Trader Development — Learning and Unlearning…

July 28, 2008 at 6:25 am Leave a comment

By FX Insights Moderator

Trader Development — Learning and Unlearning…

I received an interesting email and I was going to respond directly back to the trader who wrote me but then I decided I’d use his questions and my answers as a new post for the benefit of all traders in the FXI community. 

I have a good feeling his questions are the same exact questions all new traders to FXI have and probably many who’ve been here awhile and are still in the learning and unlearning process. If any of my answers seem critical this is not the intention… this is meant to be constructive, but as you’re accustomed to, you will get straightforward no BS answers.

Before I get into the questions, I want to address what this trader says at the end of his email because his thinking here is exactly how most traders think and what they struggle with as they begin the process of unlearning all the crap that doesn’t work and start learning how we do things here. 

He says:

Your updates are pretty accurate most of the time and your key levels are like fences for the price. The problem here is that I’d like to learn how you do it, not just use what you are giving for free. In other words I’d like to be independent and do it even in case you get hit by car and die. The “IT” for me means that I am able to write my own updates and determine my own levels. So how to do it?

First, this trader says he wants to learn. Fantastic, those are the traders I like to help. Second, he says he wants to learn so that he can do this on his own with the type of accuracy he’s seen with my trading. This is more than fantastic because this is my goal for every trader that comes through FXI – to learn to think for yourself, to be your own trader, to be quick on your feet, and to establish a system that produces consistent results. 

But, where this trader gets hung up like so many other traders do is that it sounds like he’s probably looking for the fast track. And, he wants to master the key aspects of trading all at the same time, and he’s probably looking for the easy A-B-C, 1-2-3 answers to get there. No trader can be faulted for feeling this way because we all know the potentials this market holds and we all want to master this market as quickly as possible. 

There are zero secrets. Any guru that attempts to sell his secrets or Holy Grail is not only lying to you but is cheating you in the process. 

Not only do I have no secrets to share, but basically everything I know about trading the euro I’ve explained through the educational posts, through the teaching commentaries, through live market analysis in the chat, through the daily updates, and at our live trading seminars. It’s all here, it’s all free, it’s all at your disposal. 

I manage people’s money and the main reason people give me their money is because they know it takes an intense dedication to beat this market and most people don’t have the time to put in the energy I do to performing at the top level. 

I don’t get managed accounts because I’m the best trader on earth… I’ll never even claim to be a great trader, but I’m a dedicated student of the market, I’m a disciplined risk manager, and I treat this market like a military campaign and refuse to be beaten by my enemy. Whatever this market decides to throw my way I’ve learned how to quickly adapt and how to profit under all market conditions. 

I routinely get bad mouthed and beat up on other forums for being cocky. Fair enough. I’m over-the-top confident with my trading and my analysis of the market because I can. The reason I can is because I put in about 14 hours a day trading, tracking, and scanning the global markets and the proof is always in the pudding. 

I firmly believe the trader who wrote me this email and most other traders can learn how to do what I do if they are willing to put in the time and energy I do and to stay at the top of their game at all times. If you’re looking for a “secret” that is the secret. 

Question 1: Price action, what is it for you, how do you read it? What do you recommend to do in order to learn it? How did you learn it? 

My definition of price action is – the visible and measurable pattern of price activity of a currency pair. Price movements almost always slide along the path of least resistance. The price action of the euro will almost always move with more resistance to the upside than it will sliding to the downside. 

Remember, this market is ruled by two human emotions: fear and greed. The reason the euro makes slower, more measured climbs to the upside is very much connected to those two basic emotions. The fear emotion tells the trader “it can’t possibly go up any higher, so you better take a short and get out of your long so you don’t get stuck at the top in case it NEVER goes back up here again.” 

The greed emotion also speaks to traders and says “if you buy in on this up move or if you just hold on a little longer you can really increase your profits.” Then greed and fear start battling with each other meanwhile the banks and brokers are watching your every move, they are watching where the stoplosses are set, and they are chasing traders around to either shake them out or stop them out. 

So to answer this trader’s question, those factors of greed and fear and how they correlate to the price action of the EUR/USD is what I learned in order to be a price action trader. How I learned was by manually tracking the EUR/USD 30-minute price openings, by watching the live, real-time price moves and burning those price patterns to my mind’s memory bank. I also learned by then correlating what was happening in the other markets while the euro was making a price move and then remembering those patterns. 

Not much of a “secret” is it? This is how I did it and this is the only way I know price action trading can be learned. I put together the Price Action Guidebook in the forums and that’s the best place for you to start learning to trade price action. The market will be your teacher. I show you the path but the market is your guide. 

Question 2: Buffer-building trading vs. trading by using buffer as a margin, what is the main difference between the first and the second? 

You account stays mostly flat during the buffer building process. In other words, the trading style is almost always intraday unless, as I’ve said, you get a killer entry and you can hold it on a swing basis instead of an intraday basis. What’s a killer trade? 

Well, one real-life example would be the 1.6010 euro short we called which has paid in excess of 350 pips as of the writing of this commentary. When the euro hits a major top or bottom and you’re fortunate to get in on that trade while you’re in the buffer building process that trade will add big profits to you account and will be a better producer than taking a few scalps on an intraday basis. 

Once you added whatever amount you were looking for during the buffer building process you can then use that amount as your “usable margin” so to speak. For example, suppose it was your goal to build in 20% buffer to protect your original investment. Suppose that 20% ROI of buffer was the equivalent of $2,000. Well, trading using buffer would mean you could look at it as having $2,000 of “usable margin” to trade from. 

So, if your trade plan called for you to take 0.5% used margin entries, you would base that 0.5% used margin entry on a usable margin value of $2,000. And 0.5% entry based on $2,000 would mean you could make a $1,000 liquid entry, which would be one standard lot on 100:1 leverage and would pay you $10 per pip. On 200:1 leverage that $1,000 liquid entry would get you two standard lots and would pay you $20 per pip. That’s how that concept works. 

Question 3: What amazes me is how can you possibly know where stops are being placed when you write you daily updates? Because most of the time you are in sync with what I can see on Oanda’s graphs. Is it just practice or intuition based on practice or how do you do it?

You will love this “secret.” When I write in the updates the night before that there will be stops placed at “such and such” price and then the next day the market moves to those exact price points to knock out stops, that has zero to do with prediction or anything special. 

First, I use my key levels in the process of calculating where stops will be placed. Those daily key levels that I post, whether they are the five upside or five downside key levels or the overall price levels are something I depend upon for my trading. 

In addition, if I’m forecasting the euro to move to certain price points either on the upside or downside, I use basic logic to determine where I believe stops are placed. This is when I switch my thinking to your average, run-of-the-mill retail tech trader who doesn’t know crap about the market or why it moves. 

I know how those traders think and I know where they are most likely to place their stops. So, if you’re seeing stop orders on Oanda’s a graph, that’s exactly what I see in my mind when I think like how the tech traders think. 

Now I also know that retail FX brokers are bucket shop market manipulators, which means they can see all those stoploss orders and they can push the market to knock out those stops and then the market has a much higher probability of either stopping there or reversing there. 

Pretty simple stuff. 

One of the greatest payoffs for me is seeing traders go from bad to good and then from good to great. To me that feeling is as cool as closing a winning trade and beating the market. My approach to this market may not make a lot of sense but I believe if you are interested enough, the best thing to do is take the time to rood the guidebooks, to listen to the senior FXI members, and to learn from the market, and if you do that you will understand my method to the madness. 

Any addition questions, please ask. Hope this helps.


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EUR/USD Weekly Outlook 7/27 thru 8/1 2008 Building A Buffer

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