Sophia Todorova– FXStorm
Sophia is the trading room host for Winners Edge Trading during the London session. Sign up here to follow Sophia and trade with her live.
The Forex Holy Grail Syndrome
Wow, you just started trading live. You are excited and ready to go; so pumped up with adrenaline you feel you can do anything! You had been trading on a demo account all this time. You have decided on a strategy and the results have been good; nothing mind-blowing, but good all the same. Well, based on what you’ve been reading up until now, it is not many traders that have been able to make a profit on a consistent basis. At least your results on demo are consistent.
A few days into your live trading, you begin to realize that it is not quite the same as trading on a demo account. Your emotions start getting involved and you get knots in your stomach when you’re about to execute a trade. This results in you making errors, breaking your own rules, and just about every condition that worked in your favor before, has now turned against you. Your results reflect the change in your state of mind, so, you attribute your failure to your system/strategy having failed to work. You set about trying to find another system that will fix the problem.
And so, you begin your journey towards the Holy Grail Syndrome
The ‘Holy Grail Syndrome’, is a phrase I coined for traders’ state of mind, in which they are constantly searching for, or trying out a new trading strategy/system. We are constantly searching for that one system that will keep spewing out pips everyday regardless of market conditions. Many forex traders often find themselves in this, seemingly, perpetual search for ‘the perfect’ trading strategy.
Many will complain that a strategy has stopped working, when in fact, the market conditions under which they work best, have simply changed for the time being. A major reason for this way of thinking, is inexperience. New traders have yet to learn the importance of consistency, and what is known as a drawdown period. A drawdown period is something every known trading strategy has to contend with, regardless of how many pips it produces in a given period of time. The best we can do is aim to make the drawdown period as short, or as insignificant as possible through solid risk/reward ratios, as well as limiting our exposure to the market during our drawdown periods. However, perhaps most importantly, we must learn to recognize the signs that tell us of changing market conditions.
A common mistake made by many Forex traders, experienced, and inexperienced alike, is to get competitive in the sense that they keep watching other traders’ success and, despite having a strategy that worked for them, they allow greed to make them break their own rules in order to realize the same level of profit as someone else. This is different from healthy competition which allows you to aim for improvement without compromising your rules. An example would be to attempt to reach for targets that are farther away, while at the same time ensuring that you lock positive pips in, or take profit along the way.
It is useful to have a trading strategy/system that works well in a trending market, as well as one that works in consolidation. This is however, not an essential. If a trader is flexible, meaning that he is willing to consider trading several different currency pairs, this will go a long way towards solving the problem. This is so because in most cases there is always a currency pair that is trending when others are ranging, and vice versa.
Also, essential to addressing the issue, is to get to the point where you are able to execute your trades over and over again with zero emotion involved. Repetition of the same strategy after a while gradually reduces the level of emotion involved in executing your trades, and the results which positively reflect your consistency will give you even more confidence in your strategy, and its effectiveness. As a result you will be less likely to get caught up in a perpetual search for new systems/strategies.
Often you will find yourself moving from one strategy to another, finding that nothing appears to work for you. It is here that the importance of back-testing becomes apparent. Back-testing allows us to have a level of confidence in our strategies/systems so that we know that on a monthly basis, for instance, it will be profitable. We have to learn to look at the bigger picture as opposed to every trade on an individual basis.
If you find that you tend to sway easily, you should probably avoid attempting to focus on more than one strategy at a time, ensuring that when you do, you test new strategies on demo before trading them in live market. Also, try to avoid drooling over someone else’s trading results. Retain your focus, and sooner rather than later you will start seeing incremental, but meaningful progress.
Most profitable trading strategies will have conditions that, when met, will signal the exit of a trade that has failed to work. If we set beforehand, certain conditions that will signal to you to exit a bad trade before it has gone too far negative, this will not only be a confidence-booster, but will also make a positive difference on your account statement at the end of the month.
The Forex market is a dynamic phenomenon. It is constantly changing, taking different shapes and forms. It is this fact that makes it extremely unreasonable for any of us to have expectations of full-capacity performance from any of our systems or strategies at every single moment in time.
‘Till Next Time, Trade Confidently