Stages to Becoming a Successful (Forex) Trader

YOU CREATE YOUR EXPERIENCE OF THE MARKET


Each equilibrium (the current forex price) presents every trader with an opportunity to either buy low or sell high relative to the next change. Except for the time it takes to execute a trade, it is basically the same forex market for all of us. You are either able to perceive any given equilibrium as opportunity to execute a forex trade, or you can agonize over what you believe is a missed opportunity from the last price change, or you can refrain from taking the trade at the current price, even though you perceive it as an opportunity because you fear the market might make you wrong. The market does not create the ways in which you perceive it, it merely reflects what is going on inside of you in any given moment.

Whether you perceived the current market condition as an opportunity and didn't act on your perception, or didn't realize it was an opportunity until after the move occurred is, again, a direct reflection of your unique psychological makeup. You attach the meaning to any particular move.

From an objective perspective the next tick up can be described as the price just moved one tick up from the previous price. That is a reality about that one-tick price change we all share. However, to one trader that one up tick could be the final defeat in a short position he had been carrying. To another trader, it could mean a perfect selling opportunity because the market just can't go higher.
To a third trader it could mean a buying opportunity because the market broke out of a resistance area, based on the way he defines resistance.

The market neither chooses nor has any way of choosing the meaning you attach to any particular price change or market condition. For example, you could perceive an opportunity to sell high and act on that perception by entering the market with a short position. From the point you entered, let's say the market went in your favor and then violently reversed itself. In doing so, it very quickly went through your entry point and kept on going up with only a few rest periods and minor little retracements.

Each rest or retracement could have been an opportunity to get out of your short position and reverse yourself. What would stop you? The answer is inside of you. If you breathed a sigh of relief each time the market paused or retraced a bit, choosing to believe it was finally all over, then I ask you, What is all over? Is it possibly the fact that you won't have to confront yourself and say I'm wrong. That again is inside of you. You choose (based on the makeup of your mental environment) to believe the pauses were stopping points, relief from confrontation, instead of a possibility to take advantage of an opportunity to eliminate your risk and a high probability to accumulate a profit by reversing yourself.

The way the market seemed to you was actually the way you created it in your own mind. Out of all the available choices and alternate ways of considering the possibilities, you choose one particular way. Your own mental framework (controlling what and the ways in which you perceive information) locked you into that losing forex trade. The unique way you define a loss (your beliefs about it) and what it means to you is a component part of your psychological makeup. Your beliefs will interact with your perception of environmental information to form the particular way you pick and choose whatever information you happen to focus your attention on. The market has nothing to do with this process, even though that is where the information is coming from.

In the trading environment the outcome of your decisions is immediate, and you are powerless to change anything except your mind. The power you have to create more fulfilling outcomes from your trading resides in your degree of mental flexibility. You have to learn how to flow with the markets, you are either in harmony with them or you are not. The less acceptance you have for different types of market behavior, the more the market seems to turn on you like Dr. Jekyll and Mr. Hyde. In one moment it is satisfying all your needs; in the next it is like a greedy monster taking everything away. This Dr. Jekyll/ Mr. Hyde characteristic of the forex markets only represents your own mental inflexibility to flow with the changes and your lack of understandings, that you give yourself to the best of your ability what you end up with, out of what is available. And by the same token, what you lost, you gave away.

You can't change what the market is doing. You can only change yourself in a way that allows you to perceive what it may do next with increased clarity and objectivity. As a forex trader you want to know what is going to happen next, yet, how can you begin to know what could happen next, if you refuse to open yourself up mentally in ways that allow you to perceive the most likely possibilities? It is a complete contradiction in thought to want to know what is going to happen next in an event over which you have no control and at the same time to maintain a rigid mental structure that allows for only a very limited number of possibilities.

