfuL Trading
aving had the privilege of speaking to
audiences about FX trading worldwide, I
have noticed a common question: “What is
the best strategy to trade forex?”
Each time I hear the question, I can’t help
but smile. After all, that was my biggest
question when I first started trading forex.
It’s almost always, “Give me the strategy
first, and we’ll talk about trading later!”
In this article I hope to shed some light
on successful trading, and how we can all
get there. Let’s start with the definition of
a successful trader. The benchmark of a successful trader is that
he must be consistently profitable. Notice the word ‘consistently’.
I’m never impressed when I hear someone is “making 500 per cent
in a month”. Don’t get me wrong – these are amazing results; but
any trader worth his salt must know that his game plan is to stay
consistently profitable. It seems inevitable that the few who make
exorbitant returns in one month get washed out the very next month,
because they probably took on (and continue to take on) excessive
risk. Remember, you might be able to make 500 per cent a month for
a particular month, but if you lose only 100 per cent any month, you
are out of the game forever.
The three laws
How does one become ‘consistently profitable’ in the forex market?
I would like to share my three laws of successful trading. They are
not mutually exclusive; rather, they must go hand-in-hand. They are:
Strategies•
Money management •
Strategies
There are four basic strategies for profiting from the forex market:
trending, ranging, breakout and news release strategies.
Trending strategy
A trending strategy is employed when the market is clearly in an
uptrend or a downtrend. When the market is in an uptrend, go ‘long’.
If the market is in a clear downtrend, go ‘short’.
This is, by far, the most popular method of banking profits in the forex
market. As the saying goes: ‘The trend is your friend until it bends.’
Ranging strategy
A range occurs when the market is trading in a channel – between a floor
and a ceiling. The price seems to bounce repeatedly between these two
areas, called support and resistance. For this strategy, traders tend to
h
The Three Laws of
Successful Trading
The Three Laws of successfuL Trading
aving had the privilege of speaking to
audiences about FX trading worldwide, I
have noticed a common question: “What is
the best strategy to trade forex?”
Each time I hear the question, I can’t help
but smile. After all, that was my biggest
question when I first started trading forex.
It’s almost always, “Give me the strategy
first, and we’ll talk about trading later!”
In this article I hope to shed some light
on successful trading, and how we can all
get there. Let’s start with the definition of
a successful trader. The benchmark of a successful trader is that
he must be consistently profitable. Notice the word ‘consistently’.
I’m never impressed when I hear someone is “making 500 per cent
in a month”. Don’t get me wrong – these are amazing results; but
any trader worth his salt must know that his game plan is to stay
consistently profitable. It seems inevitable that the few who make
exorbitant returns in one month get washed out the very next month,
because they probably took on (and continue to take on) excessive
risk. Remember, you might be able to make 500 per cent a month for
a particular month, but if you lose only 100 per cent any month, you
are out of the game forever.
The three laws
How does one become ‘consistently profitable’ in the forex market?
I would like to share my three laws of successful trading. They are
not mutually exclusive; rather, they must go hand-in-hand. They are:
Strategies•
Money management •
Strategies
There are four basic strategies for profiting from the forex market:
trending, ranging, breakout and news release strategies.
Trending strategy
A trending strategy is employed when the market is clearly in an
uptrend or a downtrend. When the market is in an uptrend, go ‘long’.
If the market is in a clear downtrend, go ‘short’.
This is, by far, the most popular method of banking profits in the forex
market. As the saying goes: ‘The trend is your friend until it bends.’
Ranging strategy
A range occurs when the market is trading in a channel – between a floor
and a ceiling. The price seems to bounce repeatedly between these two
areas, called support and resistance. For this strategy, traders tend to
h
The Three Laws of
Successful Trading
•
State of mind go short near levels of resistance because buying pressure succumbs
to selling pressure, hence pushing the price down.
MaY/Jun 2010 http://www.ytemagazine.com/ YourTRADINGedge 39
The Three Laws of successfuL Trading
Conversely, traders execute buy, or long, orders near areas of
support because selling pressure succumbs to buying pressure,
which pushes prices up.
