Journey, Illusions and Discoveries as a Forex Trader

By: Kelvin Chan

This is daunting to begin with ... but every journey begins with a single step so here goes. I actually started with some options trading seminar way back in January 2005 and learnt the basics of charting there. This was then followed by some weeks of paper trading. Inconsistent paper trading though ... did not do it every week.

By the time I got to May I had somehow chanced and learnt about Forex and its advantages over the other markets (liquidity, leverage, 24/7, etc). Started demo trading on Oanda's FXGame.

On 2nd June, I rushed into opening a trading account with Oanda with just $50 because I wanted to trade the NFP that very day. Wasn't able to get in on limit entries and so I started chasing the market. In 3 separate trades, I caught 32 pips in all. Not bad huh?! Too bad I traded only at 2 measly cents per pip ... LOL! =)

Things then went pretty downhill from here. I made just about every mistake there is to make as a rookie:
- Traded on other people's tips/advice/opinions
- Overtrading
- Trading without a stop loss
- Trading to gain back losses immediately (revenge trading)
- Getting real emotional (Roller-coaster ride to say the least)
- Trading for fear of losing potential profit (A.K.A chasing the market)
- Unwilling to take a loss and move on
- Trading just for the sake of trading
- Not having a target exit based on either number of pips or price level
- Telling myself market will reverse when charts don't support that view
- Not having an effective strategy for news trading

And finally at the end of June, I find myself with an account balance of about $15. Hey, in absolute dollars, that's only a loss of $35 but it's a loss of 70% of initial capital. I told myself then that this will not stop me and that I'll keep learning, trying and improving myself. After all, that was just my first month.

Moving on in July, I became more serious by getting a journal so that I could record my trading thoughts, ideas and also my individual trade entries and exits. In it were my trading plans and rules (if you're interested to know what were in them, let me know)

It was also at this time that I was going thru the various forex forums and tried out the many different mechanical systems and feeling excited each time I eyeballed and backtested as if I have finally found the "holy grail". (Hey, what did you expect?)

By the end of the month, I did a review and the results were pretty interesting to me. They looked like this:
Out of 35 trades, I had 57.6% wins and 42.4% losses. Made 176 pips and lost 203 pips making a nett of -27 pips. My average win was 9 pips and average loss being 14.5 pips.

Bottom Line: Pretty breakeven month. The results immediately improved over the previous month as a result of the journal (I believe) and this was my only second month trading. The most obvious observation was that my average win was smaller than my average loss.

I carried on penciling my trades in August and little did I know what was to come. On the first week, I lost some 47 pips. And on the early part of second week, I found I was pretty invincible as I made some 186 pips in 8 trades (0 losses) from Monday thru to Thursday UNTIL ..... Friday when I opened 3 long EUR trades from around 2460~2467. By Friday's close, I was down on all 3 trades. Oh btw, all those 8 trades were LONG EUR.

By the following Wednesday, market was trading around 22xx (some 200 pips lower) and I received the dreaded margin call. I was truly humbled then. My best week ever (I thought) turned into my worst week.

I decided then to take a break and it was not until the 19th of Sept that I started trading again.

I then went on to gain more trading experiences thru more losses for several more months and it was not until April and May that my records started showing more black marks than red marks. For what it's worth, I netted 277 pips in the month of May.

By then, I thought I had figured it all out when I scored another 133 pips in the first week of June 06. As you might have guessed by now, the very next week, the market taught me yet another lesson. I opened up some EUR, JPY and CHF trades on the 6th of June and refused to accept losses while they were still small. BIG MISTAKE indeed! The market continued moving away from my entry and some 20 days later, I finally closed my trades out for a total loss of 1536 pips from those 4 trades. That resulted in a loss of some 77% of the account equity.

Needless to say, that was my 2nd wakeup call. And mind you, even at this stage, I was never disillusioned. I just chose to pick up from where I left off and carry on stronger than ever (hey, look at Thomas Edison and the rest of the greats...they NEVER GAVE UP).

July came and went. And so did August and September. Something hit me as I realized changes in my psychology and in my mindset. I no longer chase after the boat. I wait for prices to come to my level (most of the time anyway). I don't get TOO emotional whichever way my trade turns out. These are just some examples.

Today my trading records look much healthier than when I first began. I realize too that trading is a never-ending journey. Along the way, you do realize that your trading has improved as a whole and yet you're not quite at the finishing point because the truth is, the finishing point does not exist. You just simply keep on going.

All in all, I've had some great fun challenging myself on a daily basis and gaining experience over time and the following are things I've found out and practise. I hope this inspires and/or benefits you.

And here they are (some might be obvious but not to other traders):
- Intentionality of trading (I.E Why do we trade? this will be another article altogether)
- Daily hi/lo fib swings
- Market reacts to psychological numbers
- Average daily range of the pairs you're trading (Use ATR for this)
- Put in my stop and take profit per trade during entry
- Great exits are more important than good entries
- Moving my stop to BE+1 as soon as feasible
- Not reading too much into pivots on Mondays
- Early european trends start around 0645GMT
- Reversals of the above (if any) then tend to happen around 0730GMT~0815GMT
- Forex has a volatile nature and you must cater for that
- Not more than 7% drawdown in a month (I use 5% currently)
- Learn to stop trading when I'm ahead (...risk of overtrading)
- Market gives clues ... It usually tells you quickly when you're wrong (it's up to you to listen and obey the signal)
- Do not bet on a reversal ... Bet on the trend to continue instead
- Expect pullbacks only 50% of the time on Friday closes (late U.S session) ... these pullbacks typically produce 24~39 pips
- Breaking the 200EMA (15m) and CPP tends to give very strong reliable pushes
- Study your biggest losses ... they give clues/lessons
- When I'm tired, I don't trade
- When in doubt, please STAY OUT
- Study the longer timeframes over the weekends (Monthly/Weekly 35%, Daily 35%, 4Hr 20%, 1Hr 10%)

The above list is not exhaustive and more will be added over time. I've pretty much come to the end of this article. To be honest, it was pretty tiring compiling this but at the same time knowing that if just 1 trader benefits from reading it, it would be worth it.

Until we meet again, stay healthy and pip-wealthy!

Foreign Exchange
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