Forex traders around the world are making money every day. These traders have one thing in common—a secret. This secret may surprise you. If you are like me, when you first started
learning about trading you thought all the traders who were making money were computer science,
mathematics, or physics wizards with lightning-fast computers deploying secret algorithms.
Trading was the domain of the well educated that had the computing power to crack the market code. I was convinced that only by duplicating these efforts would I be able to consistently rack up profits. I knew that trading had to be complex, and perhaps you feel think same way.
This is not true.
Some of the very best traders in the world share a simple secret: They use extremely simple and yet powerful, trading systems.
The best traders in the world —hedge fund traders, bank traders, private millionaire traders you will never hear from—all have one thing in common: These people are experts. They do one thing.
WHY DO YOU WANT TO TRADE?
This may seem like a funny question, but why do you want to trade? If you want to trade because you want to make money, perhaps trading is for you. If, however, you want to trade because you
want excitement, or you want to be able to tell people that you are a trader, or because you love the excitement of having money at risk, then perhaps trading is not for you.
If you want excitement try skydiving, or hunting wild boars. If you want to tell people that you are a trader, you can do that, but if you are not quite consistent with your trading, just trade a very
small account, that way you can get the recognition of being a trader for a small fee.
If you love the excitement of having money at risk, you should try gambling. Gamblers are honest. They risk their money, and they recognize the inherent risk in their occupation, they are up
front about it. This is an honorable approach to gambling because gamblers admit that their money is at risk and admit that luck will guide their winnings.
Traders can be gamblers in disguise if they are trading for the wrong reasons. You probably know a
gambler or two disguised as a trader. This is the difference between a trader and a gambler:
A gambler has no risk management, and a gambler is willing to lose large amounts of money
A trader treats each trade as a calculated risk and manages each trade according to his system rules. Gamblers can lose all the money at once, and traders lose only as much money as their system will allow. The distinguishing factor is that a gambler does not follow risk management
rules, whereas a trader follows strict risk management controls.
Expert traders do more than simply follow strict risk management controls; they also concentrate on one trading technique. This is the real secret of expert traders:
They focus on one market, one trading system, one edge, and they use this edge in their
trading repeatedly. Profitable trading is boring. Profitable traders are experts, and these
expert traders do one thing over and over again.
THE SECRET OF THE EXPERTS
Why do profitable traders
limit themselves? The answer
is simple: Profitable traders
know what makes money.
Profitable traders trade to
make money. If you would
like to make money as a
trader, do what the experts
do. Become good at trading
one system. You know how
to do this now. All you need
is in this book. You simply
need to put the work in,
practice, and become an
expert with a trading system
that makes sense to you, and
then trade that trading system.
Trade your system over and
over again until trading
becomes boring (and very
All the very successful
traders are doing one thing.
This may seem unbelievable,
but entire hedge funds are
built on one idea. Hedge-fund
traders often have one edge,
and they use this edge in their
trading. Now, some hedge
funds may have several
traders, each with his own
edge, but to be a successful
trader you simply have to
have one thing that you are
very good at, and then you do
this one thing over and over
The most successful traders
I know follow this rule. The
traders that struggle, the
traders who have difficulty
finding consistent profits, are
the ones who repeatedly
change their systems,
reanalyzing and reorganizing
their trading rules. In other
words, they are still stuck in
the cycle of doom. The key to
breaking the cycle of doom is
to decide what makes sense to
you, which of the trading
systems in this book resonate
with you. Once you have
chosen one, you simply need
to test it over and over again.
Then apply this system,
concentrate on following your
system rules, and watch your
You can do the same thing
hedge fund traders do. You
can be just like a bank trader.
You can be a professional
trader. But before you go pro,
you must decide how you will
make your money in the
markets. What is your
expertise? Which trading
system fits your beliefs?
Once you align your beliefs
with a trading system, you
simply need to gain
experience and confidence in
the trading system, and you
will never look back. Your
exciting journey is ahead of
you; soon you will become an
SIX STEPS TO BECOMING AN EXPERT
Although it may seem that becoming an expert is a very difficult thing to do, it is really rather simple. As with many things in life, if you put the work into it, you will be able to reap the rewards. Here are six steps to becoming an expert.
Step One: Get in the Comfort Zone
The first step is to become comfortable drawing zones on your chart. Zones are the basis for your trading decisions. As a naked trader, all your trading decisions will be based on zones, so it is very important that you have these zones drawn correctly on the chart. It is much easier to draw fewer zones, provided those zones are very strong and well defined, than it is to draw too many zones
on your chart.
As a naked trader, you will spend a lot of time waiting for the market to hit your zones. This is fine; this is part of what it means to be a naked trader. If you find yourself feeling as though you need to take action, perhaps you should back-test your trading. Test one year’s worth of data (on a shorter
timeframe), and then test a lower frequency trading system on longer-timeframe charts. Compare the profitability of each back-test.
