Forex Trading Articles

FAIL

By Dick Thompson for Forexmentor
©2011, Forexmentor.com, March 2011

I find the way our language evolves over time interesting. For instance, we have seen the name of one of the more successful companies, Google, become a commonly used verb. Do you want to know something about (anything), just go "google" it.  Some years ago, in the days of paper, when you wanted to make a copy of a document, you would" xerox" that document. Of course, Xerox was, and still is, a company that makes copy machines. But since it made the most popular copy machine, the name became synonymous with making copies.  Sometimes verbs morph into nouns too.  Ride is most commonly used as a verb. But today, it refers to the type of vehicle one uses. My ride is a Toyota. Today's popular example of this cultural phenomenon is the verb "fail". But now it is a noun. There is a website named  failblog.org which deals with fail pictures and videos. There is another called  epicfail.com. There you can see the "fail of the week" or a list of the "epic fail winners".  Very strange this world we live in.

So, to keep in tune with modernity, the subject of today's article is a personal FAIL. More specifically, why do we have fails?  From my personal experience, I will submit that it is mostly about discipline.

This past week, I have been doing a lot of back testing. I do that with a piece of software called Forex Tester II, which in my opinion is a first class product and don't mind suggesting it to anyone. Please contact me for specifics (Note: I receive no economic benefit from this).

In this testing, I ran through the year 2005, trading one currency pair with one basic methodology. My goal was to try to fine-tune rules with which to manage risk. These are some of the rules that I had written down in my trading plan:

• Watch the swing points on the weekly chart for signs of support or resistance

• Keep an eye on signs of indicator divergence on the weekly and daily chart

• Remember to treat support and resistance levels as zones, not specific lines on the chart

• When any of these "caution signs" appear, take some action to reduce risk

Time after time, these signs, and others that I was trying to evaluate,  would appear. I would either not be aware of them, or would consider them not applicable for some reason, or I would flat-out ignore them.  FAIL !!!

I cannot justify this. These rules were written down on paper right next to my mouse. I was running through trades fairly quickly compared to real time (11 months, 16 swing trades, 2 hours of testing) but with this software I can stop time and study the situation at any time and can control how fast time flows with total control. So there is no excuse in the sense that my methods were getting in the way of performance.  What was happening was simply a lack of discipline in following my trading plan.

Can I argue that I would not do this if I were trading in real time with real money? I don't think so. I know many people who seem to do very well when paper trading or back-testing and then much worse when trading for real.

My conclusion is that while I did not achieve my goal of developing some rules to manage risk, perhaps I uncovered something very valuable that will accomplish much more; that I can be very un-disciplined in my trading. That in itself is worthy of concentrating on big time. If I can make a breakthrough on improving my discipline, if I can significantly improve my ability to apply my trading plan, then I should see an improvement in the results.  A trading plan is not an end in itself; it only has value if it is a road-map that is followed diligently, trade after trade. That is the real lesson here.

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