Some breakthroughs. And something to watch.

Hi all -

Again, for those of you bored enough to read this blog, thank you. ;-)

I believe that I made some relatively important breakthroughs this past two or three weeks. I have learned two important things:

#1 - Just because you got stopped out, doesn't necessarily mean that you were wrong. Sometimes you just were in early. I have made back some losers this past few weeks doing this. For example, you could be wrong on a long EUR/USD position. However, I would submit that it is possible to still be correct, if only you wait it out long enough. (I AM NOT ADVOCATING TAKING A 600 PIP LOSS.) The point is that if you get stopped out, it is alright, because the trend has been up for a very long time. It is just that you got into it at the wrong time. Look for a bottom formation in the correction, and get back on the horse. It works, I swear. (Assuming you are good with technical patterns.)

#2 - This will sound stupid, but going with the overall trend will at the very least, soften your landing. Plus, it is easier to scale in a bigger position if you are going the same way as the chart. A lot of times there are good reversal candles on a chart that are counter-trend, and there IS money there. However, as things tend to go, there are fewer pips to be had on a 4 hour shooting star in the EUR/USD chart. I do take these trades, but never look for 700 pip moves from them. A lot of the time it's closer to 50.

Try this scenario: Go with the major trend on a reversal candle. As it goes up, sooner or later it will retrace. More often than not, you will see another reversal candle. Add there. I have not yet had the pleasure of doing this, (On a daily chart as I would like to.) but have ran some tests on "paper", and it is VERY profitable. This is in effect, trend trading. I think trend trading gets bad press because most of those guys are into moving average crossover systems. (I think they suck too.) However, the premise behind it IS the key to the kingdom I believe.

Also, as you may be wrong on a long in this scenario - it's not exactly like those 75 pips you lost are going to change the trend that has been in place for 4 years. I don't have charts in front of me, but a 2,000 pip run-up does NOT get taken out by a 100 pip correction. In fact, it is quite natural.

When you zoom out and look at things, FOREX really doesn't have to be that hard. It is US that make it hard. Never risk too much, go with the trend, and the rest should take care of itself.

It is funny, because a lot of people who don't trade have no idea that it could be hard. This is because they A) - Don't know much, if anything about it. And B) - Tend to think of it like the stock market. (i.e. NO LEVERAGE)

This brings up a HUGE point. What would happen if you didn't use too much leverage on a EUR/USD trade? What if you decided to make it a series of long term trades? What if you could take a 500 pip loss without taking out too much of your account? You could probably breathe a lot easier.

I can just hear this being said..."If you do that, then how are you ever going to get rich?". The answer is simple: Compounding Interest. I know many new traders don't believe this, but you are not going to turn $300 into $1,000,000 this year. If you tend to think of the currency market more like the stock market, and expect more reasonable returns, you are clearing a major hurdle in my opinion.

Remember, the best fund managers are getting 20-30% returns a year. They have millions, and sometimes even billions to trade with. They also have better access to news, better trading computers.....oh, and that little advantage called experience. DO NOT listen to the bullshit advertisments and worse yet, morons on the forums claiming that 500% should be your goal. I would love it too, but it just doesn't work like that.

For an example of what I was talking about earlier, check this chart out: