Patience and Discipline in Trading

The value of patience and discipline in Forex trading cannot be overstated.  In order to be a successful trader, you must possess these two traits with unwavering consistency.  As I have gone through various phases of learning, failure, and success over the past 17 months, I have had moments and weeks where I have been extremely patient and disciplined.  However, maintaining that unwavering consistency has been one of the biggest challenges in my trading.

Lately, for a little over a month now, I have finally started to exhibit some reasonable level of self control.  I realize I have not yet absolutely mastered these essential survival skills.  Even during the past month, I experienced back to back days where I allowed myself to over-trade (the only two truly bad trading days I have experienced since mid-May).  As such,  I am constantly seeking new thoughts and inspirations for how and why to maintain steadfast patience and discipline.  I believe I am starting to turn the corner.  I find that I am no longer easy prey for the market.  I now lie in wait and take quick small bites out of the market.

So, what has been working?  What is helping me maintain my patience and discipline?  I go through a routine before each trading session.  The first thing I do is look at the lot ladder.  I must warn you, without the right mindset, this can be a double-edged sword.  The lot ladder allows you enter the number of pips you expect to average per day (along with some other variables) and then see how much money you will be making each week if you climb the lot ladder one rung at a time.  The reason this is so dangerous is that you can make the mistake of raising your daily pip goal so that you can make huge money so much faster.  This is completely counter-productive as it leads to over-trading, not covering profits, etc.

However, I have set my daily pip goal at the Fx365 Institute's long-time suggestion of just 7 pips a day.  Once you have been trading on the Smart Money Profile platform for some time, you know this is truly a modest goal.  Before any trading session, I look at where this highly obtainable goal can take me.  Here is a screen shot of what one part of my lot ladder looks like:

I take a few moments to really focus on the truth that averaging just 7 pips day turns a $1,000 account into a $20,000 a month income in a ridiculously short time frame.  I mean, this is incredibly powerful stuff.  It helps me cover smaller trades rather than trying to swing for the fences.  I still need to get better at not caring if the trade runs another 30, 50, 100+ pips.  It's tough knowing that I could have made my whole week on one trade, or hearing that someone else pulled a 40 when I had better entry and only pulled a 10 or 20.  However, I come back and look at the lot ladder again and realize I only need 2-4 of my modest winners a week.  I have to always remember, trading is a long-term race.  By taking those smaller positives, I avoid taking negatives that make it harder to reach my goal.  Then, at the end of the week when I have made my goal and am moving up the lot ladder again, I am one week closer to the financial freedom that $20,000 a month brings.  Isn't that the whole idea?

My other monumental struggle has been to avoid over-trading after taking a negative.  Now, although I am making significant progress towards trading at indifference, there are still times when I take a negative trade and literally feel the stress prickling through my body (what a horrible feeling).  When this happens, I absolutely must exhibit tremendous discipline and STOP TRADING until I have calmed down.  If I look at where I want to be by the end of 2015, I ABSOLUTELY CANNOT ALLOW MYSELF TO DAMAGE MY ACCOUNT.  

At those crucial moments, I lean on something Fx365i's Head Trader Wade Guth once told me.  He asked if I was planning to trade tomorrow.  I said yes.  He asked if I was planning to trade next week.  I said yes.  Next month, next year, etc?  Yes, yes, and yes.  So he asked me, "Why on earth would you get worked up about one trade or one negative day?"  I also reflect on Shane Guth recently telling me that the biggest thing he NEVER wants to do is let one bad day cause him to lose his buying power.  Live to fight another day!

Over this past month, I have also started telling my wife how my trading went each and every day.  She has believed in me and allowed me to stay on this journey despite several months without positive results.  Believe me, it is not easy to tell her when I am down for the day.  However, when I have taken a couple of wrong trades and walked away with relatively small losses, I can proudly tell her I kept my discipline and didn't throw money out the window like an idiot.  Knowing I will have to report to my wife on a daily basis helps me maintain steadfast discipline and patience in my trading.

