Masterforex-V: The learning cycle for a newbie trader - PART 2 - Masterforex-V

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The learning cycle for a newbie trader - PART 2

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Posted 23 October 2007 - 16:21


Soul-Trader2004 №1

Hello everybody.
Can't believe that it's 18 months since I wrote that thread - Jan 2005 it was.
Well, as they say 'you never stop learning in this game' and that's certainly true.
I thought it was time to add to the original thread with a new one - my last 18 months have been very interesting and many things have happened that I thought I would share with you that you may find useful.
At the time I wrote that thread I was an intraday trader and had been making money consistently for about 18 months - I thought that was it, I had made it as a trader and was at the end of my learning curve.
How wrong I was.
I don't think that this series of threads will ever end, I expect I will be writing another update in 2008.
When I look back at the last 18 months I cant believe how much ive changed from what I thought was the end of my cycle.
At the time I was daytrading several strategies which made me money. In the ensuing months I just kept on testing new ideas - reading systems on here and other forums and testing them also.
I got together with a bunch of traders in voice rooms and again started working on systems and testing. - again day in day out testing and trading - making money yes but never really getting closer to that dream that we all have of trading /easily, without emotion/ and having that millionaires lifestyle.
Systems development started to become easier when I looked at the market holistically - I.e. not tying myself down to a single timeframe and watching at a macro level as well as a micro level.
This resulted in the several screens I now have in my office so I could see all the timeframes at once - I was still specialising in GBP as to have more meant yet more screens and I thought that the study of cable would make me more than enough money.
I did what many of you will do in the future. I developed systems, gave some away and sold some also - The Hilda system was in my opinion my crowning glory - a system that I could trade on any timeframe on any currency. I spent the time and sold my system to many people.
When the fun of selling that and helping others died down I again started improving on it etc etc etc.
But then the realisation started to hit me.
All of this system work, selling etc wasn't getting me any closer to my goal of actually enjoying the money I was making.
You see a journey to a goal is a weird thing. all of the fun is in the actual journey to the goal and when you get there its very easy to start moving backwards to do it again.
what i'm about to explain to you is I think the final cycle in the journey to be a great trader and realising your ambitions. I may be wrong and find a Eighth step within the next two years lol - but for now this is the best I can offer you.

*Step 6 The wake up call

When the newbie trader reaches step five he/she thinks that's it. They now make money well, look back on the forums and chat rooms they've used for so long and with a smile see the struggle they have been through repeated day after day as new people begin their journey.
They see the highs and lows that they experienced, the heartache, the 'head in the gas oven' moments and the movement from sheer despair to brilliant exuberance.
They continue to design systems to test - spend hours upon hours of hand testing with a smile - they know that no amount of computer testing is good enough to give you the confidence to trade the system properly.
They test and test - still believing that there is a system out there which beats the one they are using now.
They continue to get the latest designer indicator - hell, they even pay for them now as they know that a few hundred bucks for an indicator is worth it if it increases the take.
Trading becomes a real chore and the rot starts to set in. Here they are watching charts all day long for that setup which pays the mortgage and buys the new car or house.
The system they are using is still indicator based, still needs a shedload of charts open and still relies on a good charting feed.
Even though they don't realise it for the most part, although their system is mechanical they still have decisions to make - when to close a trade, when not to trade, avoid the news etc etc.
One day they wake up.....
*Step 7 - Learning NOT to trade

Yep, you read it right.

what happens to a trader in this cycle is that they get so wrapped up looking for improvements to their trading that they forget what they started trading for in the first place - for freedom.

Yet here they are every day sat by the pc, still after 4 or 5 years testing new stuff, taking trades and even though they don't realise it making discretionary decisions on their trading.

If they want to go out for the day of course they can - and they can enjoy their money. but whilst they are away they make no money because their systems main component is themselves.
Here's what's happened.

The definition of success according to Earl Nightingale is the realisation of a worthy goal. however success isn't all it's cracked up to be.

