| You are ready. You’ve done your homework. You | | | | My goal is to earn 100% on my trading equity before |
| have read the all right trading books, watched all the | | | | the end of the year. To maintain my focus I will set a |
| right professional trading videos and attended a few of | | | | near term goal every quarter to be at a 25% gain and |
| the right live seminars presented by big-name | | | | I will plot my equity daily. If I reach my quarterly goal |
| professional traders. You’ve researched your | | | | ahead of the last trading day of the quarter I will take |
| brokers, did your trials of various electronic trading | | | | a two-day break. I will hold any open positions that are |
| platforms, and have your trading account ready to go. | | | | at a profit but any open trade losses I will close at that |
| It’s day one of your new career—hopefully the | | | | point before I take a break. |
| one that will finally send you down the road to financial | | | | If my open trade gains continue into the new quarter I |
| freedom. Congratulations, you are now a FOREX | | | | will add to those winning positions by a factor of 25%. I |
| Trader. | | | | will move my protective stops up to reduce my |
| But the odds are against you. You know that. | | | | exposure on the entire position. |
| You’ve read the statistics and heard the critics; but | | | | If I am behind on my trade goal for the quarter, I will |
| you are confident you won’t be the one to fail. You | | | | take a five-day break. I will re-evaluate my trade |
| have the best trading system and you have planned | | | | system and ask the question: "Has my market quality |
| for every contingency you can think of. Your charts, | | | | changed to something my system is not able to |
| analysis and research are up-to-the-minute and | | | | perform at best?" |
| instantly ready for every market you are going to | | | | During the year I will not trade more than three |
| trade. It’s go time. You take a deep breath and | | | | markets. I have learned I cannot focus well on more |
| click the mouse…your first trade is LIVE; you’re in | | | | than three markets at a time. |
| the game. | | | | If I have more than four losing trades in a row in any |
| Fast forward six months. Your account balance is | | | | of my three markets I will take a trading break for five |
| lower than when you started. Sure—you had some | | | | days. Again, I will leave open position winners alone in |
| great trades and looking back, your analysis of most | | | | the other markets but close all losing positions. I will |
| of the markets you traded was correct; but where is | | | | again roll protective stops to reduce my risk. |
| the profit you could have had? How did this happen? | | | | When I take a trading break, I will enter resting limit |
| How do you get back on track? | | | | orders in the open trade winners to take the objective |
| I’ll tell you how it happened—because it happened | | | | profit should I be unavailable and the market gets to |
| to me; more than once. It happened because the real | | | | those levels during my break. |
| world of trading and the textbook world of trading are | | | | If I am ahead of my plan for the year at any point I will |
| two completely different things. You need to be ready | | | | take a break. I will take 30% of the new equity out of |
| for that reality or you run a very big risk of being the | | | | my account and place that into a secure place. If I am |
| one who makes part of the statistics. | | | | behind I will not add equity under any circumstances. If I |
| If you want to read the whole story of how I got to be | | | | reach a 40% drawdown from my high equity I will quit |
| a professional FOREX and Futures trader pick up a | | | | for the year. |
| copy of The Art of the Trade (Wiley & Sons | | | | I will record my daily trade activity in my trading log and |
| publishing August 2008). I think you will be surprised to | | | | review this weekly. I will know my ratios and results; I |
| learn what is really required to be successful. In fact, I | | | | will look to improve them by 5% each week. |
| bet you are downright shocked to discover what is | | | | I will trade only from the bull side because my analysis |
| required. | | | | tells me that all three of the markets I have selected |
| If you would rather not read another book and simply | | | | have more than a year of solid bullish fundamentals. I |
| want to get down to making your fortune, then I would | | | | will learn how to use options this year because I see |
| encourage you to at least take the next few pages | | | | from last year I could have protected more trades if I |
| very seriously. Find a way to keep the thoughts you | | | | had a solid grasp of when to use options and when |
| find here at your fingertips and consider them equally | | | | not to. I will invest two-hours a week on option |
| or more important than all your pre-trade preparation | | | | knowledge. |
| and analysis. If you seriously want to avoid the worst | | | | My son is leaving for Europe in May. I will not trade the |
| that could happen; then take some advice from | | | | week before he leaves or the week after. I plan to join |
| someone who knows. | | | | him in the fall for Oktoberfest for one week and will |
| Before we get to The Top Ten Mistakes FOREX | | | | not trade the three days before I leave or when I get |
| Traders Make, I want to give you some perspective. I | | | | back. I know I suffer from jet-lag so the week after I |
