Forex Roadtest #2: Training day
Fresh from my introduction to currency trading (covered in part one), it was now time to get some face-to-face instruction in the trading strategies I would be using for my trial.
The Active Traders Group training day at easyMarkets HQ in Sydney began on Saturday morning and didn’t end until late in the afternoon. Fuelled by coffee and eager to learn, I set up Metatrader 4, the trading platform I would be using, and waited as the other students filed in.
I was a complete beginner, while all the others in our small group had at least dabbled in trading before.
Daniel started the Active Traders Group to teach those serious about trading institutional-grade strategies and risk management. It’s available for traders with a minimum deposit of AUD$10,000 and the training is free as long as clients agree to complete 100 standard trades (with no time limit on these trades).
First Daniel started the day by setting out a clear lesson in risk management: “It’s not about how much you can make, it’s about how much you can keep."
Looking at trading data highlights how important this is. A 2014 analysis by DailyFX showed that while 50% of traders made money on the trades they closed out, they still lost money overall. The analysis found that this was because they lost more money on their losing trades than they made on their winning trades.
According to the overall risk management strategy Daniel taught, your risk should never be more than 1% of your balance and your reward level should be 2%. Each trade should have a fixed amount of risk, with the aim of keeping your risk very low.
A correct reward/risk ratio is incredibly important when it comes to keeping profits during a trade. Your reward/risk ratio can have a big bearing on your long-term success as a trader because it allows you to continue to make money overall even if you lose trades occasionally.
As Daniel mentioned, one of the core differentiators between successful and unsuccessful traders is a lack of preparation. He reiterated that spending the time early on to learn and stick to a strategy was what would see us profit from our trades.
Daniel and I after the training day
He then went on to make sure our expectations were realistic. Expectations that are too bullish can influence the size of the risks you might take. As a trader you want to be consistent.
The biggest lesson I took from this first component of the training day was the importance of patience and sticking to your strategy. Psychology plays an important role in trading, another factor highlighted by the DailyFX analysis.
The analysis mentions how the Prospect Theory plays a role in trading. According to the theory, humans take more pain from their losses than the pleasure they feel from their profits. This means traders might be more likely to keep losing trades rather than close them out, and conversely might take profits too early. I would have my own experience with this over the coming weeks.
The main prong of the Active Traders Group training day was the strategy component. We learnt three strategies that can be employed in different time scales ranging from a handful of days to month-long trades and beyond. The first strategy we learned, and the one which quickly became my personal favourite, was the Hungry Wolf.
One of the key ideas Daniel told us was to think fundamentally and trade technically. This means that you should analyse the fundamentals, which includes the economic, social and political features affecting the currencies you’re trading in. This helps you avoid being surprised by news or world events. Then once you decide to trade, you should do so using technical strategies.
We capped off the training day with a list of habits that each successful trader should have. These included reading the daily outlooks published on the easyMarkets website and checking out various economic snapshot tools and calendars to see how the markets are trending at any given time, and what events might take place in the next week which could signal risk.
With the training day finished, it was now time to think about how I would make my first trade when the markets opened on Monday.