It took a great deal of research, heartache, financial loss, anguish, determination, soul searching, depression, elation and damned hard work to discover what I believe to be the three main ingredients to enable long term success in trading the Forex Market.

by GEOFF PYNE | Certified SurfingThePips.com Trader

Potentially, the farthest thing from George Michael’s mind as he penned the lyrics to his now famous song, was the Currency Market and how to trade it. The very catchy chorus line is now very much a part of my trading mantra.

Now before you start thinking……well hang on a minute, there has to be a little bit more to this game than simply entering the market on a “wing and a prayer”, as the saying goes and you’d be dead right. That’s not the kind of Faith I’m suggesting.

One dictionary definition of the noun “Faith” is: Complete trust or confidence in someone or something.

Now, that’s the kind of Faith I’M talking about – but Faith in who, or what? Well, TWO people and one main thing really. Each with its own challenges. Each taking a considerable period of time to develop. Each not being acquired without EFFORT……..lots of EFFORT and each, when discovered, providing an immense sense of achievement and indeed enlightenment. Yes, just like the headlights of your car being switched on when it’s dark – the road becomes suddenly visible and far easier to negotiate than without the illumination.

Let me list these 3 key ingredients for you……….

FAITH #1 – an undeniable key ingredient to trading FX is a reliable system or trading strategy. In my day we used road maps to guide us through unfamiliar territory – these days it’s all about GPS units but the analogy is totally the same and as powerful an illustration as I can provide. Would you REALLY attempt to drive in a city you’d never visited? How on earth are you going to arrive at your destination? Even if you managed to bumble your way, how much more petrol/gas would you consume in making the unsure, frustrating and infuriating journey. Imagine further, that your wife/husband was beside you. What do you think your relationship would be like after the third or fourth time you got lost – OUCH! So, let’s use the TOM TOM – OK!

Decision made – which GPS device do we get? There’s hundreds of them……some get you to the destination effortlessly and last forever. Some aren’t too sure at times (ever heard “Recalculating”) exactly where you are, along your journey. Yet others work perfectly until a new road or diversion is put in place and then…….well – lost again! Fair to say it’s a topic for another time but essentially, it needs to be a device in which you can have FAITH!

So, FAITH #1 is definitely in the strategy you choose. What that means is no matter what the market does or how it behaves, you MUST be able to trust the charts. There’s absolutely no point in having a strategy in which you don’t have complete FAITH because without doubt, you will attempt to bend it to fit your shape. Like all good relationships, the time to discover if it’s a good “fit” is prior to commitment! Again, that’s a whole other topic but extremely important to understand.

FAITH #2 – Now you’re equipped with the right Strategy (the road map) – you need to have complete confidence in the Driver – yes, that person you see in the bathroom mirror every day. Oh – you think you already do – FANTASTIC, move to FAITH #3 – if however, you are like most people, you probably have little doubts that whisper inside you when the pressure’s on. Your journey to success in FX will provide you with ample opportunity to test Faith #2 and it’s no coincidence that the successful trader has overcome the little doubts that will be an everyday companion for most of your “apprenticeship”. I’ll briefly explore a couple of examples of those niggling doubts that can really cause a trader (not only novices) much grief:

The “dreadful doubts” for me, began with (not surprisingly) a series of financial losses. I’d heard & seen enough paraphernalia on the topic of FX (mainly from those with a vested interest in my money) to conclude that most of it was hype bordering on outright lies and in many cases – absolutely; unsubstantiated, indeed unable to be substantiated, fraudulent claims. Yet even with this awareness the good old “what if it’s NOT false claims” question kept niggling at my emotions. It’s no mystery at all then, to doubt my decision to firstly be seduced by the hype, but to actually have paid a substantial amount of cash to an educator, only to discover my trading account was dwindling before my eyes. The faith I have in myself to have chosen this journey comes under extreme scrutiny around this time! I really stood at a crossroad when this occurred and did some soul searching – “do I cut my losses here and write the entire 12 months and thousands of dollars off as a learning experience? – Can I really explain to my wife that I need more understanding than she had already given because I “know it can work – just need a little more time and money”.  Do I really believe that it can turn around? What if it just soaks up more time and money discovering that the whole thing is a scam (like most of my friends and family, accountant and financial adviser warned)?

So a Faith #2 rebuilding program began with me ceasing to trade and retracing the education step by step, researching different strategies, talking to as many people who were, or who had attempted, to trade for profit. As I discovered what was essential and what was garbage, my Faith #2 began to re-establish and I was able to recommence trading with a whole new outlook.

There’s no way I could have found the way back, without both #1 AND #2 locked into my psyche, both are inter dependant and essential ingredients of my trading strategy.

What then of FAITH #3 – Trusting Yourself to apply #1 & #2.

Hang on – didn’t we just deal with trusting the guy/gal in the mirror? Yes, we did but that doesn’t mean HE/SHE’s safe to let loose trading the World’s biggest market!

There’s absolutely no point in having a great strategy and the confidence in your judgement and self-esteem, if you can’t trust yourself to trade the strategy to the letter! What do I mean by that?

The strategy I trade (as all should) has certain, non-negotiable principles/rules. Unless the system you use is a scam, there will be very good reasons why the strategies architect put these in place. Usually they will be built around reliability and past performance but ultimately exist to ensure long term profitability. Unless you are a thrill seeker and much more comfortable driving F1 race cars in the arcade, this is great news. Someone has tested and re-tested an entire method of trading, probably over many years and is prepared to share that with those wise enough to follow. Now it’s true that I advocate adapting an existing strategy to your own personality, time constraints etc. What I don’t advocate however, is trying to re-invent the wheel. This is the crucial part of Faith #3.

I don’t ever expect to be made aware of an FX trading strategy that ALWAYS WINS. This despite many emails, web adverts etc. trying to convince me otherwise. Once realised, this belief allows you to accept the inevitable will happen – LOSSES WILL OCCUR. Instead of blaming the strategy, the wise trader asks these questions: a) Did the strategy fail? b) Did the market act strangely? c) Did I do something wrong?

The answer in the early days of your career will more often be c). Until you understand it, b) will also occasionally “throw a spanner in the works”. If it’s not a scam, a) will be the answer far less frequently than the others. The challenge of Faith #3 then, is believing that if Faith #1 & #2 are in place, can the face in the mirror be relied upon NOT to try and change the rules.

The strategy may call for you NOT to enter the market on Monday UNLESS a Dragon Fly Doji appears on GBP/JPY at Midday. At 1030, the best Dragon Fly Doji you’ve ever seen appears on your GBP/JPY Chart and you figure it’s an early new week present – load up the order, enter the trade which immediately goes against you for a loss. You know what happens next of course – a Gravestone Doji appears bang on Midday and you (bend the rules) for a 2^nd time believing the setup is close to what’s required and you couldn’t possibly be that unlucky twice running!!

Oh dear – the reality is that you can’t be trusted to trade the strategy because you a) weren’t patient enough to wait for Midday and b) believed near enough was good enough as a candle pattern. If this scenario rings any bells for you……welcome to the “can’t be trusted Club”……..MOST successful traders have long term memberships!

Don’t despair – it’s not a terminal trait but it’s very common. As with most bad habits…….some soul searching and therapy will cure the condition and the Holy Alliance…….FAITH, FAITH, FAITH is restored.

GEOFF PYNE | Certified SurfingThePips.com Trader