What to Do When #$!* Hits The Fan

Boris Schlossberg

This Wednesday started out like any other Wednesday in the currency market. There was some mild reaction to Australian data in Asian session trade. During early Europe cable caught a bid after a decent PMI number and positive developments on Brexit negotiations and loonie followed crude like a drunken sailor dipping and rising with each movement in oil.

In short it was just a regular day in FX with prices zigging and zagging which is what allows market makers to make a living by selling short term highs and buying short term lows. But then at around 9 am NY time all hell broke loose. NY Fed governor Bill Dudley said a few words about the troubling economic slowdown. Equities plunged. USD/JPY collapsed and euro went on a one way tear putting more points on the board in two hours than it did in the past 20 days.

If you think of day trading and market making as akin to selling insurance ( you take small limited gains in return for rare, but large losses) then days like Wednesday are essentially hurricane days. Insurance companies are some of the most profitable businesses on earth, but during hurricane days no one makes a dollar. Indeed any seasoned insurance man will tell you that the key to surviving such events is to minimize the damage to your balance sheet.

Having lived through enough of these one way days over the years to gather some perspective, here is what I learned from the school of hard knocks. First and foremost, recognize that you are middle of a s-tstorm. This is a lot harder than it sounds, as both hurricanes and market meltdowns provide few clear clues that trouble is coming.

But here is one.

You get stopped out.

Not only that but you get stopped during the sleepy Asian session on some very funky price action. Start paying attention. Now you may howl in laughter at the absurdity of this idea because getting stopped out is just part and parcel of day trading. True, but if your system is 90-95% accurate you don’t get stopped a lot, so take the first one seriously and if you quickly get stopped again then get very, very cautious.

The first rule of good business is that you don’t sell house insurance on hurricane day. All your great algos, wonderful inventory management systems and optimized trading strategies go tossed out the window. If you are dumb enough to entrust the computer with your trading on hurricane day it will gladly bankrupt your account as it continues to sell more and more “attractive policies” on houses that are about to be ripped apart.

So take control of your algo and do two things right away. Widen your entries by 100% and lower your size by 50%. Yes you will be making less trades with less capital -- and trust me that will be the best decision you will make that day. Next, take profits. Take profits any time you can. Don’t worry about your set parameters. Don’t worry about milking every pip. Open the trade and get the f- out as quickly as you can. A one pip profit is better than a 100 pip loss. On hurricane days you don’t challenge the winds of fortune. You just gladly take the crumbs that they give you.

This is perhaps the most difficult lesson for traders to learn. Our stubbornness tends to rise in inverse proportion to market volatility. There is nothing more expensive in the world than the cost of human ego. We want to be right. We want to win. We want to beat back the furies and like the great Greek heroes of yore come out as conquerors of our fate. Hollywood and Wall Street constantly prey on this myth and we fall for it every time.

The truth of the matter is that if you base your business on a nice and steady diet of day trading pips, then “making a stand” is just about the dumbest thing you can do. As general Patton once said, “No son of bitch ever won a war by dying for his country. He did it my making the other son of a bitch die for his.” Save the heroism for the movies. In real life on hurricane days you trade like a coward and live to fight another day.

Don’t miss this RARE opportunity to trade NFP this Friday with ForexLive & BKForex! Seats are LIMITED. Sign up NOW! bit.ly/1LiWtTt

What Makes Day Trading Successful?

Boris Schlossberg

It’s been an amazing month in my chat room. Trader after trader put up double digit returns this month, during some of the worst volatility in years. Even I, who trades with all the risk tolerance of an old lady from Pasadena, managed to bank a 10.14% gain beating my own target of 4%.

So what did we do at the start of 2016 that made so many traders profitable in the room?

I would love to say that the profit came from my ideas, but the truth is that everyone has bastardized my strategies so much, that sometimes I don’t even recognize what they are doing. Indeed even I went off into my own corner for the past two weeks and traded my own variation of my strategy that actually worked very well.