Breakout strategy
A breakout strategy is employed when prices finally break out of a
trading channel and head either up or down. Momentum is greatest
on breakout points; hence traders tend to capitalise on these specific
movements by going long once prices break upwards from a trading
range, or short once prices break downwards from a trading range.
News release strategy
I know a number of traders who trade exclusively around the news.
Two of the most popular news announcements are interest rate
changes from the G7 countries and the Non-Farm Payrolls from the
United States on the first Friday of every month.
Because there is no telling which way the market is going to
react once the news is announced, I do not advocate trading
around the news for new traders. Markets tend to be irrational, and
this is not the behaviour you want to experience when you have
just begun your journey.
Another downside to trading around ‘hot’ news is that brokers have
a tendency to widen their pip spread during these times. Spreads
can easily widen to 20 pips, regardless of whether you go short or
long, during this volatile session. Be mindful of this the next time you
feel like trading on a ‘juicy, piece of news.
Money management
Much can be said around the topic of money management; but I’d
like to focus on just one aspect: risk.
In the world of retail forex trading many promising traders are still
oblivious to one of the biggest pitfalls of trading: the tendency to take
on too much risk.
Sometimes traders just do not understand how much risk is too
much. The golden rule is never to risk more than one to five per cent
of your capital on any trade. In fact, I know many professional traders
who consider five per cent to be too much. Some of them never go
beyond two per cent.
What does this mean, specifically? If you have a trading account
of $US10,000, a two per cent risk means that you will not lose more
than $US200 if your stop loss is hit.
If we assume your stop loss is hit, then for your next trade you
would begin with $US9,800 capital. It is hard to imagine anyone
blowing up his or her account with such tight rules; but the sad fact
money management.
Here’s an example to drive home the absolute importance of
money management. If you start with an account of $US10,000, you
would have $US5,000 left if you blew off 50 per cent of your account.
The real question is how much you would have to make in order to
bring your account back to the break-even level of $US10,000.
The answer, of course, is 100 per cent. In fact, the statistics are
not pretty (see figure 1).
We are often reminded: “Amateurs are concerned with how much
they can make. Professionals are concerned with how much they
will lose.”
State of mind
State of mind concerns a trader's thoughts and emotions. It is the
component that will present itself as by far the biggest stumbling
block to a trader's success. Four human characteristics – fear, greed,
hope and ignorance – will always be a part of every trade.
Imagine you have just completed your ‘apprenticeship’ trading
‘Until you can manage your mind, do not expect to manage money.’
–Warren Buffett
figure 1: Loss of capiTaL versus percenTage required To
geT back To breakeven
Conversely, traders execute buy, or long, orders near areas of
support because selling pressure succumbs to buying pressure,
which pushes prices up.
Breakout strategy
A breakout strategy is employed when prices finally break out of a
trading channel and head either up or down. Momentum is greatest
on breakout points; hence traders tend to capitalise on these specific
movements by going long once prices break upwards from a trading
range, or short once prices break downwards from a trading range.
News release strategy
I know a number of traders who trade exclusively around the news.
Two of the most popular news announcements are interest rate
changes from the G7 countries and the Non-Farm Payrolls from the
United States on the first Friday of every month.
Because there is no telling which way the market is going to
react once the news is announced, I do not advocate trading
around the news for new traders. Markets tend to be irrational, and
this is not the behaviour you want to experience when you have
just begun your journey.
Another downside to trading around ‘hot’ news is that brokers have
a tendency to widen their pip spread during these times. Spreads
can easily widen to 20 pips, regardless of whether you go short or
long, during this volatile session. Be mindful of this the next time you
feel like trading on a ‘juicy, piece of news.
Money management
Much can be said around the topic of money management; but I’d
like to focus on just one aspect: risk.
In the world of retail forex trading many promising traders are still
oblivious to one of the biggest pitfalls of trading: the tendency to take
on too much risk.