| started my career at a time when the markets were | | | | am back I am not at my best. I have blocked out these |
| only just beginning to see the growth and public | | | | times on my trade calendar so I will not be tempted to |
| interest that they have today. The technology you and | | | | trade anyway. |
| I take for granted today hadn’t even been invented | | | | If you read between the lines you will notice that his |
| yet. It took me years to learn what I needed to learn to | | | | trade plan included all the things that were in his |
| be successful, without any of the help you have | | | | control—NOT things outside of his control; like the |
| available FOR FREE anytime you want. You need to | | | | markets. If you want to get serious about writing a |
| accept one very critical thing: the most important part | | | | solid trading plan pick up a copy of my first book |
| of lasting trading success has nothing to do with the | | | | Trading Rules That Work: the 28 essential lessons |
| markets. It’s all in your head. All this FREE stuff is | | | | every trader must master (Wiley & Sons |
| not going to offer you an easy road. | | | | Publishing, October 2006). I also teach about trading |
| If you are willing to consider that the human | | | | plans in my daily broadcasts and in my Psychology of |
| element—the way you think and how you | | | | Trading course. Please see my website for details. |
| behave—is the REAL variable to lasting trading | | | | HOW TO MAKE THIS MISTAKE WORSE: Base your |
| success; then I think you will get where you want to go | | | | trading plan on hypothetical profits or on how well you |
| a lot faster and with a lot less headache. If you are | | | | did paper-trading, Ignore your personal emotional needs |
| ready to get serious about your personal trader | | | | when compiling a plan, Ignore your family while making |
| psychology then please come to my twice daily | | | | a plan, keep thinking you can trade everyday or all the |
| FOREX training sessions. If you really want to avoid | | | | time, average your potential over a period of time and |
| the disasters you have read about then take my | | | | think results will equal a daily amount. |
| advice; don’t make these mistakes. | | | | SOLUTION: Ask a professional trader to show you his |
| So let’s get’s started… | | | | daily/weekly/monthly or annual trading plan. Ask |
| MISTAKE # 10 | | | | yourself if you can make a plan that addresses similar |
| PAPER TRADING TOO LONG | | | | things. If the professional you have selected can’t |
| Paper trading is hypothetical trading. If you have never | | | | show you or won’t show you his plan then ignore |
| traded anything before, you will probably do some | | | | what he has to say. If he isn’t using a plan then he |
| paper trading. The benefit of paper trading is that it will | | | | is likely unable to assist you in building wealth. There |
| help the new trader become acquainted with the | | | | are resources for writing trade plans on my site; |
| basics of interfacing with the markets. This is often a | | | | please use them. |
| "demo" account with a broker or clearing firm that | | | | MISTAKE # 8 |
| provides real-time market data but provides a | | | | TRADING TOO LARGE FOR YOUR ACCOUNT |
| hypothetical balance. You are allowed to buy and sell | | | | The fastest way to go broke is to bet it all—all the |
| as much as you want, just like in a "live" or "real" | | | | time. Most traders don’t learn this lesson until they |
| account. Your hypothetical gains and losses are | | | | have had at least one blow-out; by that I mean they |
| accrued against your hypothetical account balance | | | | have lost all their equity quickly and have had to start |
| over time. As time goes on, most traders find that they | | | | over. |
| can gain quite a surprising amount of paper-profits in a | | | | For some reason, there is a tendency for traders of all |
| very short period of time. These traders are now | | | | age and experience levels to trade too large for the |
| completely convinced that they can easily duplicate | | | | actual cash in their account. This is a symptom of a |
| those hypothetical results in real time with real money. | | | | larger problem and unless you are willing to consider |
| They open their real trading account and POW! Within | | | | that you personally might have this problem already |
| about three to four weeks they are down usually | | | | you most likely will be trading too large for your |
| more than 50% of their equity. This is not my | | | | account right now today. |
| opinion—this is actual fact. Ask any broker in the | | | | What is this larger problem? |
| industry what happens to "paper-traders" who open a | | | | GREED, BABY—GREED |
| real account. The ratio of "paper-traders" to "winning | | | | It is unrealistic for you to believe you are going to |
| traders" is about one in ninety. | | | | make a killing on THIS ONE TRADE RIGHT NOW. |
| Why does this happen? | | | | Sure, you might be on the right side of a large move |
| Because there was never any real risk to the trader. | | | | but that will take time and evidence to see. For this |
| Let me illustrate by telling you a story: | | | | moment, any trade you have on has the potential to |
| I am a private pilot. I soloed on my 17th birthday. In 1979 | | | | run the other way against you and if you are trading |
| I was an Air Force academy appointee. I have flown a | | | | too large, your potential to lose a lot on only a few |