One last thing I think about is basically a lesson from Rhonda Byrne's famous book, The Secret."  The Secret teaches that if we want something, we have to hold it in our mind's eye, believe we have already obtained it, and be fully grateful for having received it from the universe.  So yes, I am thankful for my huge trading account.  More importantly, I am thankful for being a highly successful trader with tremendous patience and discipline.  I know I did not get to this point by getting emotional and overreacting at every unexpected twist and turn in the market.  I am thankful for the self control and confidence that made me the trader I am today.

I realize the lot ladder may not help everyone.  Of course everybody is not married or willing to discuss their daily results with their significant other.  I also know that not everyone has the same view of The Secret as I do.  That is not the point.  What is important is that I have found ways (and will continue to seek and find new ways) to exhibit patience and discipline in my trading.  If you are struggling with patience and/or discipline in your trading, maybe you can use one of my tools.  Some of you will have to come up with something totally new that works for you.  The key is to find something that truly resonates with you - something powerful enough to give you the internal fortitude to do the right thing in the face of strong negative emotion.  Once you find ways to be patient and disciplined, you will be much more likely to survive in the unforgiving Forex jungle.

Two quick notes:
1) One other thing that has helped is writing this blog.  Thank you so much to everyone who reads it and especially to those of you who reach out to discuss your own trading experiences with me.  Thank you, thank you, thank you!
2) In regards to the 7 pips, you may be saying, "Well what about the commission?"  On my personal spreadsheet, I subtract 1.5 pips from each trade to come up with what I call "net pips."  This number will vary depending on the pair you trade and whether you are in a micro account.  I can help you figure out the exact number if you need help with this.

As always, please feel free to reach out to me at pipaddict73@gmail.com.  I LOVE hearing from fellow traders!

-Cyrus Sidhwa
Smart Money Profile Trader

10/16/2014: Great Day of Trading Despite a Mistake... The Debate That Raged Within

I am thrilled to be able to say I was up 56.4 pips today (Thursday)!  As someone who has struggled mightily with my trading, I now feel that I am starting to turn the corner and become a consistent, disciplined, and profitable trader.  It feels GREAT to have made my goal for the week.  

I took three trades today (Thursday morning New York session).  All were to the short side.  I took a +19.7, a +6.1, and a +30.6.  I could talk for ages about all three of these trades, but this post will focus on the first trade of the morning.

I had tried to trade the Aussie session from around 6:30 - 9:00 on Wednesday night and it was flat as a table (by GBP/AUD standards).  One of Wade's great pieces of advice about the Smart Money Profile (SMP) software is to pay close attention to where the market is at in the volume curve.  Usually the market is pretty wide awake during that Aussie session.  However, while I was watching, the volume on the hour stayed almost exclusively dark blue.... ice cold.  This really helped me stay out of the market.  Sure there were some pips to be had as the market rolled back and forth in a 30 pip range, but I stayed true to my trading plan, exercised some discipline and stayed out of the market.

This morning I got online at around 5:05 am pacific time.  The first thing out of my mouth was, "Ohhh Nooo!"  Why?  I saw the market had run up over 200 pips!  I was ticked off.  On Wednesday morning I had seen an excellent entry, but didn't pull the trigger on a trade that would have paid at least 50 pips.  On Wednesday evening, there was nothing to trade.  Now I come in on Thursday morning and the market has already made it's move?  What??

I realized had a decision to make.  Was I going to be an idiot and stay upset, or was I going to exhibit some emotional intelligence and get ready for the next move?  Thankfully I chose the latter.  I pulled out Wade's awesome Trading Questions and started evaluating the market.  Here's what I noticed (see screen shot below):

1. As the market continued to run up, price on the buy side went above 1.8400 to open up a bunch of retail trader longs.  The market makers then snapped it short by about 18 pips to stop out all the longs that opened up at the double zeros.  Then they took the sell side up to about 1.8408 to open up a bunch of longs again.  Then the market makers snapped the market short all the way down to 1.8357.  If the 18 pip stop taking didn't get you, the 51 pip smash definitely knocked you out.
2. At this point, my intuition told me that I should be looking for a retracement so I could get in short.  I was conflicted because the market had pushed up for several hours and I felt like I was trading against the overall trend.  However, I trusted my instinct and looked to see if we would get a retracement back close to the market maker activity dot from 5:45 at 1.8389.  I wasn't sure if price would go there, or go all the way back up to the blue liquidity line at 1.8402.
3. Price hit 1.83988 on the 6:20 candle and turned - basically right at the average price.  However, because I wasn't sure where price was going to turn, I was nervous to get in right away when price started to turn down off the average price dot.  