Sometimes traders just do not understand how much risk is too
much. The golden rule is never to risk more than one to five per cent
of your capital on any trade. In fact, I know many professional traders
who consider five per cent to be too much. Some of them never go
beyond two per cent.
What does this mean, specifically? If you have a trading account
of $US10,000, a two per cent risk means that you will not lose more
than $US200 if your stop loss is hit.
If we assume your stop loss is hit, then for your next trade you
would begin with $US9,800 capital. It is hard to imagine anyone
blowing up his or her account with such tight rules; but the sad fact
money management.
Here’s an example to drive home the absolute importance of
money management. If you start with an account of $US10,000, you
would have $US5,000 left if you blew off 50 per cent of your account.
The real question is how much you would have to make in order to
bring your account back to the break-even level of $US10,000.
The answer, of course, is 100 per cent. In fact, the statistics are
not pretty (see figure 1).
We are often reminded: “Amateurs are concerned with how much
they can make. Professionals are concerned with how much they
will lose.”
State of mind
State of mind concerns a trader's thoughts and emotions. It is the
component that will present itself as by far the biggest stumbling
block to a trader's success. Four human characteristics – fear, greed,
hope and ignorance – will always be a part of every trade.
Imagine you have just completed your ‘apprenticeship’ trading
‘Until you can manage your mind, do not expect to manage money.’
–Warren Buffett
figure 1: Loss of capiTaL versus percenTage required To
geT back To breakeven
the demo account and you are now ready to trade live. The first
is that traders are unaware of how they should practice prudent
opportunity opens up. It’s time to make big bucks. However, when
YourTRADINGedge http://www.ytemagazine.com/ MaY/Jun 2010
The Three Laws of successfuL Trading
it’s time to execute the trade, you somehow freeze up. Your finger
just can’t find the energy to click the mouse. This is fear. You then
watch in horror as your trade (which you didn’t take) goes on to
register a win!
At your next trade, you double your lot size. This is greed. You
double your lot size because you want to win back the money you
left at the table by not taking the first trade. As Murphy’s Law would
have it, this trade is now heading towards your stop loss! You then
do the unthinkable – you remove the stop loss. This is ignorance.
You remove your stop loss because you are giving the trade some
‘breathing space’ to reverse and, you hope, register your first win.
Sound all too familiar?
I hope (no pun intended) that you now see that all three laws –
strategies, money management and state of mind – must come into
play for you to achieve any degree of success in trading.
In fact, if we assume that the three circles make up 100 per cent of
a trader’s success, then they can be divided as follows:
Strategies: 15%•
Money management: 30% •
State of mind: 55%•
Strategies (15%)
Even when your strategies work, it is a fact that they account for only
15 per cent of your success in trading.
Money management (30%)
take on more risk than you are allowed, you put yourself in a position
where your account can be badly damaged. Remember, it takes
more effort to recover an account that has a significant drawdown.
State of mind (55%)
And state of mind is twice as important as strategy because everything
rises and falls on the way you, the trader, execute your plan.
Strategies and money management can be taught. Strategies are
what to do. Money management is how much to do. However, state
of mind -– thoughts and emotions – is difficult to control. Humans are
emotional creatures and money is an emotional topic.
In summary, the three laws – strategies, money management and
state of mind – must work in harmony before you can be consistently
profitable in the forex market.
Mario Singh has been trading forex for five years. He is the
co-founder and CEO of FX1 Academy, the largest Forex Academy in
Asia. He is a popular seminar speaker, writer and forex coach. As he is
a regular guest on CNBC, his views are widely sought in the industry.
For more information, please visit http://www.fx1academy.com/ and www.
mariosingh.com.
‘The trader is the weakest link in any trading system.’
–Dr Alexander Elder
it’s time to execute the trade, you somehow freeze up. Your finger
just can’t find the energy to click the mouse. This is fear. You then
watch in horror as your trade (which you didn’t take) goes on to
register a win!