The truth is that there is no uniform way of trading. Everyone adds their own touches to even the “best” trading strategies that you devise and pretty soon the trading room looks like a Middle Eastern bazaar with everyone hawking their unique wares.

And that’s exactly the way it should be. Trading is very much an exercise in personal expression as opposed to investing which can reduced to one simple formula (Dollar cost average into an index every month of your life and never look at the statement until 30 years have passed). And its it precisely because trading is personal that it is such a pleasure and a challenge at the same time.

Yet despite all the differences, despite all the little personal quirks and analytic flourishes, there were several inviolable rules that every successful trader followed which were responsible for their amazing performance.

1. NO LEVERAGE.

This is pretty much the only rule you ever need to follow yet it is the most commonly broken rule in trading. I can talk til I am blue in the face why trading more than 2X equity is pretty much a guarantee of ruin -- but it wouldn’t matter one bit. I’ve finally figured out that the NO LEVERAGE rule should actually be called the NO GREED rule, because ultimately it’s greed that makes everyone fail in this business. Why trade for nickels and dimes when you can turn $10,000 into a $1 million in 1 year! The siren call of that idiotic fantasy is what built both Wall Street and Vegas on the oldest con in the book.

The irony of our business is that we spend all our days chasing money, but it’s only when we stop paying attention to dollars and start focusing on risk that real money comes your way. No one in my room who made money this month traded with any kind of leverage. For most FX traders who consider 10X lever a light position that will probably come as a shock. But most of the traders in my room will be here next year and the year beyond whereas anyone on 10X lever factor will be long gone from the game.

2. LOSE.

Every trader who made money this month was a great loser. They lost money on various currencies. They lost money on various strategies. They lost money for several trades, several days, even weeks in a row. One trader made more than 300 trades this week alone racking up massive consecutive wins on Monday only to bleed everything out midweek as the gyrations of the oil market wreaked havoc with his CAD trades. Did he stop and cry like a little baby? Did he throw up his hands and scream that the game was rigged? Did he blame my strategy for being so inconsistent this week? No. He just made 300+ trades and when the dust settled he was up more than 2% for the week.

Mike Tyson once said that everyone has a plan until you get punched in the face. That’s doubly true with trading. Most people can’t take 3 losers in a row. But we lose every day. If you don’t like losing -- don’t day trade -- but if you learn how to cope with the vicissitudes of the market that skill will be far more valuable to you than any strategy you ever develop.

3. STAND DOWN.

“I got the horse right here. His name is Paul Revere. Can do…”

Every time I watch new traders in room, I always think about that song from Guys and Dolls. The itch for action is the single biggest destroyer of wealth. Everyone wants to bet the big event -- but that’s exactly when most traders will lose the most money. The guy in my room who banked more than 30% this month did something remarkable this week. On FOMC day he simply stopped trading 7 hours before the event and didn’t resume until 2 hours post the release. While everyone else was trying to feverishly bank every last pip before Ms. Yellen and company released their statement, he sat on his hands and watched. This kept him from being whipsawed in EUR/USD and USD/JPY and kept his day green while many other accounts quickly turned red.

Taking a page from his book, I went dark on all my positions ahead of the BOJ the day following. The BOJ meeting was expected to be snoozer, but instead they became the second G-3 central bank to go negative rates and USD/JPY would have decimated even the biggest stops on my strategy. Instead I kept all my money and cleaned up in the aftermath of the release.

Discover the Joy of Team Trading

Most traders think that day trading involves taking risk. Like the glorious ALL IN bets in poker. The reality couldn’t be less exciting. Successful day trading is the art of avoiding risk as much as possible. We make all our money during the boring times and leave the cowboy bets to the amateurs.

The Three Dumbest Words in Trading

Boris Schlossberg

News Doesn’t Matter.

If I had a dollar for every time I heard a retail trader say those words I could start my own FX brokerage.

