The Trader's Pendulum. Samuels Jody

and might be driven by greed to take larger positions irresponsibly; on the other end, you are in fear of losing money, and fear might hold your actions back. Learning how to balance between these two factors is the focus of the Pendulum Scenarios in this book.

      Complementary Resources

      Complementary to this book are several materials available on the accompanying website, including the Trader's Business Plan, Trader's Scorecard, Simple Trading System Template, Trading Blotter, and the “10 Habits” videos. Flip to the “Resources” page to find out how you can download them.

      The discussion in this book is completed with detailed technical descriptions of an array of tools straight out of the Trader's Analysis Toolbox, which I call the building blocks for building strategies and trade plans. These are the essential tools that will help you to gain insights into the markets and make better trading decisions. Find out about them in PART V, The Trader's Tools.

      The Trader's Scorecard

The best way for you to take advantage of this book is to go online and complete The FX Trader's EDGE™ Scorecard presented in Table I.1. Then, after you finish reading the book and implement some of the 10 habits, you will be asked to take the test again. By comparing your results before and after working through the ideas in this book, you can gauge how much you have progressed as a trader.

Table I.1 The Trader's Scorecard

      So now, complete the Trader's Scorecard to gain a clear understanding of your current situation. Rate your reactions to each pair of phrases. Decide where you lie on the scale from 1 to 10. Add up your total from each column.

      Visit www.wiley.com/go/traderspendulum (see About the Companion website) to complete the Trader's Scorecard online. (Or, go directly to the interactive site now: http://fxtradersedge.com/scorecard/)

      It is my sincere hope that what you learn from these 10 Habits of Successful Traders and the Pendulum Scenarios will give you an edge in trading and move you over to the right side of the scorecard as you progress as an Entrepreneurial Trader.

Chapter 1

      The Successful Trader versus the Average Trader

      Fred Boros, a man in his early thirties, had reached his breaking point. He pushed away from his desk, stood up, and switched off his computer screen. It had happened again. Things just weren't working out as he had hoped. He began to pace back and forth in his office.

      Fred had been trading stocks for over a year and had envisioned that by this time, he would have been successful enough to move out of his cramped apartment and up the financial ladder. Previously, Fred had worked as an engineer with a large defense contractor, a job that paid him well but required long, unfulfilling hours. He had wanted a fuller life outside the cubicle prison. But it didn't seem to be working out.

      The Conversation that Changed Fred's Life

      One evening, two years earlier at his neighborhood health club, Fred had the conversation that changed the course of his life.

      While waiting for a pick-up game of racquetball, Fred started talking with an ex-work associate. The man told him how he had escaped from the corporate world and became a self-employed day trader. He was full of excitement about his new life, and had spun such a wonderful story that Fred was excited to know how he, too, could be free and financially stable.

      Fred became obsessed with learning to trade. He invested his time and money attending seminars, read every book he could get his hands on, and paid expensive membership fees to join online forums where he could exchange notes with fellow traders.

      Always a top-notch student, Fred learned quickly and began to trade actively in his paper trading account. He still held his day job, but found himself spending more and more time monitoring and analyzing his paper trades. Within several months, he was stuck to his computer screen like a teenager to a game console. He fell behind with his engineer work projects and found himself putting in extra hours just to keep up with his work responsibilities.

      One day, fate stepped in.

      To weather a major financial hit, his company had to tighten budgets and cut back on human resources. They let Fred go. Although he was shocked by the news, he was strangely not upset. On the contrary, he felt a sense of relief and an inexplicable surge of excitement.

      He took this as a “sign” to pursue his dream. He thought that he was being guided toward a new future. He felt what lay in front of him was a worthier journey with a more enjoyable lifestyle, where he would have more control over his life, more freedom of time and, of course, a fuller bank account.

      When Reality Kicked in: Paper Trading versus “Real” Trading

      Fred took a portion of his savings and moved it into his active trading account. He felt a bit nervous trading with real money rather than just making trial trades. This uneasy feeling heightened when he quickly found out that the system that he had developed during his period of successful paper trading didn't seem to work as well with “real” money.

      When he was making paper trades, he never hesitated to enter into a trade when he felt it looked right. Most of the time, he made successful trades. The win/loss ratio in his paper trading had been consistently above 75 percent. But after a few losses from real trades, he found himself losing confidence in the system he had set up from paper trading. He tried to make adjustments as he continued, but his win/loss ratio fell through the floor. Days went by with no net profits and Fred began to panic. Despite this, he traded every day, because as a day trader he needed to do this in hopes that his small profitable trades could accumulate over time.

      Even more discouraging, Fred found himself glued to his computer as much as he used to be at his engineering job. He wasn't used to feeling like a loser. But Fred had to admit that it wasn't fun anymore. He once again felt trapped in a routine that sucked joy out of his life.

      But he wasn't ready to give up. Not yet. He was determined to make his trading a success.

      The Path Forward

      Fred believed that he was an intelligent person who could do well in any intellectual activity. Never in his wildest dreams did he realize how challenging stock trading could be, and how difficult it is to earn a living by trading full time. Because there seemed to be a distance between where he was and where he wanted to be, Fred decided to seek more training, to learn more techniques, and pick up more advanced systems to bridge the gap.

      He asked himself:

      How will I get the know-how to succeed?

      What's the secret to making it big?

      Can I create my own winning strategy?

      Fred jumped from one website to another looking for advice, spent money and time on trading courses, and subscribed to expensive software. Would this improve his situation? He was hopeful.

      The Struggle of a Young Family

      Stacey Braverman and her husband, Brad, had always wanted a family. They began to put a plan together to adjust their lifestyle to welcome a baby, and at the same time make ends meet. They agreed that Stacey should stay at home to take care of the baby for at least the first three years. They wanted to make sure the baby got the full care and attention from his parents, was taught well, and grew up to be happy and healthy.

      But this decision meant that a major sacrifice had to be made.

      Stacey would have to give up her high-paying job as a sales representative. For years, she had been one of her company's top producers, generating remarkable profits for the company and earning huge paychecks. Her sales commissions contributed the major part of her family's income.

      It was beyond Brad's capability to shoulder the family's finances alone. They needed an extra income source. The only option was for Stacey to work