Evolving as a Retail Forex Trader
I’ve invited 2 traders (Jay and Julie Hawk) to share their trading experience. You can learn how both of them evolved as a trader.
Enjoy the read:
Everyone has to start somewhere when entering a new profession. Although I had traded currencies previously for major commercial banks, my work there involved more market making, filling customer orders and risk management than strategic trading.
In starting off as a retail forex trader, my perspective on risk taking and how to do so responsibly needed to change considerably. This was especially true since I was now risking my own relatively limited capital rather than having a bank’s deep pockets to fall back on. I also needed to learn to control emotions that naturally arise when trading with your own money that are considerably easier to keep in check when trading with other people’s money.
The following sections outline my journey from starting out as a retail forex trader after retiring from bank trading to becoming a veteran retail forex trader and an expert on strategic trading techniques.
My Perspective Starting Out as a Retail Forex Trader
When I first started out as a retail forex trader about 10 years ago, I initially did some Internet research about how to open up a forex trading account with an online retail forex broker. I also determined what broker services I was going to need and checked out the reputation of each broker that seemed suitable with its clients. Back then, I used the ForexPeaceArmy website to see what customers of each broker I was considering were saying about them online.
Fortunately, I was already very familiar with the forex market and fundamental and technical analysis. If I had been completely new to the market, I would also have taken courses on each of those topics as part of my preparation to trade currencies. I also practiced trading in a demo account provided by my chosen broker to make sure I knew how to operate the MetaTrader platform I had downloaded to trade through.
When it actually came down to trading forex, by far my hardest trade was the first one. I really wanted to make sure I had chosen a winner to get my new trading account started off on the right foot and prove to myself and my family that I could do this with my own money. I therefore waited patiently for what seemed like the right opportunity to pull the trigger on an initial forex trade.
When the market went against me, I then had to admit I was wrong and close out that trade. Taking that first loss stung quite a bit emotionally, but I remembered from my professional experience trading currencies that you just can’t fight the market.
After I Had Traded for a Year
Despite that initial loss, I was determined to continue trading strategically. I wanted to learn how to trade profitably for my own account without the notable edge that market making, order watching and customer flow information gives you as a bank trader.
I therefore kept my eye on the market and watched for attractive setups based on my forex market analysis to signal that I should take positions. I also started to develop the first elements of a trading plan that would eventually help objectify my trading decisions considerably as I matured as a strategic trader.
In addition, I reached out for advice to some of the trading wizards that I had met throughout my years trading professionally for their wisdom regarding strategic trading. I also read books by experts about their experiences to get a better sense for how people make money on a relatively consistent basis when trading the financial markets. Furthermore, I started keeping a trade journal to document my reasons for trading and the outcomes that resulted.
Of course, you should never rationally expect every forex trade to be profitable, but I did start to realize that I needed to learn to play the odds when trading, just as a successful gambler typically does. Rather than just using economic or technical factors to inform my trading, I therefore started to assess my odds of winning on each trade before taking it.
Also, since I was trading with limited capital, I decided to select only those trades with the best chances of being successful and the largest profit potential for the least amount of risk. That analysis involved estimating a risk reward ratio for each trade before taking it.
Furthermore, to keep any losses to an acceptable amount, I resolved to never trade with funds that I could not afford to lose and therefore only use risk capital to trade with. I also chose appropriate position sizes that varied with the estimated odds of winning and my ability to afford and come back from any potential losses. That was one of the key elements of the money management strategy I started to use once my trading began to evolve its current methodology.
As a result of the enhancements I had made to my strategic trading behavior over the first year, I started to show profits more regularly and consistently. I also kept getting feedback about my trading activities from my trade journal and used the advice I had received from experts to improve what ultimately became my trade plan for retail forex trading. While I was still not exactly making a killing trading forex, at least I was able to keep from blowing out my trading account too often.
As a Veteran Retail Forex Trader
Now that I have been trading forex online for about a decade, I have finally evolved what seems to be a trading system with a relatively good chance of producing consistent profits. It also does this without incurring any excessive losses that I simply cannot afford to take as a privately funded trader.
Furthermore, as time progressed, I became much more comfortable holding trading positions overnight. That psychological shift allowed me to evolve from a day trader who blindly closes all positions out before the end of each trading session into a swing trader. This transition gave me more profit potential on good trades and eliminated the arbitrariness of having to close out winning positions by the end of the day even if they still looked worthy of keeping.
Another general rule I now have as a veteran retail forex trader involves checking carefully for high risk events that can shift markets suddenly — like major economic data releases or elections — before I even consider taking a trading position. While fortunes can indeed be made during such events, so can fortunes also be lost.
It just makes far more sense for me to use my particular analytical and trading methods during periods of moderate volatility and decent predictability. I would rather do that than irresponsibly put my account balance at risk during times when market behavior seems far less predictable and stop loss order slippage far more likely.
Another thing I watch out for is any tendency on my part to overtrade, so I remind myself to just “sit on my hands” until a really decent trade setup presents itself. While holding several positions at a time can be considered a form of diversification, having too many open positions can spread my attention too thinly among them. It can also increase my risk and diminish the profit each position ultimately earns.
Finally, learning to keep my ego in check when making money while maintaining the confidence to jump back into the market again after a loss is another key element of my long term success at this point. My trading also definitely seems to benefit the more I exert control over my emotions and make my trading decisions as objectively as possible.
Words of Wisdom for Other Retail Forex Traders
What I credit most with my relative success as a retail forex trader these days is having taken the time to formulate an objective trading plan that works for me. I also benefited from having developed the discipline to stick to my plan firmly so that my emotions would not sway my trading decisions.
As seasoned professional traders I once knew used to remind each other: “Plan your trade and trade your plan”. I found that particular aphorism an especially useful guide to my own strategic trading.
When it comes to taking profits, I now do my best to let my profits on winning trades run and use trailing stops to protect my profits. I also keep in mind that no one ever went broke taking a profit, however, so I avoid getting so greedy that I let my winners turn into losers. As wise traders often say: “Bulls make money, bears make money, but pigs eat crap.”
With respect to losses, I generally cut them short in a very disciplined way based on my initial plan for the trade. Rather than vainly hoping that a losing trade will turn around for the better, the key psychological mindset that works better for me involves having the rational concern that a losing trade will just get worse.
Active traders also need to remain mentally flexible to adjust nimbly to changing market conditions. We need to avoid “marrying a position” by sticking to it stubbornly when the reality of market conditions strongly suggests it’s a loser. Basically, you can more easily stay married to your spouse by not getting overly attached to an underwater trading position that eventually causes you to take an uncomfortable loss.
Finally, as retail traders whose fortunes are buffeted by market volatility often driven by changes in public and professional trader sentiment, we need to recognize that no individual is bigger or smarter than the market as a whole. Since the market is always ultimately right, this can be a humbling experience for many people.