The Pre-Golden Rules From a Forex Confidante
As you begin your adventure in Forex trading, you have to understand that there is no easy road to profits. As a matter of fact, it is going to be more difficult to teach those of you who have had a taste of some fast profits. I have been in charge of a large currency desk, and had the most difficult time hiring and training other "seasoned" traders.
The institution that I worked for was not one that allowed the desk to use customer orders against their trading P/L. In other words, the easy cream profits went to the bank. You had to trade just as if it was your own account. Many traders from other banks were not accustomed to this. They quickly lost the money allotted to them and washed out. In my bank, you were judged on your own profits. You were required to make 8x your salary. If you did not, you were like the villain riding shotgun in the James Bond ejector seat. If you reached your Global Stop Loss, you were out.
So my trading systems and rules were adopted to keep my job. I was fortunate enough to work as a position clerk for one of the best European traders in the world. His name was Aldo Pizzoferrato. He was ½ French and ½ Italian. He was raised in Europe and spoke 7 languages. He taught me...fire and brimstone style. He expected only the best from me at all times and was always challenging me to become better. I was exposed to the trading of every major and minor currency pair in existence. Aldo was the Treasurer of the bank and I was his water boy for 5 years.
It was here that I learned my skills. I would take his trading notes out of the garbage at night, read them to get insight. I clawed my way up and fought my way into the position of Chief Dealer. I had to outperform many a seasoned gent and one woman.
I did it and that's when the real challenges began. I had to consistently make the most money in order to keep my position and the respect of the desk. On top of that, I was responsible for 15 other guys and ladies - one lady in particular. It was from her I took the job of Chief Trader and we had a rocky relationship as a result of that. But we respected each other. I was responsible for all of them. And all of their losses were my losses.
So you could bet your ass that I fine tuned my trading techniques (and stayed on top of everybody else's). What I need to stress to you is that I realize that many of you buying this course will attempt these trades with a limited bankroll. When that's the case, you won't have a lot of room to maneuver. One small or medium loss in a day and you will probably be licking your wounds for some time to come.
The Forex markets are very volatile. If you have traded before, forget what you think you know. You must look at this material with a mind that is like a clean slate. What we are going to go over is a game plan. Ways to pick your spots in the market that have lower risk profiles. You will learn to plan your trades, and in doing so, you will be more fluid in your trading. I like to refer to it as aerodynamic trading. When you have a plan,you can think through and execute your positions with ease. You will fly through the market with ease. You will not get whip-sawed: buying at the top of a run or selling at the bottom, getting frustrated and doing it all over again.
IF YOU FAIL TO PLAN, YOU PLAN TO FAIL!!!
Let's get into the preliminaries behind the Golden Rules....
Your success in the Forex Market is dependent upon your unique psychological make-up, your discipline (or lack thereof), and your experience level. Now let's deal with the idea that there are universal rules which must never be disregarded. The universal rules are universally dependent upon your own unique psychological make-up, tolerance of risk, discipline, etc. So that set of much vaulted Universal Rules Which Must Never Be Disregarded are not static and written in stone. You are the variable that makes the Universal Rules your own set. Your rules might work very well for you but will be a complete disaster for your brother Dan who has all the steely-eyed resolve of a French surrender monkey. Since your rules REQUIRE the traits of steely-eyed resolve, your Universal Rules aren't much use to Dan. Dan needs to understand his own psychological make-up, tolerance of risk, discipline, etc. before he can design his own version of the Universal Rules Which Must Never Be Disregarded.
However, there are some Universal Guidelines that must be followed or you will end up losing your trading capital. Sooner or later, if you don't heed these baseline guides, you'll blow up your account and when you do, don't come crying to me that my system doesn't work. No, your complete disregard for managing risk is the final epitaph in your short-lived trading career. These are my rules and these rules have helped me to survive in a world that is straight-razor dangerous to the unwary. I had to think long and hard to isolate a set of rules that will fit into most everyone's trading style and psychological make-up.
What I have formulated here is a framework that all intelligent speculators must adhere to at a minimum in order to survive and thrive in these explosive markets.
What are these rules? How is one to master the Rules? Are there Exceptions to the Rules? Let's answer these questions top to bottom, first to last.
What are the Rules? The Rules will be laid out in the next two chapters.
How does one approach Mastery of the Rules? You master the Rules by Study and then Adoption, and thereby making the Rules your own.
Are there Exceptions?
NO.