This contradiction in thought is the result of not understanding the nature of beliefs and how they limit a person's perception of environmental information. When you put on a forex trade, you had to have some belief about the future. What you need to do is learn how to release yourself from the demand your expectations be fulfilled exactly the way you expect them to be. Releasing yourself from the demand will allow you to shift your perspective to perceive whatever opportunities exist in the market now, as if you didn't have a forex trade on at all.

All of us are in a position of having to pick and choose environmental information because we can't be aware of everything at once. If you pick and choose forex market information on the basis of having to justify your beliefs, you are putting yourself at an extreme disadvantage. You will be excluding from your awareness information that may be more indicative of the consistency of the market and its potential to move in any given direction. And it will be extremely difficult to learn how to develop a perspective for the "big picture," by expanding your time frame perspective.

So even though you can't actually control the market's movement, you can learn how to control your perception of the forex market's movement in a way that allows you the maximum objectivity. Learning to perceive objectively will increase your ability to let the forex market tell you when to get in and when to get out. You can learn how to trade forex where you won't be using information to justify your beliefs but rather to perceive the most likely possibilities in any given moment. As you build a solid foundation of insight and understanding into the workings of your mental environment, you will learn how to change yourself in ways that will allow you to perceive the markets from an objective perspective and eventually trade intuitively.

Step-by-step process of how to adapt yourself to function more effectively in the trading environment essentially is a process that will enable you to identify and manipulate your beliefs to be more consistent with your goals.
There are two dominant themes that form the foundation for this approach. The first we have already briefly covered, that you create the market that you experience in your own mind based on your beliefs, perceptions, intents, and rules. And, second, your trading results will be a function of the degree of skills you develop in three primary areas: perception, or your ability to perceive opportunity; execution, or your ability to execute a trade; and accumulation, or your ability to allow your account balance to grow over a period of time or series of trades.

PERCEIVING OPPORTUNITY

Your perception of opportunity is a function of the depth of insight into the market's behavior. The depth of your insight into the market's behavior is equivalent to the number of distinctions you can make and the quality of these distinctions. Perception of opportunity is synonymous with your expectation of what the market will do next. To be effective, you will need to learn how to make kinds of distinctions that will provide you with an indication of a high-probability opportunity from an objective perspective, what I call making an uncommitted assessment of the probabilities.

To be able to make some kind of quality distinctions that will eventually develop into a "vision" of the broader perspective, you will need to learn how to expand your time frame perspective of market activity. There are several components to this process, but the two most important are (1) instituting a completely disciplined trading approach and (2) learning how to release yourself from the negative emotional energy stored in the memories of any past trading experiences.
The disciplined approach will naturally help you develop the degree of self-trust essential to function effectively in an environment that does not provide any external constraints to limit or control your behavior, as society does. Without the discipline, you will be at the mercy of your own unrestrained impulses and basically out of control. Consequently, without the self-trust that develops from the self-discipline, you wiil fear the unpredictability of your own behavior. At the same time, you will likely project this fear into the markets as being erratic and seemingly unpredictable, when it is your own behavior you fear the most.

It would be ludicrous to think that you could understand the market's behavior to any degree greater than you understand your own behavior first. To grasp the fundamental nature of your own behavior, you will need to understand thoroughly all the effects fear has on your perception of environmental information.

At the most fundamental level, fear will limit your awareness of forex market information that could clearly indicate those possibilities that are in your favor and those that are not. How could any deep level of insight into the market's behavior ever develop if you are constantly worried about what the forex market may do to you and cannot stay focused on the consistency and structure of the market itself. The market can't do anything to you if you trust yourself to act appropriately under any market condition. Learning this is the key to gaining the level of confidence every trader needs to be successful.

In the larger perspective, fear will reduce the likelihood of you ever developing to the point of making the kinds of distinctions in market behavior where you acquire a "vision" of the big picture. When you understand how fear operates in your trading and have conquered it, you will be able to see how fear operates in the forex market as a whole and then be able to anticipate the group's reaction to certain kinds of information.