It always amazes me when I meet many otherwise intelligent people who are convinced that the only thing they need to make money in the market is an algo and a chart. Like the oracles of ancients who tried to divine the future by looking at the poop of emperors they think that looking at the squiggles on the chart -- eh I mean “trend lines” -- they too will be able to unlock the wealth that awaits them.

Now you may think I am just another snotty fundamental analyst who looks at technicians the way New Yorkers look at Sarah Palin. But not so. I actually trade technically first and foremost, And I will be the first to admit that fundamental trading is fraught with peril (which is why I leave those trades to Kathy) but that doesn’t mean that I don’t respect the single most important driver of price -- NEWS.

I know that technicians like to talk about supply and demand, support and resistance -- but let me ask you -- what do you think creates demand and supply? It’s not a Fib line -- it’s NEWS mostly.

Perhaps the biggest irony of all is that technicians are actually right, news doesn’t matter over the long term horizon. The bigger trends are driven by long term monetary or political themes and in the grander scheme of things the market couldn’t care less about that January NFP. But most technical traders don’t hold multi-month positions. 90% of retail traders day trade. And if you are trading the 5 minute chart well then you damn well better know who Mario Draghi is or Glenn Stevens for that matter or the price of crude or the movement in the S&P or the German Flash PMI data.

Because guess what? If you don’t pay any attention to that stuff you will always get stopped out and you will always have that pathetic look of surprise on your face that screams “Lord -- why me? Why am I such a loser? Why can’t I get this right?”

Learning about the various G-10 economic releases and the cross market correlations takes time -- but it isn’t rocket science. At this point even the most hardened Gartley traders in my room can tell the difference between the Tankan, the IFO and the U of M and they are all much better for it, even if they couldn’t give a damn about Eurostat projections or the debates of the Monetary Policy Committee of the BoE.

Understanding NEWS doesn’t require you to have an opinion on the news -- in fact of the worst thing that retail traders often do is chase a good release higher or sell a bad one lower. The primary function of knowing NEWS is to minimize risk rather than maximize reward by staying out of the way of the event. I know algo traders will tell me that they don’t care about event risk. Tell me how well that went for you at the December ECB meeting when euro verticalized by 400 points in less than 24 hours.

But those massive one way moves are not even the biggest reason for dumb retail trader losses. The much more common, every day mistake I see is something like this. “I am shorting USDCAD on 15 minute chart -looks like RSI/MACD/name-your-indicator is rolling over.”
Really?
Did you look at the price of oil before you made that brilliant trade? Did crude show any signs of bottoming?
Of course not. You didn’t bother to check the basic cross market correlation and of course the trade went against you -- worse this was done at 1.4100 and USDCAD ultimately topped at 1.4700 and if your were dumb enough to add to the position -- well there goes your account.

Come trade with us for just $59/week

I see this type of technical trading all the time and it’s lazy and destructive.
Bottom line, NEWS matters -- get used to it.

How to Make Ten Times Your Money By DayTrading

Boris Schlossberg

Want to make 10 times you capital by daytrading?
It’s much easier than you think.
You don’t have to lever your account 100:1.
You don’t have to time the euro perfectly.
You don’t need the luck of the Powerball winner.
You just need to learn how to grind it out and take a long term view.

Let’s do the math first.
If you have $10,000 of speculative capital it will take you approximately 5 years to grow that account to $100,000 if you can consistently make 4% month or 20 pips per day.
Now I am not going to lie to to you and tell you that it is easy.
But it’s definitely doable.

For the past year I’ve been doing about half that grinding out about 200 pips per month in 2015. So I am not quite there myself, but many, many traders in my room are doing much better than me. Some are up as much 20% year to date and we are only at the 15th day of 2016.

But here is the thing. No one my room who is successful trades more that 2 to 3 times leverage. No one risks more than 2% maximum on any given trade ( I keep it to 1% myself).
But everyone is really hitting out of the ballpark this year.