The journey to this point in the traders life has been exciting, exhilarating, despairing and all of those things we call emotional.

This emotion is like a drug and we get used to it - it takes so long to reach our goal that the highs and low's become a part of our personality.

when we reach the goal - we can't stop.

until the wake up call of course.

At this point we realise that the answer has been staring us in the face from every book we ever read, every forum we visited and in reality every trade we ever made.

In stage seven the trader realises he needs to work on one more system - the last one he will ever work on. (I think!)

It will be completely mechanical. No user decisions to make, no worry about news, no worry about what the 'experts' say or what's happening in the news.

Now some traders will pooh pooh this - many city traders work on fundamentals etc etc - but ask yourself the question - if they are so good why aren't they trading their own accounts?

Anyway, this is my experience and not theirs - these two extra steps are what's happened to me and that's why I did it in a new thread as opposed to tagging it onto the first one which is kind of generic.
so in stage 7 the trader starts to work on this totally mechanical system and after a lot of backtesting by hand and parameter changes etc etc he finally has it.

he can now work for a few minutes a day or even automate the system and not work at all. if he wants to go out then he makes money whilst he's out.

This is the stage I'm now at and happily enjoying the money I'm making and I may be wrong but I think that's what the majority of people who come into this business would like to happen.

This stage will make me rich beyond my wildest dreams. but what you reading this have to realise is that you MUST go through all that shit to get here - it's like going from being a teenager to being an adult - there are no short cuts.

That's why I laugh when I see people posting that they are consistently profitable after a few months or even a couple of years - they may be, but it wont be for long. I think that even if you say this in chat rooms and on forums like this you know the truth yourself.

So that's the last two stages at the moment - might get bigger with more steps in the future though cos I don't know what I don't know yet.

you may be at this stage and you may be wondering how you will know if you have a truly mechanical system - well if your system is truly mechanical you should answer the following questions with a yes.

1. do you have a clearly defined entry point that wouldn't change no matter who was trading the system?

2. Do you have a clearly defined stop level that would not change no matter who was trading the system?

3. If NFP or a similar high volatility news item was due in 3 seconds and your system signalled an entry would you take it?

4. Do you have a clearly defined way to close your trade that would not change no matter who was trading it?

5. could you tell your 12 year old son what to do to trade the system and his results would be no different to yours?

If you answered truthfully 'yes' to each question then congratulations
you have a truly mechanical system - now you've got to make sure it makes
money - that bit is up to you.

Hope this helps some out there who are struggling away. Know that there
is a light at the end of the tunnel, but it's a bloody long tunnel!
see you at the light end

Cornellj №6

I have read the first thread on this subject and find this one as good as the first.

I am now in my sixth year of active trading Spotforex and have had a similar experiences to what Soul-Trader writes about.

I too believe there are no shortcuts. You do not start trading before you have successfully negotiated three major trends of 700-1000pips without wiping out your demo accounts, and showed a profit in the process.

Contrary to what others believe I also maintain that backtesting a system is of no use. The history is fixed and will show any reasonable system as profitable. Whereas realtime is not and will affect the efficiency of the system. If you want to test your system the only successfull method is doing it with live feeds forward and not historical data. This takes time and is where the old virtue of patience is most needed.

Develop your own strategies or understand 100% why a trade was called for by the signal service. If the signal service is no longer around or the strategy fails where does it leave you if you do not have ulternative strategies in place.

Strategies should include entries, exits ,stops, take profits, trade management, money management, withdrawals, drawdowns, budgets,hedge strategies and a host of others. These strategies you should develop for yourself so you know them by heart. You must become machinelike in your execution because of the rigid application of your strategies. The marketprice is uncertain so your strategies should not be changed to accommodate this, but be pre emptive and know what action to take in any eventuality.

Finally after all this has happened for a number of years and you become very successfull you mechanise the system and look at it a few minutes per day.