If you did not start your trading career with the proper mental perspective or with a disciplined approach, then it is likely you have suffered some degree of psychological damage. I define psychological damage as any mental condition that has the potential of generating fear. The negative energy stored in these experiences (that create and support a belief about the threatening nature of the environment) will generate fear to the same extent as the degree of energy stored in the memory.
By learning to release yourself from the pain, you will be reducing the fear and automatically opening yourself up to new awarenesses about the nature of the markets. You will be opening yourself up because fear will not be causing you to nattow your focus of attention. Instead of being focused on pain avoidance, you can be focused on what the markets are telling you. Learning how to release yourself from fear will also free you up to think of creative ways in which you can respond to the new relationships you are perceiving in the market's behavior. As a result, you will be increasing your confidence in your ability to respond appropriately to any given market situation.

EXECUTING YOUR TRADES

Your ability to execute your trades is a function of the amount of fear you generate or the lack of it. Fear is always the result of your beliefs about the threatening nature of the environment. What could be threatening about the market? Nothing, if you had the confidence and completely trusted yourself to act appropriately under any given set of market conditions. Essentially, what you fear is not the markets but rather your inability to do what you need to do, when you need to do it, without hesitation.

In your relationship with the markets you had to learn what to fear. What you learned to fear was a result of whatever you did that caused pain. Your pain was the result of your not knowing what to do next that resulted in an outcome you neither expected nor intended. In the market environment you are free to act or not to act; the markets cannot do anything to you that you don't allow, even if it is out of ignorance or a complete sense of powerlessness.

The effects of fear on one's behavior are obvious, limiting one to the point of complete immobility. If you can't execute your trades properly, even when you perceive the most perfect opportunity, it is because you have not released yourself from the pain contained in the memories of past trading experiences and because you still don't trust yourself to act appropriately in any given set of conditions. If you did, there would be no fear or immobility.

ACCUMULATING PROFITS

Your ability to accumulate profits either Ln a single trade or cumulatively with several trades over a period of time is a function of your degree of self-valuation. This sense of self-valuation is, in fact, the most important psychological component of success and will override all others in determining your results.

Your degree of self-valuation will regulate how much money you will give yourself (the forex market doesn't give you the money, you give it to yourself based on your ability to perceive opportunity and execute a trade) out of the maximum potential available or perceivable at any given moment or time frame perspective. Regardless of the depth of understanding you have of forex market behavior or what you consciously intend, you will only "give" yourself the amount of money that corresponds to your level of self-valuation.

This concept can be explained with a simple illustration. If you perceive an opportunity, based on your definition or what forex market conditions constitute an opportunity, and do not follow through by executing a trade, what stopped you? In my mind, there can be only two possible reasons. You were either immobilized by the fear of failure or you are struggling with a belief (value) system that says you don't deserve the money. Otherwise, you would have acted on your perception.

SELF-ACCEPTANCE

The second theme that provides a foundation for the belief system I am offering is that persona! transformation, growth, and learning new skills are a function of self-acceptance. Your intent of learning a new skill or way of expressing yourself is in essence an attempt to create a new dimension of yourself. It is a goal you have projected out into the future that you will then attempt to fulfill by growing into it.

The forex market will quite naturally make you face what is inside of you on a moment-to-moment basis. What is inside of you could be confidence or fear, a perception of opportunity or loss, restraint or uncontrollable greed, objectivity or illusion. The forex market just reflects these mental conditions, it does not create them.

Therefore, to grow into a new expression of yourself (fulfill your goal of being a more successful trader), you will need to learn how to accept the existence of any of these negative mental conditions and the psychological components that create them. Cultivating a belief in accepting whatever you find inside of yourself will give you the base you need to work from to change these conditions.

To illustrate this concept of self-acceptance, I will relate to you an example of a floor trader who came to me for assistance because he wanted to change his trading style. When he first went down to the floor he got caught up in scalping because it seemed like the easiest way to make money. However, he soon found that trying to scalp for one or two ticks in the bond pit was just too physically exhausting because he had to compete with so many traders. So he decided that he needed to learn how to hang on to his trades for more than one or two ticks.