At your next trade, you double your lot size. This is greed. You
double your lot size because you want to win back the money you
left at the table by not taking the first trade. As Murphy’s Law would
have it, this trade is now heading towards your stop loss! You then
do the unthinkable – you remove the stop loss. This is ignorance.
You remove your stop loss because you are giving the trade some
‘breathing space’ to reverse and, you hope, register your first win.
Sound all too familiar?
I hope (no pun intended) that you now see that all three laws –
strategies, money management and state of mind – must come into
play for you to achieve any degree of success in trading.
In fact, if we assume that the three circles make up 100 per cent of
a trader’s success, then they can be divided as follows:
Strategies: 15%•
Money management: 30% •
State of mind: 55%•
Strategies (15%)
Even when your strategies work, it is a fact that they account for only
15 per cent of your success in trading.
Money management (30%)
take on more risk than you are allowed, you put yourself in a position
where your account can be badly damaged. Remember, it takes
more effort to recover an account that has a significant drawdown.
State of mind (55%)
And state of mind is twice as important as strategy because everything
rises and falls on the way you, the trader, execute your plan.
Strategies and money management can be taught. Strategies are
what to do. Money management is how much to do. However, state
of mind -– thoughts and emotions – is difficult to control. Humans are
emotional creatures and money is an emotional topic.
In summary, the three laws – strategies, money management and
state of mind – must work in harmony before you can be consistently
profitable in the forex market.
Mario Singh has been trading forex for five years. He is the
co-founder and CEO of FX1 Academy, the largest Forex Academy in
Asia. He is a popular seminar speaker, writer and forex coach. As he is
a regular guest on CNBC, his views are widely sought in the industry.
For more information, please visit http://www.fx1academy.com/ and www.
mariosingh.com.
‘The trader is the weakest link in any trading system.’
–Dr Alexander Elder
Money management is twice as important as strategy because if you
YourTRADINGedge http://www.ytemagazine.com/ MaY/Jun 2010
YourTRADINGedge http://www.ytemagazine.com/ MaY/Jun 2010
Mario Singh on how to become consistently profitable in the forex market.
The Three Laws of successfuL Trading
aving had the privilege of speaking to
audiences about FX trading worldwide, I
have noticed a common question: “What is
the best strategy to trade forex?”
Each time I hear the question, I can’t help
but smile. After all, that was my biggest
question when I first started trading forex.
It’s almost always, “Give me the strategy
first, and we’ll talk about trading later!”
In this article I hope to shed some light
on successful trading, and how we can all
get there. Let’s start with the definition of
a successful trader. The benchmark of a successful trader is that
he must be consistently profitable. Notice the word ‘consistently’.
I’m never impressed when I hear someone is “making 500 per cent
in a month”. Don’t get me wrong – these are amazing results; but
any trader worth his salt must know that his game plan is to stay
consistently profitable. It seems inevitable that the few who make
exorbitant returns in one month get washed out the very next month,
because they probably took on (and continue to take on) excessive
risk. Remember, you might be able to make 500 per cent a month for
a particular month, but if you lose only 100 per cent any month, you
are out of the game forever.
The three laws
How does one become ‘consistently profitable’ in the forex market?
I would like to share my three laws of successful trading. They are
not mutually exclusive; rather, they must go hand-in-hand. They are:
Strategies•
Money management •
Strategies
There are four basic strategies for profiting from the forex market:
trending, ranging, breakout and news release strategies.
Trending strategy
A trending strategy is employed when the market is clearly in an
uptrend or a downtrend. When the market is in an uptrend, go ‘long’.
If the market is in a clear downtrend, go ‘short’.
This is, by far, the most popular method of banking profits in the forex
market. As the saying goes: ‘The trend is your friend until it bends.’
Ranging strategy
A range occurs when the market is trading in a channel – between a floor
and a ceiling. The price seems to bounce repeatedly between these two
areas, called support and resistance. For this strategy, traders tend to
h
The Three Laws of
Successful Trading
The Three Laws of successfuL Trading
aving had the privilege of speaking to
audiences about FX trading worldwide, I
have noticed a common question: “What is
the best strategy to trade forex?”