My visits to my dealstation is limited to a few per day during which times I spend a few minutes adjusting existing trades.
InitialsBB №7
Soul-trader i find your idea of freedom somewhat troublesome. Are you implying that you wanted to get rid of trading by trading?
For me "freedom" usually means that i am free to do what i want-which in my case is trading. I assume that every "wannabe" trader has to have at least small amount of passion for this business that would carry him through the tough times. He has to like to trade. I will probably never stop to test new ideas and systems, no matter how successfull i am
Soul-Trader2004 №8

yesterday i had a conversation with a friend of mine who will remain nameless.

He's been a trader as long as I have although he had an 18 month gap of no trading inbetween.

We began talking about when you really know you are a trader.

If you enjoy trading and when it gets to your end of day you can't wait till tomorrow .....

you arent yet a trader.

Yep, thats what i said.

You are enthusiastic yes, you enjoy trading yes, you live and breathe trading yes. Until these things leave you then you will not (in my opinion) be a 100% trader consistently making money.

So, why do I say this, well first of all let me address those who are saying 'that's bollocks'

When you are new into trading (ie, the first 3 years) you are like a teenager and experienced traders are your parents.

When your parents tell you to do something, you don't do it. and think about this - when you parents said to you 'in a few years you will feel much differently' you thought, no i wont, i won't end up like that, ill keep on enjoying myself'

Nevertheless you did change and your parents prediction came true.

the basic thing is that when you are a teenager - you dont know what you dont know - you are totally unaware of what you haven't experienced yet.

So when i said to my mate, who is an experienced trader - that if you 'enjoy' the experience of trading, then you aint there yet - I fully expected him to come back and say, 'no, i will always love this job, it rocks my boat and that will never change'. he didnt dissappoint me and said exactly that, as i am sure many of you are saying now.

like i said - you dont know what you dont know.

When you can really call yourself a trader is when you look upon trading as purely a means to an end. A job, a way of making money. Much more than youve ever dreamed possible maybe, but a way of making money all the same.

You dont get the old buzz you got from placing a trade and watching the charts all day long, minute by minute.

You dont spend every spare minute testing new strategies or testing out the latest indicator. You actually take some time out to chill away from the markets and you are glad for it, not itching to get back.

You still get a buzz, but only when your end goal is realised - ie, a new account high or a good payday.

Entering the world of trading is an exciting thing to do. In the beginning you love it, get obsessed, tell your friends proudly that you are a currency trader and its that drive and determination that gets you through to the end when you finally can trade profitably and without emotion.

Rob booker says you need emotion to trade - i say that's bollocks and that emotions are the one thing that kills off 99% of new starts. (sorry Rob)

but you still have to go through it.

When you learn to swim the first thing you have to learn to do is not to drown. when you learn to drive a car your very first lesson teaches you how to stop the car so you dont hit anything.

Trading is the same - just that a driving lesson last an hour and your trading lesson that teaches you to drop emotion lasts about 4 years

so, to put this into a nutshell for you here's what to do to get yourself to be a proper trader (by my definition).

Be excited by the markets, get obsessed with trading, get obsessed with testing strategies. get the market in your blood and really enjoy it - sometime in the future you will begin to realise that your work has paid off - you have your methodology and it's making money.

continue to try and foster that excitement day after day.

One day you will realise that it just does not excite you anymore, and no matter what you do to get excited it won't work. - you wont hanker to take that risky trade setup you see and watch the 1 minute chart for every twist and turn in the market and you wont give a toss about the latest umphadoompha indicator.

You'll realise that you are actually now, five years on since you started, a trader.

you got there - is it exciting anymore? can you still not wait for the next day to start?

No, you couldnt care less, just go through the motions of making money. Now it's time to get excited about how you are going to spend it when the pot gets bigger

The fun in anything is the journey to your destination - the key is realising when you have arrived and when you have that it's ok to stop and look around a while.

Truth of the matter is if i want to i can daytrade and make money with hilda or edgefinder but i choose not to - i choose to enjoy the fact that my job now gives me the opportunity to do whatever i want and at the moment, thats just to relax and bum around forums and take the long trade

Now I may be wrong - after all I also 'dont know what i dont know' - if there is a trader on here thats had more time than me in the markets as a daytrader then please, i'm very interested in finding out what i dont know and would love to hear from you.