Why?
Well, we do have a great strategy but also day trading provides its own leverage. By flipping our account 5-7 times a day we are actually achieving 10-15 lever factor without ever assuming such monumental risk.

Most traders are always dreaming about “making it big” and the internet is replete of “if-you-just-bought-here-and-sold-there you too would be a millionaire!” examples. But in real life wealth is build 20 pips per day and daytrading,when done right, is actually one of the best ways of achieving that goal.

Trade with us?
Join here.

99% of Traders Can Do Better If They Just Do This

Boris Schlossberg

Everyone wants to be a big swinging d-ck.

Hollywood is full of stories of an underdog who takes on an insane risk and wins against all odds to becomes a hero for life.

All or nothing.
All in.
Let it ride.
Go big or go home.

We are all so familiar with these story arcs that we can probably recite them in our sleep. The emphasis in all these stories is always on winning it all. Indeed the central myth of America is winning. Just ask Donald Trump who has managed to make a career out of exploiting that myth for all its worth.

In real life however, and especially in trading, success goes to those who seek to win, but to those who learn how not lose. Like Warren Buffett. The difference in approach is exemplified by what I call the two models of trading -- the insurance model and the lottery model.

99% of us, whether we admit it or not, chase the lottery model. Have a hunch bet a bunch. Double your account in a week! Take $10,000 to $1 Million in…. You can fill in the blanks as easily as I can but you know deep down in your soul that its bullshit. The lottery is the ultimate suckers game, yet we all fall for it. Because we are all greedy.

I on the other hand try to spend all of my time being fearful. I love my trading models. They have served me very well, but that doesn’t mean that I follow them blindly. I never, ever, trust the market. Through the school of hard knocks, I learned that markets can always do the unexpected and they can always push prices beyond all reason and sanity. So I spend all my day passing up, rather than taking trades.

On any given day I must pass up at least 5 to 10 perfectly good opportunities to make money. Why? Maybe the price action looks a little too violent. Maybe there is news just a few hours ahead. Maybe I already have a very similar trade on the books and I don’t need to double my risk. Maybe the market just missed my entry price which happens so frequently that if I could bottle that frustration I would make my own line of cologne.

I’ve mentioned many times before that you can either predetermine your entries or your exits, but you can’t do both. I focus on entries because I can’t predermine exits. I exit early almost every time because of fear. Is that stupid? Maybe. It’s certainly easier to make 10 pips from one trade than to wring 10 pips from 5 trades that you closed out too soon. But you need to focus on the goal.

What’s the goal?

The goal is to make 10 pips moron!

Neither the market, nor your mother nor your family cares how you made your 10 pips. They just care that it was done.

In the very turbulent markets of this past week I’ve been running two accounts side by side. In my master account I’ve been trading like the meekest of accountants, blowing out of trades at any sign of trouble. In my beta account I just let it ride. My beta account had some really nice swings -- up as much as 2% on some days. Like the guy who hit 5 blackjack hands in row, I was living large!

But by the end of the week, guess which account was ahead? That’s right in real life the meek little accountant beats the big swinging d-ck every time. Because in real life lottery is for suckers and real money is made by the insurance companies who spend their every waking moment making sure they don’t lose.

The Only Thing You Need to Do To Make Money Day Trading Next Year

Boris Schlossberg

This week I was going to do the typical end of the the year what-have-I-learned-in-2015 column and talk about volatility regimes, implied bets and exit and entry strategies. Yadda, yadda, yadda.

Then I stumbled across an old thread on Elite Trader called (SIC) What`s your biggest tradeing blunder? and suddenly realized that it contained the answer to the key day trading problem that plagues us all. The thread like so many on Elite is an endless litany of missed analysis, sloppy execution and terrible decision making at key points in the trade. Reading it was like watching a slow motion car wreck you know it’s wrong but you just can’t pull away.