• I finally got in going short at 1.8380 - not great entry, but not terrible.  It was pins and needles for the first 7 minutes because price actually went back up.  It got as high as 1.8391.  However, because price had not really cleared the average price dot, I did not have any confirmation that I was wrong in the trade.  I am proud to say I did not allow the fact that I was uncomfortable with price get me out when the overall story had not yet changed.  After a few white knuckle minutes, price pushed down nicely for me and quickly reached 1.8350.  
• As so often happens around power numbers, price then backed off.  This is where the debate started raging in my head.  Once we hit the power number, things seemed to be happening at warp speed.  Although not terrible, I did not exhibit the best decision making here.  Here were my options as I saw them:

• Option A: Move my stop so that if price backs all the way up to 1.8380, I get out with a zero.  In actuality, this was my original trading plan and I had already moved my stop to 1.8380.  I had no risk of losing anything of significance and the potential upside to staying in the trade was huge.  My target when I got in the trade was the yellow liquidity line all the way down at 1.8280 - so I had a legitimate shot at a 100 pip trade!  Obviously the market is going to breathe during a 100+ pip run, so the fact that it took a breath at the power number was not a surprise.  If I'm ever going to learn to pull 50's, 75's, and even 100+ pip trades, I have to learn to stay in the trade and be willing to take the chance that the trade doesn't pay me at all.
• Option B:  Get out right when price started to hesitate after hitting 1.8350 and book 30 pips.  There certainly is nothing wrong with booking 30 pips!  My goal for the week was 35-50 pips and, after a slow week, I could have reached the low end of my goal with that one trade.
• Option C:  Options A and B were both pretty good.  Unfortunately, I went with option C:  Let the market breathe back and once the price action makes me uncomfortable, allow the market makers to bully me out of the trade.  Yes, this is the exact behavior I managed to avoid at the start of the trade.  
• Now, don't get me wrong, I was pretty happy with my 19.7 pips.  However, it turned out to be dumb because the market only breathed back about 1 more pip before it took off again (doff of the cap to the market makers for their skill at getting people out of trades).  
• Now you may say that hindsight is always 20/10 in the market and you'd be right.  The real reason it was dumb was because I gave up the upside AND gave back 10 pips for no reason.  If I'm not going to have the stomach to stay in the trade, then as soon as price starts stalling, especially around a power number or another sticky point like average price, then I should just get out of the trade.

So, other than sheer panic, why did I actually get out?  Here's what I was thinking in the moment.  I knew that when the market makers tapped 1.8350, there was a chance the market could breathe back significantly.  Knowing that the target for the trade was over 100 pips short from the start of the move, I felt there was a good chance the market might breathe back much more than 10 pips.   I thought it very possibly could breathe all the way back to 1.8375.  

Now, remember, my entry was 1.8380.  If price did retrace back to 1.8375, there was a great chance it could stop me out and I really didn't want to end up with a zero or 5 pips.  Thanks to both Shane and Wade's teachings, I am constantly asking myself, "At what price will I know that I was wrong about the trade?"  In this situation, I would not have confirmation about being wrong until price would have gone north of the original average price of 1.8389.  This means I would have been forced to have my stop up over 1.8390 in order to truly know that I was wrong about the move.  There was no way I was willing to see a +30 in the trade and take a negative 10-15 pips.  

So in my mind, it didn't make sense to risk letting the trade back up to 1.8375 because I wouldn't even know that I was wrong yet.  I also wasn't about to set my stop up over 1.8390 and take a big negative.  As I look back now, this tells me that the best option for that trade would have been to take the 30 pips.  Now, if I would have had truly pristine entry up around 1.8388, then I would have had the ability to let it breathe back to find out if I was wrong without taking more than a 5 pip negative. 