Each time I hear the question, I can’t help
but smile. After all, that was my biggest
question when I first started trading forex.
It’s almost always, “Give me the strategy
first, and we’ll talk about trading later!”
In this article I hope to shed some light
on successful trading, and how we can all
get there. Let’s start with the definition of
a successful trader. The benchmark of a successful trader is that
he must be consistently profitable. Notice the word ‘consistently’.
I’m never impressed when I hear someone is “making 500 per cent
in a month”. Don’t get me wrong – these are amazing results; but
any trader worth his salt must know that his game plan is to stay
consistently profitable. It seems inevitable that the few who make
exorbitant returns in one month get washed out the very next month,
because they probably took on (and continue to take on) excessive
risk. Remember, you might be able to make 500 per cent a month for
a particular month, but if you lose only 100 per cent any month, you
are out of the game forever.
The three laws
How does one become ‘consistently profitable’ in the forex market?
I would like to share my three laws of successful trading. They are
not mutually exclusive; rather, they must go hand-in-hand. They are:
Strategies•
Money management •
Strategies
There are four basic strategies for profiting from the forex market:
trending, ranging, breakout and news release strategies.
Trending strategy
A trending strategy is employed when the market is clearly in an
uptrend or a downtrend. When the market is in an uptrend, go ‘long’.
If the market is in a clear downtrend, go ‘short’.
This is, by far, the most popular method of banking profits in the forex
market. As the saying goes: ‘The trend is your friend until it bends.’
Ranging strategy
A range occurs when the market is trading in a channel – between a floor
and a ceiling. The price seems to bounce repeatedly between these two
areas, called support and resistance. For this strategy, traders tend to
h
The Three Laws of
Successful Trading
•
State of mind go short near levels of resistance because buying pressure succumbs
to selling pressure, hence pushing the price down.
MaY/Jun 2010 http://www.ytemagazine.com/ YourTRADINGedge 39
The Three Laws of successfuL Trading
Conversely, traders execute buy, or long, orders near areas of
support because selling pressure succumbs to buying pressure,
which pushes prices up.
Breakout strategy
A breakout strategy is employed when prices finally break out of a
trading channel and head either up or down. Momentum is greatest
on breakout points; hence traders tend to capitalise on these specific
movements by going long once prices break upwards from a trading
range, or short once prices break downwards from a trading range.
News release strategy
I know a number of traders who trade exclusively around the news.
Two of the most popular news announcements are interest rate
changes from the G7 countries and the Non-Farm Payrolls from the
United States on the first Friday of every month.
Because there is no telling which way the market is going to
react once the news is announced, I do not advocate trading
around the news for new traders. Markets tend to be irrational, and
this is not the behaviour you want to experience when you have
just begun your journey.
Another downside to trading around ‘hot’ news is that brokers have
a tendency to widen their pip spread during these times. Spreads
can easily widen to 20 pips, regardless of whether you go short or
long, during this volatile session. Be mindful of this the next time you
feel like trading on a ‘juicy, piece of news.
Money management
Much can be said around the topic of money management; but I’d
like to focus on just one aspect: risk.
In the world of retail forex trading many promising traders are still
oblivious to one of the biggest pitfalls of trading: the tendency to take
on too much risk.
Sometimes traders just do not understand how much risk is too
much. The golden rule is never to risk more than one to five per cent
of your capital on any trade. In fact, I know many professional traders
who consider five per cent to be too much. Some of them never go
beyond two per cent.
What does this mean, specifically? If you have a trading account
of $US10,000, a two per cent risk means that you will not lose more
than $US200 if your stop loss is hit.
If we assume your stop loss is hit, then for your next trade you
would begin with $US9,800 capital. It is hard to imagine anyone
blowing up his or her account with such tight rules; but the sad fact
money management.
Here’s an example to drive home the absolute importance of
money management. If you start with an account of $US10,000, you
would have $US5,000 left if you blew off 50 per cent of your account.