Step Two: Decide on a Catalyst
The second step toward expertise is for you to decide on which catalyst you will use in your trading. Do you prefer the simplicity of the kangaroo tail? Or do you like the added confirmation of the last kiss?
Perhaps you find the trendy kangaroo to be an excellent method for capturing trending markets. It does not matter which catalyst you have chosen. What does matter is that you trade a catalyst that
fits with your view of the markets.
You must trade a catalyst that fits with your beliefs. Choosing a catalyst that fits with your beliefs will help you to ride out any bumps in your equity curve and avoid the cycle of doom.
Step Three: BackTest
Back-testing will verify that your trading system works. It will help to build your confidence in your trading system. It will help you when you are experiencing drawdowns, it will help save you from falling back into the cycle of doom. In short, backtesting is what separates those consistently profitable traders from those traders who are forever stuck in the cycle of doom.
Back-testing your trading system is the one thing that you can do to accelerate your trading. This
one thing is the most important habit that you can develop in an effort to become a professional trader.
Back-testing is that important.
You should have a clear goal in mind when you backtest your trading system. Try to triple your trading account with a small percentage at risk for each trade (e.g. 1 percent or 2 percent at risk).
Tripling your trading account will help you to believe in your trading skills.
Goal: Risking 2 percent or less, triple your backtesting account.
Step Four: Forward Test
If you have back-tested your trading system, and you are happy with the results, you’re ready for the next step. The next step is to employ your trading system in real time.
Unfortunately, this is a very slow stage. You will be unable to speed up time as you can when you are backtesting, but you will closely mirror the live market trading experience.
Create a goal for your forward testing. Try to triple your demo account. Because you will be trading in real time, it will probably take longer to triple your account than it did when you tripled your back-testing account.
However, in some ways, demo trading much more closely resembles “real” trading because you cannot quickly advance the charts to see if you have made the correct trading decisions. Embrace the time it takes to accumulate expertise with your forward testing.
To forward test, you simply need to open up a demo account.
Goal: Risking 2 percent or less on each trade, triple your demo account.
Step Five: Trade a Small Account
After you have found success back-testing and found success forward testing, it is time to start trading a live account. Live trading can never really be duplicated. Back-testing is wonderful and
adds to your confidence; forward-testing is also great because it closely resembles live trading. However, the only thing that matters is live trading profits. Begin with a very small trading account.
What is small to you may not be small for someone else. The size of your account should be made up of 100-percent risk money. This is money that you are willing to risk for this exercise. Never
risk more money than you can afford to lose.
Once you triple this small account, you are ready. You have built your confidence by trading (back-testing with historical data, live data with your demo account, and, finally, you have tripled your
small live account).
At this stage, you probably cannot wait to begin trading your standard live account.
Goal: Risking 2 percent or less on each trade, triple your small account.
Step Six: Trade a Live Account
Most traders do not do what you have just done. You have built your confidence over the previous five steps. Now you are ready. It is time to put into practice what you know, and by this stage you will be excited. Make sure that you maintain your discipline and continue to do the same thing
that you have been doing. The important thing here is to follow your system, without regard to whether you are in the midst of a lucky streak or an unlucky streak.)
Remember, you have the power of your trading, and you understand that you will successfully pull profits from the market. The most important thing at this stage is to duplicate what you have been doing. Just because you are trading a standard account does not mean anything changes.
Concentrating on your trading system rules will yield positive results. Thinking about the money involved in each trade will probably be distracting and will likely throw you off track. Keep
doing what you do well, and you will become an expert.
Goal: Risking 2 percent or less on each trade, stick to your trading rules. Focus solely on following your trading system rules.
DOING IT AGAIN
Is it possible to duplicate these steps with another trading system? If you have decided to follow the path of the market expert, you probably will add more systems to your repertoire. It
is not necessary that you do so. It may be easier for you to trade one system comfortably
for at least eight months before attempting to become an expert with another system.
Eventually, you may decide to do what many profitable traders decide to do. You may want to gain expertise with an additional trading system. It is not necessary to do so, and it may be tempting to jump headfirst into another system, but you should first give yourself time to get bored with your first system.
There are at least two reasons for becoming an expert with a new trading system. The first is that trading the profitable system is boring. Perhaps it seems crazy to you that you may one day become bored with consistent trading profits, but it may happen. You may want to expand
your horizons, and add another tool to your trading tool chest. The second reason for becoming an expert with a new trading system is based on risk management. By diversifying your trading
strategy, you may reduce the likelihood of an extended drawdown.
All trading systems have drawdown, but if you have a complementary trading system, one that is likely to make profits while the other is struggling, then you have the makings of a solid trading strategy. Many professional traders eventually get to the stage where trading diversified trading strategies makes sense. It is not necessary, of course, but it is possible for you to become an expert all over again with a new trading strategy. This is a great way to reduce your risk.