| T-38 Jet fighter in extreme conditions. Just knowing | | | | trades is huge. No matter your age, education, skill or |
| that, I think most people would agree that I probably | | | | experience level you are not going to make 100% |
| have a certain amount of experience flying airplanes. | | | | winning trades. Therefore a certain percentage of |
| Here in the suburbs outside of Chicago there is a small | | | | your trades will simply not work. Those trades cannot |
| airport that has a "Fighter Pilot for a Day" program. | | | | be so large that you lose a significant portion of your |
| This is where you fly co-pilot with a retired military pilot | | | | equity in the process. |
| in high-performance aircraft. You are allowed to fly the | | | | To beat the greed habit you need to make a few |
| aircraft (with the real pilot’s hands on the controls) | | | | changes to both your equity management and more |
| in an attempt to "shoot down" an "enemy" fighter; | | | | importantly to your thinking. |
| which is another co-pilot flying another airplane with HIS | | | | First, trading is a business. You need to treat it like one. |
| retired military pilot. You are awarded a "kill" if your | | | | There are certain things every business needs to run |
| laser guns hit your opponent. It’s like a very | | | | effectively and the first thing is liquidity. Simply put, if |
| expensive high-stakes game of laser-tag. | | | | you run out of cash to play you can’t remain open. |
| I went for a day to have some fun. As it turned out, I | | | | Second, if you had a reasonable plan in place already |
| was flying against a complete novice. Of course, I | | | | then it is a good guess that your plan calls for only a |
| didn’t tell him I had some Air Force training. I asked | | | | reasonable amount of percent gain on your equity |
| my adversary what kind of training he had. He very | | | | regularly. If you were to use some basic mathematics |
| confidently told me that he was the top scoring "ace" | | | | while creating a sound trading approach one of the |
| from his on-line club and various other national | | | | things you would be looking for was a realistic |
| methods of playing of high-tech video games. He told | | | | "risk-to-reward" ratio. That means for every dollar you |
| me that he could "out-fly" almost anyone in the | | | | lose you expect to make a certain number of dollars |
| Microsoft Flight Simulator in both the F-16 Falcon and | | | | and out of every 100 trades a certain percent will be |
| F-15 Eagle. I agreed that his credentials were very | | | | winners and some will be losers. |
| impressive and proceeded to blow him out of the sky | | | | If you put this all together and asked the "what-if?" |
| no less than six times in 20 minutes. To start with, this | | | | questions you get this base-line number that statistically |
| novice had never flown in aerobatic conditions so he | | | | will be a winning set of results: |
| spent most of his time trying not to throw-up. He | | | | 42% winning trades out of 100 taken |
| stalled and spun most of the other time. If he | | | | Two dollars out for every dollar you give back |
| wasn’t flying with someone he’d be dead. In the | | | | This is not my opinion, this is the Probability of Ruin |
| end he had to quit early because he simply couldn’t | | | | Matrix and you can research it yourself if you have |
| take the physical punishment. To add insult to injury, I | | | | time. Of course, if you have higher percentages of |
| have never played Microsoft Flight Simulator (ever). I | | | | winners and take more out on those winners you |
| do the real thing. BIG DIFFERENCE between the two | | | | make money a lot faster but the point is if your results |
| as you can see. | | | | are at least this good consistently you are on your |
| Do you see the point I’m getting at? PRETENDING | | | | way to success. I teach more about that in Trading |
| to do something is never the same as actually doing it. | | | | Rules that Work and in my Psychology of Trading |
| Yes, it is helpful up to a certain point to simulate certain | | | | course. |
| things but that can only take you so far. In the case of | | | | It’s great to be on the high side of the matrix but |
| air-to-air combat, PRETENDING to be a fighter pilot will | | | | most of us didn’t start there and that is why you |
| likely get you killed if you ACTUALLY go up against a | | | | have to TRADE SMALL at first. To protect yourself |
| trained fighter pilot. In fact, the US Army Air Corps | | | | from being greedy about your trading and to help you |
| learned this the hard way back in WWI. They sent | | | | stay focused on long-term success it is important to |
| young men into combat with oftentimes less than 10 | | | | make your trade size small enough so that it won’t |
| hours of actual flying time. Imagine how fast those | | | | leave you in a position of not being able to play at all |
| men were killed when they went man-to-man with | | | | should you have a string of losses all at once. I found |
| Richthofen, Boelke and Immelmann. Everyone | | | | that limiting your risk/reward ratio to a factor of about |
| concluded flying was "dangerous" when in fact it was | | | | 1.5% on any one trade is a great way to stay focused |
| the lack of training that was "dangerous" | | | | and not get greedy. |
| I’m not trying to impress you with my flying skills. | | | | This means that for any one trade you take, no |
| I’m trying to impress on you that paper-trading is | | | | matter how you think of the trade or how certain you |
