by Giles Coghlan, Chief Currency Analyst at HYCM

The final stages of a trader

This is the second part of a two-part series on how to make FX trading work for you. It is aimed at those people who are seriously trying to evaluate if trading is for them or not. I used William Shakespeare’s seven stages of man to create a template of the five different stages of an FX trader. In the last piece, we covered the birth and reality stages, and in this article, we will cover the three remaining stages, starting with adolescence.

Adolescence: gaining maturity

The teenage years can be painful. You are trying to discover your identity and most teenagers are not sure who they want to be yet. They try to imitate the latest stars, try to be like the ‘cool kids’ at school, and may cringe whenever their ‘uncool’ parents pick them up. For this stage of life, I am reminded of the quote, apocryphal or otherwise, attributed to Mark Twain:

“When I was a boy of fourteen, my father was so ignorant I could hardly stand to have the old man around. But when I got to be twenty-one, I was astonished at how much he had learned in seven years.”

Funny, and relatable, this quote really sums up this stage and attitude of life. You know some things but lack the conviction to really follow through with your trades. You are now competent enough to make your own decisions, know and understand how the FX markets work and the gaps in your knowledge have now largely disappeared. Alongside the basics, which you have firmly down, you now understand how the equity markets impact risk sentiment. You get the effect of Quantitative Easing on a currency. You can see what is supportive for gold and silver and know how the commodity currencies are moved by shifts in the commodity markets. You know what the yield curve is and what it signifies etc. The gaps are few and far in between. However, you are still not making money, or you are making small % returns while hovering around break even.

What to do as an Adolescent

Well done, you’re nearly there! All the hard work is starting to pay off and you should be within reach of your goal. Some key things to do at this point:

    1. Try and develop a consistent routine and surround yourself with other traders who are committed to the same goal as you.
    2. Develop conviction. From this point onward, you know how the market moves, and all you need is conviction. Stop bringing the stops to break even when you are only 5 pips in profit. Stop taking 2 pips of profit out of fear. Stop getting in and out and then into a trade as you flutter between opinions. Work out your plan and execute it to the best of your ability. Also, look back at those trades that you shouldn’t have taken and assessed what you actually did wrong. Be specific and use it as a learning curve. See this very simple sheet below which I use in my one-on-one coaching webinars with HYCM clients to help traders log their experiences:
  1. Actually commit to doing point 2.
  2. Do not overuse leverage. If you overuse leverage at any stage, you will change the way you relate to trading and you risk training your brain into a fight-or-flight response. Whenever you think about trading your mind will just associate it with stress, which may be good for fast actions but not good for well-considered and measured trades. For example, one day I set a new alarm and woke up to a stressful event, and whenever I hear that ringtone, I feel very stressed. It is strange the way the mind impacts the body, but it does.
  3. Let’s now move on to the next stage of growth, ‘Adulthood: Walk humbly’.

Adulthood: Walk humbly

You know that you know that you know. You have persevered through ignorance, mistakes, and failure to find success. Success, for the purposes of this article, is defined as the ability to make consistent annual returns in the market. Leverage is now your tool, rather than your downfall. You stay out of ‘nothing’ moves and your levels of conviction are high. You learned through experience, and if you have got here as a retail trader you honestly deserve a medal. You have taught yourself a profession. I applaud and respect your hard work and know what it takes to walk down a very lonely road.

What to do?

Now it’s all a matter of working on your trading psychology and not destroying yourself in a moment of madness. All the mistakes of previous stages can still come back to haunt you, and you can still make bad decisions. In other words, leverage can still kill you. Don’t get tempted.

Now is also a time to give back. You can be a ‘successful trader’ but a fool of a person. Aim to give back to all the traders who helped you get where you are today. Is there a new kid in the firm on the desk? Give him 5 mins of your time and teach him a few things. If you see a new trader in a forum who is making a real effort, but making obvious mistakes, show them the right way. Pass the knowledge on, as it was first passed on to you.

Conclusion and the death of a trader

So, there we have the five stages of FX trading. How long does each stage take? Well, there is no set amount of time, but it will largely depend on how good your trading environment is and the support you receive.

The canny among you will realise that I have only covered four stages. The final stage of a trader is the final stage for all of us; death. Live life in light of your death. Trading is just one part of life and it also must come to an end. My younger brother died young and very unexpectedly on December 5th of this year. It was a great tragedy and a reminder of the brevity of life. All traders die, so live your life in light of that coming death and manage your money well. Do what you can, with what you’ve got.

Money is your tool

You see, money is your tool in this world to serve others. It may be just your family; that’s ok, and it’s good to provide for them. Ideally, you provide for yourself, your dependents and have some extra for those who need it too. So, you see, you have no money to lose. Don’t approach trading as though you have money to ‘lose’. Yes, you have money to risk. That’s different though. You should always try to make the most of what you have got. Taking a risk is part of life and as soon as you enter – or even don’t enter – a market you are taking on risk. You can’t, and shouldn’t, try to eliminate all risk. Instead, you manage it.

So, this is how I view my accounts. Whether I am trading my fund’s accounts or my private account for my family. My aspiration is this: ‘May I be a good steward of the funds entrusted to me’. You have no money to lose, only money to manage. So, be a great boss, in other words, your own.