The Trader's Pendulum. Samuels Jody

      A Perfect Plan Found?

      After careful consideration, they found a plan to address both concerns: Stacey would learn to become a forex trader. They knew they wanted something that allowed Stacey the freedom to work from home, on her own time, and they had heard about the high potential returns of forex trading. At the same time, they were fully aware of the high risks, so they had put aside a cushion of cash to weather the loss if things did not turn out well. Stacey knew she had a knack for business, mathematics, and logical analysis, and could easily imagine how she could use all these in trading. Forex trading seemed to be the perfect fit.

      Stacey planned to dedicate most of her time at home to take care of the baby and trade for three hours every day. This way, she could plan her working hours around her life and the parenting plan, and have the luxury of a flexible schedule.

      During her pregnancy, she started training herself in trading, received coaching from an experienced forex mentor, and tested her skills with a demo trading account. Within a couple months, she had established a trading system that fit her personality and preference, and so she took the leap of faith and started trading with hard cash.

      Seven months later, their baby, Brad Jr., arrived. Soon after her maternity leave was over, Stacey quit her job and, according to their plan, started to trade forex at home while enjoying her new role as a mother. What astounded her was the fact that over time, she actually found herself making more money trading at home for three hours a day than when she worked a full-time job!

      She was overjoyed, but cautious at the same time. She learned from her training that “each trade is a new trade,” and she held no illusions that there are any guarantees of success in trading. She understood that trading was much more than making a best guess on where a currency pair movement was heading, but rather, a deliberate study of the market fundamentals, cycles, and price action and skillful application of the trader's psychology. She was cautious, all of the time.

      A Typical Afternoon of a Trader

      One day, as Stacey was feeding Brad Jr. and watching Bloomberg Financial News, she glanced over at her laptop computer. She noticed that her last trade was stopped out for a slight loss. She opened up her trading journal and clicked on a worksheet where she tracked her trades. She took a screenshot of the well-documented chart and pasted it on the worksheet, and then analyzed the trade.

      Stacey posted the losing trade and the $120 loss into another spreadsheet called “the P&L and Win/Loss Ratio.” She looked at the running P&L column and then at the Win/Loss column. This told her that she was holding around her 68 percent trade wins and her profits were slightly behind this month's goal.

      After putting Brad Jr. down for his nap, she went over the trade again to examine in detail what had happened. From previous experience, she learned that she was guilty of not being patient enough to wait for confirmation before entering a position. She was not upset about this, because she knew that all she had to do was to remind herself more often to execute her trades with patience.

      At the end of her day, after reviewing her trading activities, she logged on to her trading coach's website and entered the chat room. She posted the screenshot of the chart of her losing trade and asked her fellow traders: “Do you think this was a viable trade according to this setup?” She got up and went about some of her household chores and periodically checked to see if there was any response to her question. As expected, she received the valuable feedback she was looking for.

      Stacey paid a sizable fee for the guidance from a veteran coach, and used his website to network with fellow traders, exchange ideas and tips with them, and receive support and motivation when she needed it. She knew the hefty sum that she had been paying for all this was a sensible investment.

      Trader by Chance

      From the start, Fred had entered into stock trading by a chance encounter with his ex-colleague at the local health club. It was the wonderful outlook of the life of a day trader that lured him into the day-trading sphere. No detailed forethoughts and contingency plan were made before he made the leap:

      ● He did not plan his trading education.

      ● He was blinded by the potential rewards of a successful trading career but did not consider the risks.

      ● His decision to trade was reactive (to his job loss) and not aligned with his skills or personality.

      In essence, he entered this career for the sheer reason that he was convinced by the story that his ex-colleague had spun.

      Fred had also not tested his system thoroughly before he relied on it for income. He had traded it with his paper trading account, but did not start small in trading real cash to gain confidence, so he did not know what to expect when the technical and psychological complications of trading live cropped up.

      Worse, he allowed his emotions to get the better of him when he traded. A few losses in the beginning aroused his doubt about his system (although it had a win/loss ratio of 75 percent in paper trading). There might indeed be some flaws in the system, but he was not experienced enough to effectively detect and then fix them, because he did not have any strategy to track his trades and find out where the “leakage” was.

      He thought he was lacking some secret trading techniques or a more robust trading system, so he devoted more time, money, and effort to finding them. Fred was setting himself up to fail.

      Trader by Plan

      By contrast, Stacey had planned appropriately before she launched her trading career. She planned her training and received coaching to prepare herself mentally and technically to become a trader. She knew the schedule for leaving her job and planned the steps leading to that.

      She started small, failed a lot, and failed fast to verify her trading system before developing a robust one that she could fully rely on. But things still went wrong even with these experiments. When it happened, she did not react emotionally. She calmly tracked her trades and analyzed her failures. To her, every failure was a lesson to learn, and one step closer to success.

      But she did not do this alone. She used her coach and fellow traders for feedback and improved her results through experience and learning.

      Dedicated Trader… or Slacker?

      When Fred worked for the engineering firm, he was a dedicated and responsible worker. He would turn up at his office on time every day, never missed a project deadline, and made sure he delivered quality work, even if it meant he had to work extra hours. As an employee, his manager and supervisor guided most of the steps on his career path.

      But things were different after he left the corporate world and became a trader.

      Fred enjoyed the freedom that trading gave him. He could start work at almost any time in the day, and had the freedom to decide how many hours he would work. Not having to turn up at an office meant that when he felt that he needed more rest, he could take a few hours off from work; having no project milestones to hit meant as long as he worked to his satisfaction, he felt fine. (He did set some earnings targets. But since he was his own boss, when the targets were not met, it was easy to tell himself to “just try harder next time.”)

      To his friends and family, Fred seemed to be a dedicated trader. His trading activities took up at least 80 percent of his waking hours. He was glued to his desk, busy looking at charts and analyzing the market, busy deciding whether to enter or exit trades. And when he was not making trades, he was participating in online traders' forums to exchange tips with fellow traders, researching the markets, and visiting trading gurus' websites or blogs to get their advice and inspiration. He had practically no time for a life outside of trading – no time for a physical workout, no time for his hobbies, and no time for family and friends.

      Deep down inside, Fred knew something was wrong. He was not making money consistently. His trading account was not growing, and he saw no significant progress in himself as a trader.

      He started to wonder whether he was doing things right. As an intelligent young man, he soon realized that most of the hours he spent on trading were unproductive hours. He was spending