Tuesday, November 24, 2009

My Experience Teaching the Trade... Some Initial Perceptions

A few weeks ago I wrote a post about how I would try to teach foreign exchange trading to some people who knew nothing about forex trading at all. I would start to teach trading to a biology student and an electronic engineer, some regular folks out there who of course, have the quality of having a stronger than average sense of mathematics and science, something which I believe to be of limited if of any advantage in forex trading. My objective with this post is to tell you how things are going and what I have found are the problems with these people, what their personalities are and what they have going on for and against them in the world of foreign exchange trading. I will then try to tell you what I have done to try to correct their psychological issues and the results I have observed.

First of all, let me start with my friend who majored in engineering. He is an intelligent person, most people would consider him well educated and smart. He in fact caught up with all the basics of forex trading pretty quickly, learned everything from left to right in just a few days. After he got the handle of the basics he started paper trading and doing things that I had not told him to do. You see, I have approached this teaching in a very relaxed fashion, I tell them exactly what they need to do but I never control what they do or tell them to do otherwise, I have just given some sets of instructions and then watched for the results. The fact is that he is a very anxious person and he cannot really handle excitement and frustration. After paper trading for a few days he told me that the market was a piece of cake and that he could be live trading within a month. Oh, if I had a nickel... A week after that he was already down to the last cent of his demo account we started to talk about all the things that had gone wrong and what his personality traits were doing for and against him.

Certainly he is just a perfect example of a very specific type of trader. He is the type of person who gets frustrated easily by loses and feels a rush when he wins so his emotions trade for him in a very specific fashion. When he loses he gets frustrated so he gets into the market again to make up for it, then if he loses again he gets again to get back at the market and the cycle goes on and on until he loses everything. If he wins then he gets back into the market to win more and more, until it changes to a losing phase and then he loses everything. He turned a 2000 USD demo account into a 10,000 USD account, then wiped it out in two days. He is a greedy trader, an over trader by nature, that will be his weak point when addressing forex trading.

The biology student is pretty different from this guy. He is not so competitive and much more prone to do things as I tell him to do them. He however has the problem of having a lack of dedication and enthusiasm and tends to procrastinate on the things he has to do. He wants to succeed but does not want to take the time to do things, he sometimes makes hasty decisions because he is lazy and does not care to do enough research. As a trader he is reluctant to take trades because of lack of knowledge and he exits trades very prematurely, he is definitely what one would consider a fear based trader, his personality makes him lose trades because of his inability to take actions based on his knowledge, this will be the point the market will exploit when he begins to trade a live accounts.

So are they hopeless ? Of course not, the way in which they handle trades right now is a reflection of their lack of knowledge. They trade like they do because they don't know what they are doing and their personalities are their current drive. Since one of them is very eager and spontaneous his personality drives him that way, since the other guy is lazy it drives him the other way. Both of them will lose all their money if they started to trade right now live. My hypothesis is that both of these behaviors are based in ignorance and of course I think that as we progress and they learn more they will become more confident in order to leave their emotions on the side. Can I turn an emotional wreckage into a profitable trader ? We will see if within the next 2 months my emotional trading techniques are able to help these new traders ! Stay tuned for more posts on these techniques.

If you would like to learn more about automated trading and how algorithmic trading can generate long term profitable results please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !

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