The first thing we did was to preplan his trades. We used some fairly simple techniques to identify intraday support and resistance points within a 7- to 10-tick range. The plan was for him to stand in the pit and wait for the price to hit his target (buy support or sell resistance), execute the trade, wait for the forex market to hit his objective, and then exit the trade. If the forex market traded through his entry point in the opposite direction by more than two or three ticks, he was supposed to execute the loss without hesitation. Based on our assessment of the reliability of the support and resistance numbers, we believed he didn't need to risk more than two or three ticks to know if the trade was going to work or not.

The first day that he tried to execute his plan, he did very well waiting for the forex market to hit his entry point. However, when it came time to execute the trade, he couldn't do it. He was supposed to buy at a support level, and he didn't do it because he thought it was going to keep on going lower. When the forex market didn't keep on going lower and bounced two and three ticks higher than what was his original entry point, he went ahead and bought one contract. From there he was supposed to wait until the forex market rotated back up to test the resistance which was 10 ticks higher than his originally intended entry point, but now it was only seven ticks away.

Instead of waiting for the forex market to rotate to his objective, he got out of the trade as soon as he had a two-tick profit. A short time later when the forex market rotated up to the resistance area, he did the same thing that he did in the first trade. He didn't get in at his price because he thought the forex market was going to keep on going; it didn't, and he sold three ticks lower than he originally intended and then got out for a one-tick profit, not waiting for a full rotation.
When we talked about what he did later on that day, he was extremely displeased with himself. He made himself accountable, but he did not do what he was supposed to. He didn't get in at the price he intended or out where he intended, "leaving several ticks on the table," so to speak. This is a very wealthy man who only had to risk two or three ticks at the most to find out if the trade was going to work and couldn't do it. By the same token, he was so desperate for a win that he couldn't wait for his profit objective, stating that he couldn't hang on because he has been burned too many times.

Obviously his backlog of negative experiences had nothing to do with the forex market's behavior or the probability of any particular strategy working or not. What was even more important, however, was his lack of acceptance for his current level of skill development. His intense anger over his performance clearly indicated that he could not accept where he was at or the results it produced. That first day was not a positive experience for him, even though he had his first winning day in a long time. His lack of self-acceptance certainly won't help him hang on to winning trades in the future; in fact, he will be digging himself into a deeper hole that he will eventually have to work his way out of if he wants to achieve the success he desires.
As time went by, he became increasingly more confident with his ability to define an opportunity with a high probability of success. Almost every trade he put on would immediately go in his favor, so he would rarely find himself in a losing trade. But each day was also becoming ever more exasperating because he was still only holding on for a one- or two-tick profit and leaving several ticks on the table as the forex market totted to test the next level of support or resistance.

What was even more difficult for him to deal with was that many times he had bought the low or sold the high of the day. Of course, he didn't know at the time it was going to be the high or low of the day, but looking back, he just couldn't deal with the fact that he only got one or two ticks out of it.

I knew the pressure was building inside of him because each day he had more excuses related to the forex market for why he wasn't doing what he was supposed to and had less and less tolerance to listen to anything I had to say about the situation. All these excuses were just an indication that he would not accept who he was in relationship to who he desperately wanted to believe that he already was. He was obviously indulging himself in illusion. To be the person he wanted to believe he already was would require that he learn how to be patient, acknowledge who he now was so he could concentrate on what he needs to learn and forgive himself for what he believed to be his past mistakes and inadequacies.

However, this would be very difficult because being impatient with other people had always got him what he wanted as long as he was dealing with people who perceived themselves as weaker than he. So why should he have to learn how to be patient now? Besides if he was patient with himself, it would make it difficult to justify his impatient, intolerant stance toward others who didn't "learn" fast enough or made "mistakes."