The real question is how much you would have to make in order to
bring your account back to the break-even level of $US10,000.
The answer, of course, is 100 per cent. In fact, the statistics are
not pretty (see figure 1).
We are often reminded: “Amateurs are concerned with how much
they can make. Professionals are concerned with how much they
will lose.”
State of mind
State of mind concerns a trader's thoughts and emotions. It is the
component that will present itself as by far the biggest stumbling
block to a trader's success. Four human characteristics – fear, greed,
hope and ignorance – will always be a part of every trade.
Imagine you have just completed your ‘apprenticeship’ trading
‘Until you can manage your mind, do not expect to manage money.’
–Warren Buffett
figure 1: Loss of capiTaL versus percenTage required To
geT back To breakeven
Conversely, traders execute buy, or long, orders near areas of
support because selling pressure succumbs to buying pressure,
which pushes prices up.
Breakout strategy
A breakout strategy is employed when prices finally break out of a
trading channel and head either up or down. Momentum is greatest
on breakout points; hence traders tend to capitalise on these specific
movements by going long once prices break upwards from a trading
range, or short once prices break downwards from a trading range.
News release strategy
I know a number of traders who trade exclusively around the news.
Two of the most popular news announcements are interest rate
changes from the G7 countries and the Non-Farm Payrolls from the
United States on the first Friday of every month.
Because there is no telling which way the market is going to
react once the news is announced, I do not advocate trading
around the news for new traders. Markets tend to be irrational, and
this is not the behaviour you want to experience when you have
just begun your journey.
Another downside to trading around ‘hot’ news is that brokers have
a tendency to widen their pip spread during these times. Spreads
can easily widen to 20 pips, regardless of whether you go short or
long, during this volatile session. Be mindful of this the next time you
feel like trading on a ‘juicy, piece of news.
Money management
Much can be said around the topic of money management; but I’d
like to focus on just one aspect: risk.
In the world of retail forex trading many promising traders are still
oblivious to one of the biggest pitfalls of trading: the tendency to take
on too much risk.
Sometimes traders just do not understand how much risk is too
much. The golden rule is never to risk more than one to five per cent
of your capital on any trade. In fact, I know many professional traders
who consider five per cent to be too much. Some of them never go
beyond two per cent.
What does this mean, specifically? If you have a trading account
of $US10,000, a two per cent risk means that you will not lose more
than $US200 if your stop loss is hit.
If we assume your stop loss is hit, then for your next trade you
would begin with $US9,800 capital. It is hard to imagine anyone
blowing up his or her account with such tight rules; but the sad fact
money management.
Here’s an example to drive home the absolute importance of
money management. If you start with an account of $US10,000, you
would have $US5,000 left if you blew off 50 per cent of your account.
The real question is how much you would have to make in order to
bring your account back to the break-even level of $US10,000.
The answer, of course, is 100 per cent. In fact, the statistics are
not pretty (see figure 1).
We are often reminded: “Amateurs are concerned with how much
they can make. Professionals are concerned with how much they
will lose.”
State of mind
State of mind concerns a trader's thoughts and emotions. It is the
component that will present itself as by far the biggest stumbling
block to a trader's success. Four human characteristics – fear, greed,
hope and ignorance – will always be a part of every trade.
Imagine you have just completed your ‘apprenticeship’ trading
‘Until you can manage your mind, do not expect to manage money.’
–Warren Buffett
figure 1: Loss of capiTaL versus percenTage required To
geT back To breakeven
the demo account and you are now ready to trade live. The first
is that traders are unaware of how they should practice prudent
opportunity opens up. It’s time to make big bucks. However, when
YourTRADINGedge http://www.ytemagazine.com/ MaY/Jun 2010
The Three Laws of successfuL Trading
it’s time to execute the trade, you somehow freeze up. Your finger
just can’t find the energy to click the mouse. This is fear. You then
watch in horror as your trade (which you didn’t take) goes on to
register a win!