I hope and expect it will soon be a common situation where I am up a significant amount of pips and then have to decide whether to stay in a trade or get out.  Right now, it's tough to imagine being up 20-40 pips and being OK with giving it all back.  As such, I believe I may err on the side of caution and book those profits (hopefully without giving back 10+ like today).  While I definitely want to pull bigger trades, I am also highly fearful of losing those pips because it is not yet commonplace for me to be up 30+ pips in a trade.   As I gain more experience with SMP, I believe I will start encountering this situation more frequently.  As such, I hope over time it will become easier to stay in the trade because I will have the confidence that I will be up 30 again soon.  

Well, it sure is awesome to have made my goal, made 56 pips, AND learned a valuable lesson all in one morning session.  What a great day!  I'm planning to watch the market tomorrow, but I'm not pulling up my rate indicator.  Heck, if I'm tired enough, I might just sleep in like a wild man until 6am (welcome to the west coast student trader's lifestyle!).  On a serious note, I hope your trading is going well.  If you are struggling, please reach out to one of the instructors.  These guys know their stuff, but they can only help you if you are open and honest with them.   Also, please feel free to connect with me any time at pipaddict73@gmail.com.

All the best!

10/2/14: No Trades, Protecting my Pips... Commitment to Excellence

Coming into today, I was basically at my goal for the week.  The goal for this week was to be up 25 to 35 pips.  After yesterday, I was up 33.6 pips.  My debate coming for today and tomorrow was whether to continue trading.  The more conservative members of the Fx365i senior leadership would argue against trading and the more aggressive members would say to trade when you see good opportunity.  I told myself I would only trade if I saw something I felt extremely strongly about.

I did see a couple of trade set ups I felt good about today, but I chose to be conservative and did not trade.  This is proving to be both good and bad.  The good news is that I am still at my goal for the week.  As you may know, this is the first time in a month I have not been down dozens of pips, so this is a great thing!  So, what is the bad side of it?

The bad side is that I'm wondering if I'm still spinning from the severe emotional beatings I took over the past month (self-inflicted as they may have been).  If I'm seeing good setups, why am I not taking the trades?  On Tuesday, I didn't take a trade that set up perfectly and I regretted it.  On Wednesday, I took a similar trade and it paid me 22.9 pips.  The two trade setups I saw today both went very strongly in the direction I expected.  I could potentially have pulled around 80 pips on them.  So how do I continue to grow as a trader at this moment?

In order to keep my mind right and keep improving, my take on all of this is:

1. I am really happy with how I am seeing the market and beginning to understand the amazing new Smart Money Profile (SMP) software.
2. There is nothing wrong with being extremely conservative once I have reached my goal for the week.  If I was up 50 for the week, maybe then I would feel like I was playing with house money and could afford to take a potential 10-12 pip loss and still be very happy with the week.  However, if I took that loss now, I would not meet my target for the week.
3. I have decided I am absolutely not going to trade tomorrow.  I know it is going to be maddening if I see an easy entry and it runs for a monster trade, but we all know the GBP/AUD runs all the time and there will be more trades next week and beyond.  I will be watching closely in order to stay in tune with the market, but I will not have my rate indicator up.

Speaking of continuing to improve, I made the time last night to read Chapter 4 of The Forex Mindset, aka "The Book."  The commitment to excellence (no, not a Raiders reference) is such a phenomenal concept.  The habits we create on a daily basis and the small decisions to do the right thing on the little tiny stuff in our lives make a huge difference.  The chapter starts with quote by Aristotle.  I don't have it in front of me, but the gist is that you don't do the right thing because you have virtue, but rather you have virtue because you consistently do the right thing.  Continually striving for excellence and continual improvement, in all facets of our lives is not only a noble goal, but will also make us indefinitely better traders.

To everyone who is planning to trade non-farm payroll tomorrow, be careful.  It's a great day to lose a boatload of pips - especially if you start getting emotional or are trading a higher lot size than you are ready for.  Ask me how I know.  Good luck tomorrow and I can't wait to start trading again next week.