I didn't hear from him for a while and I just assumed that he wasn't doing anything different. Then one day after the close he called to tell me that he was going to start trading a 20-contract position. Otherwise nothing else about what he was doing had changed, except that he had several winning days in a row consisting of one- and two-tick winners.

I knew he was setting himself up for a big losing day, although I didn't indicate this to him in our conversation. In his mental system he was reasoning that by trading a larger contract size he would make enough money to prove to himself and everyone else that he had finally arrived, that he was a successful trader and that he was not a person subject to deep-rooted fears. Not being one to stand in the way of "progress," all I said was that I didn't think it was very prudent for him to be trading a 20-contract position, since he hadn't developed the psychological or mechanical skills to handle a position of that size. He grunted and hung up the phone.

The next day he lost almost $3,000.00 trading 20-contract positions. He gave back to the markets all his profits, plus more, from all his successful efforts over the last two and a half weeks of trading. At that point he was ready to listen to a plan on how he could learn how to be more accepting of himself and how to hang on to his winning trades.

The following is another example of a trader who has learned self-acceptance. This trader works for a local brokerage firm, manages hedge positions for financial institutions, and also trades for his own account. I started working with him on a fairly regular basts about three years before the experience I am about to relate.
He called me one day to tell me how proud he was of reversing his position on his last trade of the day. He said he cut his losses without hesitation and reversed his position from being short to going long. He was delighted that he felt no conflict, resistance, or mental anguish. He recognized what needed to be done and he did it. However, shortly after he did his reversal, one of the floor traders, who worked for the same firm filling customer orders, called him from the floor with some friendly advice that he should get out of his long position.

Now, my client had resolved long ago that he would not place any significance on another trader's perception of the market. He had excellent knowledge of the markets and believed he could trust his ability completely to define opportunity and make assessments of the potential for the market to move. At least he thought he be-lieved he trusted himself. After he got the phone call, he knowingly allowed himself to be influenced by what this floor trader had to say and exited his position. Within 10 minutes of doing so the market (bond) rallied 15 ticks, just about what my client originally thought it had the potential to do when he put the position on.
He left 15 ticks on the table because he let another trader influence his perception of the market. However, he did not view this experience as a missed opportunity. He viewed it as an example of how he hadn't, as of yet, completely released himself from other people's opinions of the market. He didn't miss an opportunity because given the environmental conditions he was working under (someone calling him was an environmental condition he had no control over other than not to place any significance on the information); he simply was not psychologically prepared to take advantage of the opportunity. If he had been psychologically prepared, he would have stayed with his original plan, realizing that someone else's perception of the market isn't going to be any more objective than his. Furthermore, considering the skills he had already developed, their objectivity would usually be a lot less.
As you cultivate a stronger belief in self-acceptance, you will then realize how the market reflects back to you your level of skill development along with the information that will indicate what you need to work on to become ever more successful. Each moment will then become a perfect indication of your skills and your degree of self-valuation, giving you a solid base from which to improve and learn.

You will eventually understand at a very practical level how you are always doing the best you can because your outcomes will be the result of your depth of insight into the nature of the market environment and your ability to act on whatever you perceive.

There won't be any reason not to accept these results as you increase your understanding of how to adapt yourself to suit any particular set of environmental conditions and realize the power inherent within this understanding. If you were to deny this perfection of the moment (a lack of self-acceptance), you would, in effect, be denying yourself the kind of information you need to grow into the skills you are attempting to learn. You can't grow or expand if you are denying the existence of environmental information that would clearly indicate your level of development. Nor can you acquire effective skills when you try to build from a base of illusion about the nature of the environment and yourself. If you won't acknowledge your true starting point, you cannot take the next most appropriate step in the development of any skill you intend to learn.

The most essential component in the process of transformation is learning how to recognize and then clear out beliefs that argue for the status quo, beliefs that defend against the intrusion of environmental information you refuse to consider, and learning how to read the environment in a way that will clearly point to the most appropriate path to fulfilling yourself.

Source: The Discipline Trader