Tolstoy once said that every happy family is the same, but each unhappy family is unique in its own misery. When it comes to trading I think the exact opposite is true. Every happy trader is different but every unhappy trader is depressingly the same. What unites every losing day trader including those in the Elite thread is the woefully misguided attempt to make every win the same size, while making every loss different.

It stems I think from our almost subconscious need for a “paycheck”. Paychecks are of course uniform. They are cut on a weekly or biweekly basis and lull us into the belief that money like lightbulbs, cereal and soap comes in nice uniform units of measure.

But in trading to think this way is pure madness. The markets are never uniform and never provide predictable profits.

Imagine, however, if we smashed this mental model to smithereens and instead did the exact opposite of what every retail trader does. Imagine if we accepted the fact that our wins would be all over the place sometimes banking as little as half pip, sometimes making 20 or even 50 pips per trade. And then suppose that we made a vow in 2016 that no matter what, no matter how, no matter why, our losses would always be the same size.

Last week I talked about the need for a money stop. For a typical $10,000 retail trading account I think a $100 money stop per trade is just right. So suppose that in 2016 you made it your business to never lose more $100.00 on any trade you made. It didn’t matter if you were right or wrong. It didn’t matter if this was a planned trade or simply a stupid fat finger execution. It didn’t even matter if this was your fifth, sixth, seventh loser in a row. The only thing that mattered is that you never lost more that $100 on any given trade idea. I guarantee that if you did that there is almost no way that you will fail as a daytrader. You may not be profitable but you will NOT lose all your capital.

My Top 5 Trades for 2016

So in 2016 we can talk about tactics til kingdom come, but the only thing we really need to do is keep our all our losses at the same size ALWAYS and if we can just do that we will be well on our way to making money next year.

Don’t Trade Like Tony Montana

Boris Schlossberg

Fly on any Jetblue flight from New York to Fort Lauderdale and a curious thing will happen. If one of the Direct TV channels happens to be playing Scarface, every seat with a man in it will turn to that channel within 5 minutes until the whole plane is watching the movie. Guys love Tony Montana -- the swaggering, psychotic gangster immortalized by Al Pacino.

Who amongst us can forget that final scene when Pacino faces a crowd of assassins screaming “Say hello to my leeeetle friend!” as he fires off his bazooka while he takes a shot after shot refusing to go down. Despite the comic book violence, and the psychopathology of the main character, most guys view Tony Motana with a no small dollop of romanticism. He represents our universal desire to take on the world on our own terms no matter the cost. But the cost matters, because in the end of course Tony Montana gets blown to smithereens and Oliver Stone ends the movie with the shot of “The World is Yours” trophy fallen on the floor.

I’ve been thinking about the Tony Montana character lately, realizing that I sometimes do a bizarre imitation of the “say-hello-to-my-leeetle-friend” scene when I fight the tape in FX. Did you stop me out as tried to short the top? No problem I can take it. Here is another order to sell. Another stop? Give it to me. More? Go ahead I’ll take it all -- I am stronger than the market, I can take it all. In any case you get the idea. After a while your trading account starts to look like Tony Motana’s body and you begin to realize that maybe this is not such a good idea.

This week’s moves in risk FX had many traders acting like mini Al Pacinos with euro shorts refusing to accept the fact that the currency was not going to implode anytime soon. The short covering rally was one of the most vicious spikes in recent memory, but if you’ve been in the markets for a while you knew that it wasn’t that unusual. When the markets want to roll you can join them or get out of the way. If you chose to make a stand you will almost always be leveled to the ground.

Sun Tzu once said “He who knows when he can fight and when he cannot, will be victorious.” This is perhaps some of the greatest advice that we can absorb as traders. Very often we trade not to win but satisfy our ego. Taking on the world, or the market is a romantic idea that we’ve all been taught, but in finance that is a very expensive way to conduct your business. As guys we may all earn for our inner Tony Montana, but as traders we should wise enough to know better.
Screenshot 2015-12-18 13.25.14

How to Protect You From Yourself

Boris Schlossberg

The latest developments from brain science suggest that an emotional insult can literally be just as painful as physical injury. Apparently our body does not distinguish between the two and the very same quadrant of the brain lights up whether we’ve been hit by car or are emotionally bitch slapped at party by our best friend.