If you have an opinion that's against this but have less than 5 years in the game then please - just wait till 5 years and then tell me i'm wrong.

My experience is, and it is only my exerience, that you reach a point where you try to find ways not to trade.

initialsbb said that im saying i trade so i dont trade. well, it all depends on your definition of trading. 2 years ago i wouldnt have called what i do now 'trading' - to me trading is the fastidious study of the market - the use of numerous indicators, knowing when the news comes out and what the result is likely to be - taking trades north and south when my system gives me a perceived edge and living the highs and lows of the market - to me that is trading.

That is not what i do.

I never know when the news is due nor do i care. I don't study the charts trying to predict future moves, in fact i could do what i do without a single chart open with just a telephone to my broker. - (havent got that far yet that i dont have a chart open but i see it coming). So, i dont watch news, dont watch indicators, dont 'sweat' the action.

I place 1 trade a day and it wins or loses. i dont care if it wins or loses and feel no pain or pleasure from either.

The only time I get what you would consider a buzz is when i have a record breaking day for the amount of £ made - this happens about once a month as i compound winnings. - I suppose i could get excited if I broke my record of 280 pips in one trade or my record of 1850 pips in one week (dec 2004) but very little else would 'excite' me.

So what's left to be excited about or enjoy? - you just go through the motions.

Think about this - you would train for about 6 years to be a lawyer - all that time you would be excited to learn the job. you would be excited with your first cases for a year or two - but then it's just a job like any other.

6 - 8 years to train as a lawyer and i reckon 4-5 years to train to be a trader - anyone who tells you different is talking out of their hat and most likely has not had 5 years.

for those of you with a few months under your belt or just one year - take heart - you training period is less than that for a nuclear geneticist - they train for about 8-9 years and at the end of it earn around average wage - £23k in the UK if they are lucky.

In four years you could be on your way to earning that in a day.

Two weeks ago I had another highest day - it was £13,689. Yesterday i did £13,245 and it didnt buzz me as it was not a new record, next year if my current rate of growth continues i could be earning the equivalent to the annual wage of 5 nuclear geneticists in 1 day.

Is the pain and confusion for your next 5 years worth it - you bet it is

but there are no shortcuts,so stop looking for one and knuckle down- sorry.

I hope you enjoyed this post and that you take it in the spirit in which it is written

Jaymac №13
Originally Posted by Soul-Trader2004That's why I laugh when I see people posting that they are consistently profitable after a few months or even a couple of years - they may be, but it wont be for long. I think that even if you say this in chat rooms and on forums like this you know the truth yourself.

I've been live trading for 4 months. I am consistently profitable, was from day one of live trading, and know for a fact I will continue to be because my trading method is based on price in real time, not backtested systems.

I have a lot to learn and am not making the kind of money I will make in the future after I have more knowledge and experience, but I enjoy an extremely high percentage of winning trades. I won't even state it here because no one would believe me, since most people on this forum believe they can make money with 51% wins by "cutting their losses short and letting their profits run." (Although like you said, I think they know the truth themselves -- or at least they soon will.)

I have personally met a couple of professional traders who make serious money. They don't trade from mechanical systems and they shake their heads and roll their eyes if you ask them about backtesting.

I was lucky. I learned how professionals trade while I was still trading a demo, and I never had to go through all the sh** you mention. I 100% agree that you're in trouble if trading is a source of excitement, but I enjoy trading and I'm very interested in the business -- the economic, political, cultural, and psychological issues that impact the market value of a currency.

When I contrast my experience with the burnout that occurs from untold hours of backtesting systems, I'm doubly grateful. I wouldn't want to earn my living from a job that bores me.

But I have to tell you, I've never heard a professional claim they can kick back on the beach and let a mechanical system make money for them. In fact, people like Linda Bradford Raschke and other well-known successful traders go to some trouble to disabuse newbies of the notion.

