‘… (Trading mastery) is an ongoing journey, a trader is only as good as his last trade, but I am persistent…’’ – Mike Baghdady (brackets mine)

Hello:

I deliberately repeated the quote above. We need to make effort to see the markets as they are, not as we want them to be. Profit can turn into a loss and a loss can turn into a profit. Yet I’d keep on saying that it isn’t prudent to think a loss could turn into a profit when it’s clear a trend has changed against you, neither is it rational to cut a profit while a trend is still technically in your favor. If you’re in the habit of cutting your profits short for a fear of loss, you might soon see yourself in the habit of running your losses for a hope of profit. I was formerly in the habit of cutting my profits short, and I had nothing to show for that ultimately.

Last week there were serious trend reversals on all our favorite instruments. On AUDUSD and NZDUSD, strong bullish movements overrode our bearish bias. This happened last Wednesday; the day we felt the markets would range since the expected economic news items were very scanty. Having seen the prices going too far, we only want to buy pullbacks in prices. Hence we used only ‘Buy Limit’ orders. We like to ignore a signal when the market is overbought in the context of an uptrend (entering this kind of trade is the pedigree of a novice trader). So if there’s a decline in price, our pending orders on AUDUSD and NZDUSD should be filled, providing that the decline isn’t a convincing threat to the bullish outlook. Interesting trading signals are forming on other crosses (AUDJPY, EURCAD, EURAUD, and EURNZD). Just one more day of bearish continuations would make these potential signals valid. We’re in for exiting opportunities this week. There are no open positions at the present.

AUDUSD

Order: Buy Limit

Entry date: July 8, 2010

Entry price: 0.8623

Initial stop: 0.8423

Trailing stop: Not yet

Status: Pending

Profit/Loss: N/A

NZDUSD

Order: Buy Limit

Entry date: July 8, 2010

Entry price: 0.6998

Initial stop: 0.6798

Trailing stop: Not yet

Status: Pending

Profit/Loss: N/A

A Consequence Of High Risk

Attached with this article is a graphic result of a trading strategy. The demo account was opened with these plans in mind: (1) Predictable and highly liquid pairs were chosen (2) High risk position sizing was adopted in order to present an attractive ROI over a period of time. For example, 0.05 lots for each $1000 (3) No Stop Loss was used, and there was no plan of exiting a trade in a situation of a clear trend reversal. (4) Although trend following indicators were used, there were no clear tactical rules concerning the best time to enter or exit. (5) It was based on a system promoted by a vendor, but the purchaser believed the vendor without testing the system first.

A remarkable feature of this strategy is the high risk. The eventual result of this trading plan is shown on this graph (and it happened within a month). Significant drawdowns are a result of high risk. I included this result so that we can learn another lesson. Anyone who is risking too much on the markets is on a suicide mission. With high risk, you won’t be able to control your emotions. One crotchety trader who was risking to much became mad and screamed at the market, “Why did you refuse to move in my direction, you lousy skunk?’’ But the market couldn’t care less. The market moves without having anybody in mind.

Trading doesn’t make anyone get rich quickly (unless the person is a gambler, and as such, his lucky days are numbered) – real success comes gradually only through years of hard work. Please remember that trading is totally different from what the majority of people believe it to be. Having a Jeep doesn’t necessarily prove someone a skilled trader, as having a little beginning doesn’t make one an inexperienced trader as well. The principles that work have been mentioned briefly last Friday. These trading rules have stood the test of time. Let me conclude with 2 more quotes form Mike:

1. “Over many years, I came to the realization that trading is a teachable skill best executed with the removal of emotions.”

2. “When you’re grouped with traders who are all using their own untested rule, you are in a situation where the blind are leading the blind.”

Your questions and opinions are highly welcome.

Thank you.

With best regards,

Azeez Mustapha

Forex Signals Strategist, Funds Manager &Coach

Email: amustapha@fxinstructor.com

NB: There is risk of loss in trading, but it is possible to be a successful trader.

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