Forex Trader Mentor
8th December 2004
Hi and welcome
-to the 2nd of my newsletters. It is a bit ad hoc at the moment, because I am busy from the web campaign I recently launched. If you haven’t looked at the web site lately, I have included on-line chat. There is also a link at the top of this newsletter that you can click if it shows I am on-line and have a chat. If you want to find out more about mentoring or want to discuss your trading goals, I look forward to meeting you there.
No doubt you have signed up for this newsletter because you have an interest in either learning or improving your forex trading performance. If you are looking for nuggets of gold that are going to make you a millionaire overnight - I am sorry to disappoint you. To give you an example: I ask prospective clients “What is your trading capital” and ‘”What are your financial goals”. I have had replies such as “start capital of $5,000 and an income of $100,000 per annum after one year”. This is not a realistic goal – it’s a dream. I am not saying it is not possible, but the key to trading is to be absolutely realistic and use some introspection. No - change that - a lot of introspection.
As I will keep repeating – you need a plan, a system and rules. You need to manage your money and you need rock-solid discipline. Great! - one can get that much advice anywhere. Try it though, if you haven’t already; Forex is simple, but it ain’t easy.
The trick is changing your mind-set, removing the emotion from trading. When trading emotions enter the room, common sense has a habit of leaving by the window. After selecting a system put the rules into practice and gain confidence by seeing the system work, day in, day out. I think that is an incredibly hard task to ask of an individual and that is why you need a mentor. This is because you will need someone to force you into line, to ball you out when you don’t follow the rules, to explain why and where it is not working out – and finally to be congratulating you when you become a great forex trader.
We are in December and the forex market, like all markets, gets ‘thin’. That is, there are not so many of the normal players around-they have either made their money or are licking their wounds so turnover is down. The large corporations still have to do some buying and selling before the year-end though, so markets can have a tendency to move erratically. This is because there is less liquidity than normal. True, there are some opportunities-after all, you will always get a price, just be careful!
A good friend of mine, a seasoned trader, has had a good run just recently. He was short dollar against almost everything and has taken his profit. He told me he wanted to ‘keep his powder dry’. I said that surely he had made enough money recently and he should be satisfied with that. He agreed he had. Which fits into my philosophy of having objectives and sticking to them.
I know another trader, Mike, who has a ‘doctrine’ that a crisis in the forex market occurs every 15 months or so and the direction is so obvious, that anyone can make money out of it. Have we just experienced one? I think if you look back over the years, ‘Mike’s Doctrine’ is probably right.
Another trader I know used to work with a technical analyst who claimed that the markets HAD to move a certain amount every year. If nothing had happened by October, he would go around muttering ‘Something has to happen – there is another 15% movement due’ – and sure enough, come November, the movement happened. Perhaps this has been such a year. Makes sense, really: the big boys (i.e. the banks that control the market liquidity) have budgets to meet, too. So they need the volatility to make some money.
The moral of this tale is: be patient – wait for the opportunities, they will be there. When they come, profit from them and don’t allow windfall profits to affect your trading judgement.
Who looks after your interests when you are faced with bad practices with the broker, such as bad stop-outs and non-substantiation of prices? In the wholesale interbank market, the traders abide by the ‘Model Code’ of the ACI, the association of forex dealers. It can be viewed here
It is fairly heavy stuff and the interesting part from an independent trader’s viewpoint is chapter VII, “Dealing Practice”. The brokers that the majority of independent traders trade with are not, with a few exceptions, members of the ACI. Moreover, the rules are only valid between participants in the wholesale market; a relationship between a broker and client is outside of the Model Code.
Personally, I think this should be changed. The Model Code and its predecessors have served the forex market for many years and the market is well functioning. I think it should be open to all forex traders and the Code should be applicable for all players. If you have had any dispute with a broker or bank, in that you felt you were badly treated, please let me know because I want to make a case to the ACI’s Committee for Professionalism. I hope you will support me in this.