When newbies hear these claims, it encourages them to continue seeking the holy grail system instead of knuckling down and learning how to trade currency. Consequently, 90% of them will fail, just as the pundits predict.

Just my opinion.

Soul-Trader2004 №15

hi Jaymac, normally i dont respond to obvious newbie comments but your post makes such sweeping statements without evidence that i felt i had to rebuke. Please don't take this personally (tho i'm sure you will, you're the market teenager all over

I would seriously suggest that you curtail your advice and comments until you have actually made it to five years, however i have the following oservations to mention.

4 months is not consistently profitable even if you won every day or every trade - particularly when the market was in a triangle accross most pairs for the whole of that 4 months - consistently profitable is when you can show at least a year of monthly gains, not just a few weeks.

also arrogance is the biggest killer of traders - you say "i know for a fact that i will continue" - statements like that come from teenagers. I dont have a clue if i will continue to make money using the methods i use - i just play the odds that it will continue to work - but i sure as hell dont 'know for a fact'

you also said "most people on this forum believe they can make money with 51% wins by "cutting their losses short and letting their profits run." (Although like you said, I think they know the truth themselves -- or at least they soon will.)"

not sure i understand what you are saying here - that you dont believe it? - well i can tell you that the system i use is only 54% win/loss and it makes me a lot of money - i also have a system that is only 20% win / loss and that makes money too. as well as another one which is about 93% win loss which also makes money - win/loss means buggar all mate unless you are looking to use specific staking plans in which case a >50% is whats needed.

you also said "I have personally met a couple of professional traders who make serious money. They don't trade from mechanical systems and they shake their heads and roll their eyes if you ask them about backtesting."

well, im a professional trader - i trade my own money not just somebody elses and i can tell you that whoever laughs when you talk about back testing and mechanics in forex is an asshole that will never make money. Im not talking about computer backtesting here im talking about hand testing - proving or disproving a hypothesis that your method has a greater chance of success than failure. Ok you may think that the past does not equal the future but if it's worked in the past then the chances are higher that it will work in the future than if it had failed in the past. - ive never heard such b****cks in all my life

You said

"was lucky. I learned how professionals trade while I was still trading a demo, and I never had to go through all the sh** you mention"

all this means is that you havent gone through it yet - you will go through it or you wont make it.

you said

"But I have to tell you, I've never heard a professional claim they can kick back on the beach and let a mechanical system make money for them. In fact, people like Linda Bradford Raschke and other well-known successful traders go to some trouble to disabuse newbies of the notion.

well, open your ears. I am a professional trader and i have a mechanical system where i could kick back on the beach and it would make money for me.

there, now you've heard of one.

I also have automatic robots that execute the system trades

Finally you said

"When newbies hear these claims, it encourages them to continue seeking the holy grail system instead of knuckling down and learning how to trade currency. Consequently, 90% of them will fail, just as the pundits predict."

Well, the words 'learning how to trade" make me giggle. There is no 'learning how to trade' - the only thing you need to make money out of the currency markets is a method which has a higher probability of a win than a loss.

lets just analyse this for a sec - you and many others think that trading is all about news, economics, the weather effect on crops,technical analysis, moon phases,geometric shapes, elliot waves etc etc etc.

I'm sorry to tell you this - but you must read this bit and read it hard.


let me tell you why people invent all these different indicators, waves, shapes and theories - because they dont understand what moves the market and they want to understand - they think that by understanding what moves the market they will be able to make money.

Analysts are paid huge fees for their view on which way the market will move - and they get it right about 50% of the time - those paying them would be better off flipping a coin.

There is one thing that moves the markets and one thing only - people's emotions.

ok, now youre saying oh yes, greed and fear - thats easy but i have to know the news so i can work out what people will do. really? ... do you??

thousands of people try to do this in the market every day and never get it right - tell you what, i'm married and if i could understand what went on in my wife's head i'd class it as a miracle let alone being able to work out what thousands of traders are going to feel.

