Tuesday, September 7, 2010




Today I simply want to answer some questions sent to my email. All senders have gotten personal replies from me; only that I wanted to make some questions public, and so adding more details to the answers, for our mutual benefits. Only 7 questions are treated here. Here we go:

1. What are your trading beliefs? --- M. F.

Answer: My trading beliefs are based on my long-term observations of the Forex markets. I also made serious endeavors to study the trading strategies of successful traders, and I found what majority of them have in common. Most of their timeless principles have been mentioned in my past articles. On of them is “cut your losses short and let your profits run” (a golden rule). Traders keep on looking for magical trading systems that can make them right most of the time. Your success has nothing to do with what’s happening in China or Ghana; neither does it have anything to do with any forms of technical analyses whatsoever. The only purpose for possessing a trading system is simply to have reasons for entering a trade; it has nothing to do with your survival. No system on earth can survive without effective risk management, plus our long-term success has nothing to do with the accuracy of our entries, it lies in our exits. Let me remind you that Dr. Van K. Tharp forecasts that a sequence of 6 trades with a hit rate of 17% remain profitable, provided the 5 losses are limited to 5 x (-1R) = -5R, and the winning trade amounts to 10R. Conversely, I’d say that a sequence of 6 trades with a hit rate of 83% remains a losing strategy if the 5 profits are limited to 5 x (+1R) = +5R, and the losing trade amounts to -10R. This golden rule makes perfect rational and logical sense but our wrong mental biases always make us go against it, doing its exact opposite. This basic truth isn’t attractive to most traders who feel that right entries are what needed for survival on the markets. Yes experience is the best teacher.

2. I swear I’ll never believe any adverts again. I’ve lost up to $10,000 on the markets, and it was by following the advice and the trading systems of smart guys who have a lot of influence in the trading world. What makes you special? --- C. I.

Answer: I’ll repeat that trading success has nothing to do with any trading system under heaven. You don’t become successful by predicting the markets correctly. The markets aren’t predictable. As for me, there’s nothing special about me. I was a novice trader in the past (though I thought I knew what I was doing). I’m just a humble trader who’s trying to do the right things on the markets. I’m working hard to become a better trader. I’m also trying to make some traders benefit from my trading activities and beliefs. Popularity has nothing to do with skills on the markets, and so is education. Someone talking on a popular financial program may be having serious problem trading successfully on his own while an unknown trader may be making consistent profits in his own bedroom. The fact that nearly $10,000 was lost means that those guys or you didn’t take money management serious.

3. Why aren’t you afraid of the consequences of showing your losses alongside your profits? --- E. R.

Answer: Honesty will forever be the best policy. Being honest has nothing to do with the color of your skin or your nationality – it has to do with an individual. I don’t want anyone to tell me lies, and I don’t want to tell you lies either. We make mistakes in life, owing to our imperfect nature. In fact, most of us who do well are probably right less than half of the time. Yet many traders like to dwell on illusion (Illusions are something very pleasant, but the only disadvantage is that they tend to burst like a bubble). If we think we can dodge realities, realities will eventually face us. I’ve seen many market analysts who are too egocentric to admit their errors. We need to be humble and accept our limitations. Humility is the recipe for success. Those analysts want to prove to the world that they’re perfect. If a typical analyst says that he expects the EURUSD to get to a price, he’ll never mention that again in a subsequent article if the forecast fails. He’ll only make references to his past forecasts that have come to pass. Many an analyst will post charts that showcase their winning trades and mention their profits only. Some even announce bogus profits! To me, this is professional hypocrisy. Those analysts are indirectly adding to the problems of novice traders (who they’re supposed to help), by giving them impression that there’s a Holy Grail somewhere. In my future articles, I’ll be transparent - I’ll mention my profits and losses, plus how I survive in spite of this.

4. I have over two years of experience on the markets, yet I can’t do anything. I’m cowardly when it comes to trading executions on a live account. I could even pass water on my body if a trade goes against me. How can I trade like you? This I want to know. --- A. G.

Answer: You nearly made me laugh by what you just said. Your risk must be vey low in order not to pass water spontaneously when you’re trading. Besides, you need to demo-trade a strategy for at least two months in order to be sure it can survive the markets. If you’re still profitable after the demo practice, you should be confident that as long as you stick to your rules, you’ll be profitable. If you believe my trading ideas and you’re disciplined enough to follow them, perhaps you could trade like me. You could also read some of my past articles.

5. You are a long-term trader, but I don’t like to hold positions on a long-term basis. Don’t you have any short-term strategy at all? --- S. S.

Answer: Yes you’re right. I’m a long-term trader. I try to find potentially turning points on the markets – levels of demand and supply. I ride a trend until it reaches maturity. I don’t believe in taking 40 pips when the market can offer me 200 pips on a trade. I like to place trades and go and come back to check later. Nevertheless I’m constantly aware of the need to accommodate short-term traders who sit in front of their screens for several hours of the day. My long-term strategy shows results only on quarterly to yearly basis whereas there should be another one that shows results on monthly basis. To this end, our forex research group has developed a positive expectancy scalping strategy with good accuracy and nice risk-to-reward ratio. Trades are opened and closed within minutes. Unlike my swing cum position trading system, it works in all markets conditions unless there is too little movement. It’s being paper-traded by my trainees. Soon I’ll give you the details of this strategy in one of my future articles. It’s partly based on a theory of Mr. Stefan. Stefan Risse talks about the Chance-Risk-Profile (CPR) as the magic formula. Here, too, the risk (still the gap between the expected entry price and the first stop loss after position entry) is defined before the entry and the realistically expected profit put in relation to it. The requirement: The ratio between chance and risk (C/R) should be at least 2.5:1, otherwise the trade shouldn’t be entered. This means the end profit indeed amounts to 2.5 times the initial calculated risk. So anytime I’m online, I may be looking for a short-term entry as well

6. I wonder why I don’t see you in one of those trading rooms one Fridays. Why? --- N. Y.

Answer: Trading rooms are an excellent option when it comes to trading mentorship, but it seems I’m not prepared for one now. There are other ways by which my readers, trainees and clients can benefit from my trading activities. But I need to tell you that I can’t help admire the great value of a trading room, and you’ll soon see me in one.

7. When would you start giving your real-time trading signals? --- G. B.

Answer: Thanks for this question. My trading signals would soon be offered. The great purpose of offering trading signals is to make you survive the markets just like I do: doing the same risk management like me and managing open orders. We’re working towards this goal. Further enquiries could be forwarded to Thanks.

PS: I’m so sorry I was able to take only 7 questions. Next Friday would feature an interesting explanation of an important topic – a real eye-opener. Meanwhile let me conclude the article today with this quote:

“As I have said many times before, trading is not really about making money, but instead it is all about capital preservation. Without money in the account, you can't trade. Always risk small percentages of your account and use decent risk to reward ratios which, in time, will provide you with a buffer to cover the losses that you will endure. Risk rewarding ratios are far more important in the longevity of a trading career than hit rates… trading is not about how you win, but how you lose. Lose small and win big is the idea and if you are disciplined enough, you can still make good money with as little as a 30% success rate. This is one of the only businesses in the world where we can get paid for being overall losers, but only if strict risk management principles are adhered to at all times.” --- Sam Evans

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