That new discovery has massive implications for us as traders. Scientists now believe that in order to perform well and live healthy we need to protect our psyche as much we do our body. After all no one seriously tells you to “walk it off” when you break a leg, yet we are constantly told to shake off emotional pain like it’s a minor nuisance.

When it comes to impact, apparently nothing packs more painful emotional punch than rejection. Scientists view it as remnant of our tribal past when ostracism from the group literally meant death on the savannah. Indeed, to this day loneliness is the single biggest non-physical killer of human beings.

Of course in trading nothing says rejection like a stop out. That is basically the market’s way of bitch slapping you silly. It triggers all those horrible fears of being voted off the island as your money dwindles and you can no longer be “part of the group”.

What’s even worse is that these emotional pangs of pain cause us to lash out wildly at the world. Just like you have almost a reflexive need to punch a wall after you hit a bedpost bruising your leg, so too when you are emotionally hurt you have a need to “hit” the market. In all those cases of course you go from bad to worse. In addition a sore leg you know have busted knuckles and probably even more losses in your trading account.

So what’s to be done?

Psychologists don’t have any great answers, except to tell you to be much more mindful of your emotional state and treat your emotional health just as seriously as your physical well being. One trick that seems to work is to distract yourself with a completely different task whenever your feel emotional pain. Scientists have discovered that even 2 minutes on a non related activity like doing the dishes can really calm the psyche and mitigate the worst effects to emotional pain.

Distraction is a valuable tool in trading as well. Certainly it’s worthwhile to step away from the screen, do 20 push ups and maybe go buy yourself a cup of coffee before engaging with the market again. But who are we kidding? Stops usually come during the most hectic times of the day in the market and even a kitchen fire couldn’t drag us away from our screens during high volatility action.

That’s why distraction is not enough. To protect yourself emotionally from the daily cruelties of the market we need abstraction as well. We have to stop thinking about trading as money. We have to even stop thinking about it in terms of percent return. We just need to focus on pips. Each trade is a pip won or a pip lost. Don’t focus on anything else. Your job is just to make pips, like assembling bricks for a building. Sometimes bricks crack, but you just keep building the wall.

This Saturday -- My Ultimate Day Trading Course

About four months back I stopped trading my real account. I simply attached it to my master account which literally trades the smallest possible size -- a dime a pip. In my master account I never care about money or return or even being stopped out -- because frankly it is ridiculously miniscule regardless of what I do. I just care about pips. But here is the interesting thing -- once in awhile (maybe every 6 weeks or so) I’ll glance at my real account and am pleasantly surprised at how it’s grown. That’s of course because I never trade it. I created an abstract layer and build a tool to protect me from myself.

The Israeli Diet Trade

Boris Schlossberg

A few weeks ago, Israeli researchers at the Weizmann Institute of Science confirmed something that I have suspected all along. One calorie is not the same as another and the efficacy of a diet is highly dependent on your individual biology.

The study continuously monitored blood sugar levels in 800 people for a week, and discovered that the body’s response to all foods seemed to be highly individual. For example glucose levels spiked in some subjects after they ate white bread but not in others explaining why some people can lose weight quickly when they cut out carbs while other can’t. Furthermore, the same food also affected blood sugar levels differently in the same person if, for example, consumption had been preceded by exercise or sleep.

All of which shows just how important context is to any diet and why any blanket recipe for losing weight is almost always worthless.

