So You are Finally Getting It ? : Five Signals You Are Doing Something Right as a Forex Trader

William Eckhardt once said – on an interview I read – that in order to succeed on the markets you just need to do anything right for a long period of time. If I remember correctly he mentioned how he had usually done a lot of things wrong and only a few right but those right moves put into a long term perspective had guaranteed him long term success. When I think about this – the “only do something right” theory – it becomes interesting to think about ways in which we can evaluate if we are in fact doing at least something that will bring us close to long term profitable trading. On today’s post I will share with you five signals which will tell you that a piece of the puzzle has fallen into place and you are on your way to become a profitable trader. If you remember my post about the “animal kingdom” of traders, these are the signals that usually come for ferrets and dogs, the moments of realization when you know that many of the things you have been doing have in fact been “right” in someway.

What does it mean to “do something right” ? It simply means that you are not doing the things which new traders do that warrant their long term failure, when you are doing things the right way you start to get the focus of a professional trader, moving from the very emotional and dreamy focus of new traders to a long term view ruled by statistics, deep evaluation, understanding and risk control.

These are five important signals that you are indeed doing at least some things right :

1. You don’t care about this week’s results. Certainly one of the signs that you are evolving into a professional trader is the fact that you can remain in control of your emotions around short term results. When new traders face a couple of losses during a week or even 2 or 3 consecutive losing months they usually panic and change systems. Professional traders understand that trading is a marathon and not a sprint and therefore the importance of short term results becomes absolutely minimal. Yes, professional traders do have emotions but they do not affect their trading, the result of a high degree of emotional intelligence put into practice.If you can look into a losing week or month and remain in control, you are doing something right :o)

2. You have used a system for a year. As I said before, new traders tend to easily panic due to short term results and – because they ignore the long term statistical characteristics of their strategies – they tend to jump from one system to another hoping to find the “grail” which will bring them into profitable territory and set them with profits for life (or at least until that first million comes). When you have the psychological strength and the long term statistical basis to remain with a system for a year, it proves that you are doing something right. When you are able to use a system for a long period of time, you are indeed showing that you can have confidence in what you are trading.

3. You have endured a draw down of more than 6 months. Another important sign that you are doing something right is your ability to withstand draw down periods. New traders tend to run away from everything that shows to be apparently “losing consistently” and therefore they cannot trade most long term profitable strategies which face losing periods of 6, 12 or even 24 months. Certainly someone who withstands 6 months underwater because there is an inherent understanding of how the trading strategy behaves and how its draw down periods look is definitely progressing as a trader. If you have been able to withstand a draw down of at least 6 months and then you reached a new equity high you are doing something right.

4. You think risk first, profit second. If I could mention a single characteristic that distinguishes a new trader from an experienced one I would say that the most important one would be the perception of profit and risk. Professional traders do not think about profits as the most important thing in trading but they think about capital preservation as the most important objective of a trading strategy. If when you look at your trading systems the first thing you evaluate are long term potential risks then you are becoming a professional trader. If you still focus on how this system could make you 1 million just by risking to wipe out 1K then you still have a lot of room to grow regarding your long term capital growth perspective. If you put risks first and profits second, you are definitely doing something right :o).

5. You have had 5 overallĀ  profitable years. I have mentioned before that to call yourself a “long term profitable trader” you need to proof that you can remain profitable under wide changes in overall market conditions. Having one or two years of profitable trading isn’t hard (even martingales and systems with absurd risk to reward ratios can do it) but achieving a net profit after five years is reserved for those who are indeed able to have a long term statistical edge over the market. If you have had five years of profitable trading, then you are definitely doing something right and you should keep doing it for the next 20 years :o).

As you see the above mentioned “signals” are merely ways in which a professional trader evolves away from the mindset of a new trader, certainly there are many ways in which the above mentioned “milestones” can be reached but certainly a person who reaches one or five is at least doing something right :o). As William Eckhardt said, this is probably all you need to succeed in the long term, to do something right and keep doing it for many years. Do you think you are doing something right ? Can you think of any other signals ? Please leave a comment with your opinion !

By the way, for those of you who are awaiting the post about my latest discovery on Currency Trader Magazine, it will come out tomorrow :o). If you would like to learn more about mechanical trading systems and how you too can design and trade your own systems based on sound trading tactics please consider joining Asirikuy.com, a website filled with educational videos, trading systems, development and a sound, honest and transparent approach to automated trading in general . I hope you enjoyed this article ! :o)

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2 Responses to “So You are Finally Getting It ? : Five Signals You Are Doing Something Right as a Forex Trader”

  1. Andrrea says:

    Hi Daniel,
    i want to share with you my experience. I’m trading forex daily from about 2 years. I started with 3/4 systems I made on the idea I have taken from the book “Street Smarts”. I made 20 trade in a demo account and then i started with real account and a lot of hope. Fortunately, before i started, i have read Market Wizard and other books that explained the importance of manage the risk and the money management. So I starded with a risk of 1% with a capital of 2000 euro. You certanly know how the story is finished. I lost about 1000 euro, i was completely at the mercy of the market, discouraged, and so on.
    Then I stopped the trading and i started to find a trading system with 10 years of back testing, with long term profitability in at least 8 currency pairs. I have found it after a lot of tests. I deeply studied it. I made a montecarlo simulation and the other things which is necessary to know the system. I started to trade that system on 9/4/09 but after a few trades the system started the draw down than last until today. But i’m not worry now, because the behavior of my system is within the parameters i have simulated about 2 yers ago, the live trading is consistent with tests. I can valuate my psychology strengh during this long draw down period. I’m concentrate on the long term result and not on the next to mounths. Yes, i have to made more other hard work, i need other systems to diversify the strategy and smooth overall performance. I haven’t 5 overall profitable years, but i think i am doing at least 4 of 5 things you mentioned in your post. I agree with you completely about your trading philosofy. That’s why i join Asirikuy.
    Thanks a lot.
    Andrea.
    PS excuse again for my english.

    • admin says:

      Hi Andrea,

      Thank you very much for your comment :o) I think that your experience is quite typical, we all started with great expectations that got crushed as the market started to teach us its lessons. Definitely this is precisely where a trading mentor makes a big differences, it helps people avoid the first “wiping” step in the road towards long term profitability.

      That said, I am glad that you have moved into a very similar approach as mine, an approach based on understanding and on the realization that you need to know your system extremely well if you want to have any real chance of long term survival. I also see that you have done Monte Carlo analysis of the strategies, I can’t believe I haven’t done this with Asirikuy systems to get a better perspective of expected future results :o) Well, you can certainly expect a few videos on Monte Carlo simulations during the next few weeks.

      I believe that you are certainly doing a lot of things right and if you continue through this path there is no doubt that you will achieve success. In trading understanding always leads to profitable outcomes, the more you understand, the more likely you will be to succeed. I am glad that you completely agree with my trading philosophy and development mechanics, hopefully we will continue to learn from each others points of view and analysis within Asirikuy. Thank you very much again for your comment Andrea :o)

      Best Regards,

      Daniel

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