I'll say this again - forget 'learning to trade' and then learn to find an edge.

My final note is probarbly the most important thing that you will read as a trader. its three words long and could make you or break you . that final note is ....

Its all Mathematics.

Remember before you take this personally - you don't know what you don't know.

Weissdawg № 24
I have read many of your posts/threads, and I would greatly appreciate it if you answered a few questions I have for you.

First, let me tell you I have been trading and studying non-stop for 3 years now. I have learned about Elliott Wave, sacred geometry, Andrew's pitchforks, fibonacci, Gann, and numerous indicators. I've watched prices go up and down, almost all day and night long, now for 3 years straight. My point: I am not a newbie.

So now I am at a point where I can make money safely with a few different methods, but I won't be getting wealthy anytime soon nonetheless. So my questions are:

1) You make a lot of money, IMO. Did you take a small account (under $5,000 dollars/euros) and make it big (over $100,000)? If not, what did you start with, if I may ask you?

2) You've stated that TA is bullocks. That statement is very intriguing to me, since it is coming from you. So what then, do you base your decisions on? Or how do you have a system that makes the decisions for you? Is it just your gut feeling?

3) What kind of risk/reward do you use? And what is your money-mangement tactic?

4) What kind of returns/year are realistic?

Thank you.

MickMason №32
A 48% drawdown one month, followed by a 61% return the next equates to a loss! Russell is right, a trader would never allow those kinds of drawdowns so you saying "a discretionary trader would never have got there in the first place" is quite correct, but then I'm talking about a trader.

You claim TA is bollox and discretionary trading doesn't work, in fact according to you the only thing that does work are your automated systems which as far as I can see all lose money. Your excuse for the major drawdowns? Of course, it's a secret money management system!


just cos it had a 48% drawdown in the month does not mean it ended the month that way.

mate, i would explain and will in time - i made a gross error of judgement and took decisions- all will be revealed soon.

But i must admit - I do not believe that discretionary traders can survive without spades of luck.

I discretionary traded for about 2 years on forex and i made money. but i truly believe now that the vast majority of my gains were because of luck and my unwillingness never to close a winning trade till the trend was dead.

Hi Dawg, trying to get this thread back on track and answer your questions best i can.

1. I started off with £10,000 and lost it all over my first 2 years. Then i got another £10,000 and have multiplied it to well over £100k.

I think it's pointless starting with small amounts of money like a few hundred dollars apart from learning to trade - here's why.

Most people who want to trade want to earn enough to live on and give up their day job - to do this you need to average say £2000 a Month ($3000+) - after all who wants to live on less than that?

how can you really expect to build to a point where you will make £2000 a month from a few hundred? most traders are underfunded in this way and have expectations that are too high for what they have to play with. - because of this they take risks which are too high and end up blowing the account.

2. in my experience TA offers little more than you could get from a coin toss - around 50% - now you can make good money from 50% - i do not dispute that - if you had a 50% win loss from a 70 pip take profit and a 50 pip stop then you would do well. However i can get 50% from a coin toss so if an indicator gives you the same probability of a win as a coin toss then why bother with the indicator? - also just because you add more indicators it does not mean you are increasing it's probability.

My trading relies on mathematical probability - ie what is the probability that if price has moved 50 pips it will move another 50 pips? - or whats the probability that it will retrace? - my main trading is based purely on these kind of numbers and has nothing whatsoever to do with support and resistance, fundamentals, indicators or anything else.

Other trading I do is sometimes based on a few indicators and a hunch - just for fun. after a long time in the markets you do get a feel for what price will do and that's how many of the top traders operate, however for me it is not enough to put my future earnings into hunches and discretion. I need more than that to sustain my earnings at this level.

3. my risk is limited at around 8% of my account on each trade but my reward is unlimited. I don't have take profits and let my system take me out.

4. your last question is a good one but relative to an individual's own comfort level. My own returns average around 20% per month over the year. sometimes ive had as much as 60% sometimes losses but on ave around 20%
skype - nthint
Just my opinion,

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