Dieting and trading of course are intimately correlated, They are both human activities at which 90% of the cohort fails to achieve its goal. I’ve written before about the need for discipline in both activities and here too the similarities are striking. If you want to lose weight you need to be disciplined about exercising or eating. If you want to trade well you need to be disciplined about either entries or exits. There is no way to escape that choice if you want to have even a slim chance of succeeding in either activity.

But the Weizmann Institute study struck a chord with me for a very different reason. I have long argued that there simply is no such thing as a successful trading strategy. There is only a trading structure which each trader needs to modify for his or her individual needs. In my chat room alone I have more than 400 traders from every region of the world. They all trade the day trading structure that I’ve developed. But despite the fact that they adhere to the general rules of entry, exit and risk there are literally scores of variations of my idea that are traded in the room every day.

In fact I am astounded at the variety of approaches from my very own highly selective methodology of picking only one or two good trades each day to the many others that generate 30 -- 40 trade cycles across all the major pairs and crosses. Everybody is different. Everybody has different approaches to risk and reward.

When it comes to food the combination of our personal biochemistry and our surroundings can create huge variations in metabolic burn rates, so too with trading our own sense of risk combined with the specific market conditions can create very different outcomes using the same “strategy”.

Day Trades, Swing Trades, Go for 1% Per Day

I know that this is not what most traders want to hear. I know that everyone just wants a simple solution, a single formula for endless production of pips. But life doesn’t work that way. Success is always a function of personal choice and responsibility. That’s why I think so many traders in my room succeed. Like the subjects in the Israeli diet study they have found their own way to get things done.

Thank You Failure

Boris Schlossberg

For those of us on the North American continent this is the season of Thanksgiving and on this holiday I always recall the most extraordinary speech of gratitude I ever heard. It was my high school graduation and our science teacher gathered us in the school auditorium and instead of plying us with the usual platitudes about how “the future belonged to us” and how “this was the greatest generation, in the greatest country on earth, at greatest time ever …blah, blah, blah” simply said “appreciate failure, it’s the most powerful force in life”.

“Think about it for moment,” he said.” Success is nice. We enjoy it, we may even revel in it, but once we achieve it we pretty much forget all about it and move on. Failure however, we don’t forget so easily. Failure in fact is what drives all of us forward. Failure is why get up in the morning. Failure is why fight to live -- because if it wasn’t for failure -- why would be bother to do anything?”

Forty years after I first heard those words they are just as revolutionary today as they were when I was eighteen. In fact I think it’s safe to say that no advice was more responsible for my success that this simple speech that praised failure. It completely re-oriented my view of life because it made me realize that success was just the endpoint of endless steps of failure and if you really wanted to succeed you had to not only accept but embrace failure as the starting point of every activity in life.

In trading this can best be described by my methodology of what I call “Lose your way to Profit”. Whenever I design a new strategy no matter how smart, how well thought out, how well tested it is, I inevitably lose money when I first start trading it. Real markets are never like the ones on the chart and whatever insights you may have obtained from past price data, they will always have to be amended by the present day experience.

But unlike most retail traders who give up on their systems after 3 or 5 or 10 losses, I continue to trade, continue to tweak, continue to observe. Eventually after the fifth, the tenth or the twentieth stop out some small inkling of an idea appears. I adjust. I trade again and I do it over and over and over until the losses become less and less and eventually turn into teensy little profits and finally into steady gains.

This is how I did it with my VT system. This is how I am doing it now with my latest strategy -- Ping Pong and this is likely how I will trade for the rest of my life. In fact if I ever come up with a system that was highly profitable right out of the box, I would be highly suspicious of it and most likely it would go into a permanent tailspin sometime in the near future wiping out whatever gains it garnered.

Trade with me and FX traders from all over the world. LIVE. Every Day.

This is what many novice traders fail to understand. No system will ever work well out of the box. Success in trading strategies is always dependent on the combination of core ideas and market experience. That’s why we should never give up at the first sign of losses. As my high school teacher pointed out a long time ago , we should give thanks to failure -- it’s what drives us forward in both life and trading.