| exactly like playing Microsoft Flight Simulator. It is | | | | are of a win; you will not risk more than 1.5% of your |
| pretending to be something you are not while | | | | account balance at any one time. This means that if |
| convincing you that you know what you are doing. | | | | you are trading so that your average loss is 3-5% of |
| Paper trading hides from you the need for real skills. | | | | your account balance at any one time—you are |
| Paper-trading will get you killed because when you go | | | | trading TWO to THREE TIMES TOO LARGE for |
| up against real traders with real money it’s not a | | | | your account size. In that case, the Probability of Ruin |
| game anymore. If you make the wrong move you | | | | Matrix will work against you and you will likely run out |
| lose equity. There is no "do over" button. If you stall | | | | of capital before you make money with your |
| your F-16 in the simulator, you get another chance; stall | | | | approach. |
| your F-16 in combat and you die. Lose money in your | | | | If you are the greedy trader right now and you are |
| paper-trading account; just sign up for another trial | | | | guilty of making this mistake; If this means you have to |
| account. Lose money in your real account and you go | | | | drop your trading size down a few notches then you |
| home broke. | | | | had better call your broker today and fix it—because |
| Paper-trading is a waste of time because | | | | if you don’t you are an accident waiting to happen. |
| paper-trading will never give you the real skills you | | | | It only takes making this mistake THREE TIMES IN A |
| need to trade. All paper-trading can do is help you | | | | ROW to drop your account balance 15% or more in a |
| learn how to use the functions of your trading platform. | | | | heartbeat; especially if you are day trading! |
| In fact, that is a good thing. But once you learn the | | | | HOW TO MAKE THIS MISTAKE WORSE: Convince |
| functions of your platform and your account is ready | | | | yourself you are so good at trading that this |
| to trade, everything you learned paper-trading goes | | | | couldn’t possibly happen to you, convince yourself |
| out the window because NOW IT IS DO OR DIE. | | | | that your analysis is good enough to help you find |
| There are no second chances. | | | | 80-90% winning trades all the time, trade without a |
| Don’t make mistake #1; don’t think you know | | | | stop-loss order "just this once", double-up on the next |
| what you are doing because you pretended to trade | | | | trade after taking a large loss. |
| without taking any real risk. | | | | SOLUTION: Immediately reduce your account balance; |
| HOW TO MAKE THIS MISTAKE WORSE: Continue | | | | take 20-30% of your cash home. Trade position sizes |
| paper-trading for more than 30 days and/or go back | | | | that are no more than 300% as valuable as your |
| to paper-trading if you have lost money in your first | | | | account balance. In other words, if your account size is |
| real account. | | | | $10,000, don’t trade anything that has a total |
| SOLUTION: Open the absolute smallest account your | | | | contract value larger than around $30,000. If that |
| broker will allow and trade for 90 days the absolute | | | | means trading mini’s instead of big-board you had |
| smallest size possible. If you are ahead, increase your | | | | better do it. |
| equity size and your trade size by a factor of 20%. If | | | | --------------------------------------------------------- |
| you are losing, stay with the real thing; it’s the only | | | | We hope you’ve enjoyed the first few mistakes |
| way to learn. | | | | that traders make, and that it opens up your eyes to |
| MISTAKE # 9 | | | | the Forex markets a little more! This is a mini version |
| NOT HAVING A TRADING PLAN | | | | of our TOP 10, which we like to spread around for |
| Suppose you called your 401K manager this afternoon. | | | | your overall knowledgebase, and to show you the |
| Suppose you asked him "What is your plan for the | | | | quality you get with the Forex Brotherhood. Once you |
| next six months?" Suppose he told you | | | | become a member with us, you get the rest of this |
| "Oh—whatever. I just try to get on the right side and | | | | guide, two daily live webinars/broadcasts, two daily hot |
| if I don’t I just get out" | | | | reports, an automatic EA, a VIP forum to mingle at, |
| How long would that guy be managing your retirement | | | | and obviously a learning curve that will be shortened 10 |
| money if you had any say in the matter? | | | | fold with our curriculum and premiums. |
| Many traders take the same attitude with their daily | | | | Please consider me a friend in the business. I have |
| work habit and many don’t even know they do it. | | | | many products and services available to you that |
| Not having a clear and concise plan for your daily | | | | have been created from my hard-won experience. |
| trading presence is a serious mistake and you need to | | | | They are all designed to help you do two things: Stay |
| address it. The best way to describe a sound plan is | | | | focused on what really matters when trading FOREX |
| to let you read one from a professional full-time trader. | | | | and stop making costly mistakes. I hope you will |
| This is an actual trade plan form a friend of mine who | | | | consider joining me and my online community for my |
| is an E-mini trader: | | | | twice-daily internet FOREX broadcasts. |
| 2006 Trading Plan | | | | |