At your next trade, you double your lot size. This is greed. You
double your lot size because you want to win back the money you
left at the table by not taking the first trade. As Murphy’s Law would
have it, this trade is now heading towards your stop loss! You then
do the unthinkable – you remove the stop loss. This is ignorance.
You remove your stop loss because you are giving the trade some
‘breathing space’ to reverse and, you hope, register your first win.
Sound all too familiar?
I hope (no pun intended) that you now see that all three laws –
strategies, money management and state of mind – must come into
play for you to achieve any degree of success in trading.
In fact, if we assume that the three circles make up 100 per cent of
a trader’s success, then they can be divided as follows:
Strategies: 15%•
Money management: 30% •
State of mind: 55%•
Strategies (15%)
Even when your strategies work, it is a fact that they account for only
15 per cent of your success in trading.
Money management (30%)
take on more risk than you are allowed, you put yourself in a position
where your account can be badly damaged. Remember, it takes
more effort to recover an account that has a significant drawdown.
State of mind (55%)
And state of mind is twice as important as strategy because everything
rises and falls on the way you, the trader, execute your plan.
Strategies and money management can be taught. Strategies are
what to do. Money management is how much to do. However, state
of mind -– thoughts and emotions – is difficult to control. Humans are
emotional creatures and money is an emotional topic.
In summary, the three laws – strategies, money management and
state of mind – must work in harmony before you can be consistently
profitable in the forex market.
Mario Singh has been trading forex for five years. He is the
co-founder and CEO of FX1 Academy, the largest Forex Academy in
Asia. He is a popular seminar speaker, writer and forex coach. As he is
a regular guest on CNBC, his views are widely sought in the industry.
For more information, please visit http://www.fx1academy.com/ and www.
mariosingh.com.
‘The trader is the weakest link in any trading system.’
–Dr Alexander Elder
it’s time to execute the trade, you somehow freeze up. Your finger
just can’t find the energy to click the mouse. This is fear. You then
watch in horror as your trade (which you didn’t take) goes on to
register a win!
At your next trade, you double your lot size. This is greed. You
double your lot size because you want to win back the money you
left at the table by not taking the first trade. As Murphy’s Law would
have it, this trade is now heading towards your stop loss! You then
do the unthinkable – you remove the stop loss. This is ignorance.
You remove your stop loss because you are giving the trade some
‘breathing space’ to reverse and, you hope, register your first win.
Sound all too familiar?
I hope (no pun intended) that you now see that all three laws –
strategies, money management and state of mind – must come into
play for you to achieve any degree of success in trading.
In fact, if we assume that the three circles make up 100 per cent of
a trader’s success, then they can be divided as follows:
Strategies: 15%•
Money management: 30% •
State of mind: 55%•
Strategies (15%)
Even when your strategies work, it is a fact that they account for only
15 per cent of your success in trading.
Money management (30%)
take on more risk than you are allowed, you put yourself in a position
where your account can be badly damaged. Remember, it takes
more effort to recover an account that has a significant drawdown.
State of mind (55%)
And state of mind is twice as important as strategy because everything
rises and falls on the way you, the trader, execute your plan.
Strategies and money management can be taught. Strategies are
what to do. Money management is how much to do. However, state
of mind -– thoughts and emotions – is difficult to control. Humans are
emotional creatures and money is an emotional topic.
In summary, the three laws – strategies, money management and
state of mind – must work in harmony before you can be consistently
profitable in the forex market.
Mario Singh has been trading forex for five years. He is the
co-founder and CEO of FX1 Academy, the largest Forex Academy in
Asia. He is a popular seminar speaker, writer and forex coach. As he is
a regular guest on CNBC, his views are widely sought in the industry.
For more information, please visit http://www.fx1academy.com/ and www.
mariosingh.com.
‘The trader is the weakest link in any trading system.’
–Dr Alexander Elder
Money management is twice as important as strategy because if you
YourTRADINGedge http://www.ytemagazine.com/ MaY/Jun 2010
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