The Rules have been designed with capital preservation as the foremost objective of importance to the currency speculator. The Rules will keep you from blowing up your account. The Rules will also keep your self-esteem in check. You won't have to be demoralized by setbacks to your trading plan. The Rules will scale you back to absorb the inevitable loss, and ramp you up to extend your wins. The perfect system can't work if you can't pull the trigger. I have compiled some ideas that I would like to review with you before I introduce you to the rules of the game. One of the most important pre-trading rules is "don't trade with scared money!" You have made the decision to trade. You have set aside the money to trade with (hopefully, you're not risking the rent money). This money has to be money that you can afford to lose. Understand that by making the decision to trade that you are now risking those funds.
What I am saying is never, never think about the money. If your mental focus is on the money, you will be a basket case. You will be gun shy and not enter the market at the correct time, or worse, you won't enter the market at all. You will find yourself pulling the trigger late, chasing losses, missing your profit goals, your stops, while the market locks onto you as an easy target.
When you are focused on the money, you are thinking of your position in the market purely in terms of profits or losses. This flaw in your thinking leads to major market mistakes. Fatal ones. You will enter positions like a bouncing ping-pong ball on crack. Then the head games will begin. You begin to beat yourself up. Self-sabotage is a trader's worst enemy. You will second guess yourself. Your mind will become like some screaming chorus right out of the bowels of Hell: "I can't get in NOW! The market already MOVED!" So you get in late and as the market suddenly turns and moves away from you like some evil nitrous powered dart, rocketing deeper down into the black hole of financial doom, you'll hold out because "I can't get out NOW! I've already lost too much MONEY!" Then your broker stops you out because you no longer have the funds in your account to cover the margin requirements. That's how you blow up a trading account.
This is the trader's mind on high-resolution money focus. The natural tendency of any rational person will be to try and regain heavy losses. It will turn into an ego issue.
Ego issues are certain death for any trading account. The market is bigger than you and your trading account by about a dozen zeros. The market has the uncanny ability to kill you and your account deader than a hammer if you're not careful. At best, the market will demoralize and bamboozle you and that, in itself, will lead to loss after loss. You will lose your courage and ability to trade well. It is a negative pattern and a place you don't want to trade from. The market doesn't give a high-octane rat's ass about you or your position. It will laugh at you as you are short 8 standard lots now and the price is 80 pips above your entry and you're bleeding your retirement funds out your backside like a hemorrhaging hemorrhoid. Cackling at you like some satanic ferret as you HOPE (HOPE is a four-letter word in trading) to see a correction in your favor.
The fact that you are holding onto a losing position that should have been cut suggests that you are being a stubborn, pig-headed mule and that you are breaking the RULES. If you break the RULES, the market will be more than happy to hand you your ass in a brown paper bag.
Why attempt to fight the market? It's like going to a gunfight armed with a toothpick. Too many traders (when they break the RULES) base their decisions on the irrelevant issue of an outstanding position. The time for counting money is AFTER the trading is done. Your execution of the position is what's important. It's HOW your position is monitored and CLOSED that matters. Concentrate on those skills and the money will take care of itself. Become aerodynamic. And being Teflon-coated doesn't hurt while you're at it. Check out the chart below; print it out and blow it up. Put it where you see it. Tape it next to your trade station. Remind yourself that you have a trade with your name on it that can DESTROY you.
That trade is out there, waiting for you to break the RULES. If you don't have RULES or the correct psychological make-up, you're just asking for the market to surgically remove your wallet. Don't let a loss become so big that you can't take it. Then make up a story why the market is wrong. The market is never wrong! Only idiots are. If you don't heed this advice, I promise that it will be YOU that ends up being the big loser! The FX market is not kind. It is where GREED and FEAR rule the streets like hordes of cannibal zombies in a B-grade horror flick. This is REAL MONEY we're trading here! (Think about that. Violent moves are caused by FEAR of losing MONEY! That is the ONLY reason; other traders are piling on for FEAR of missing the MOVE.) I want to take your money and so does every other professional trader worth his salt.
Thomas Strignano is a retired Chief Foreign Exchange Trader for a major Italian Bank. His 20 plus years of trading (Market Making) in the commercial Forex market makes him an expert in the field. He has developed his own proprietary trading systems and tested them real time in the interbank market. He has trained a number of Forex traders to be profitable, some who are still active at Major International Banks. Tom s major focus is on market timing techniques with technical analysis, forecasting(future) pivot points for major market moves.
