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There probably aren’t many people who would describe themselves as trading junkies. But it seems many people think that simply sitting down in front of a few price charts and a streaming news feeds is enough to call themselves ‘professional Forex traders’.

As with several key differentiations, the mindset of someone trading the markets is the starting and in many ways key difference between a true trader and a junkie who thinks he’s down at the casino, waiting for that big win.

The psychological integrity of a professional trader is inextricably linked to the trading strategy, money management method and trade placement frequency. So we’re going to get to the core of what make a professional Forex, or stock market trader. Wondering how you will measure up? Time to read on…

junkie at trading staition

Trading with structure

If the idea of trading to a predetermined plan is new or alien to you, but you’re determined to learn how to trade in a structured way, then you are certainly in the right place. There’s a lot for you to learn here.

Forex junkies tend to buy and sell on impulse or hearsay, a practised professional will always be working with a structured plan that looks a lot like a business plan. They may not have a mission statement but there are pre-defined rules in their plan that gives the trader the foundation needed to trade with consistency.

confused trader

The junkie will often believe their money is working for them, but 10 hours in, one hundred open positions later, few will be able to show more for their time other than a long history list of mostly stop outs in their trading history.

In terms of trading structure, the Forex junkie might jot down a rough plan and a few entry and exit rules, but in the heat of the moment they’ll quickly break and let emotions take over and drive their trading decisions.

We believe professional trader should correctly implement positive risk/reward money management which opens up opportunities that allow the trader to aim for at least double the return on their initial investment. Even if the professional trader is taking more losses than wins, the account will still experience growth.

Using a set structure and taking full advantage of pending orders, a trader’s time is completely under their control so they truly are having their money work for them.

Every step away from a professionally structured trading plan is a step towards failure.

Less work – more results

The importance of time management is crucial to successful Forex trading. While junkie traders get getting high staring at the charts for hours on end, while continuously scraping the bottom of the barrel for profits, the fact of the matter is that they would probably be able earn more in a normal 9-5 day job.

Even if you’re doing a little better than your last day job, the question you have to ask yourself is whether the small increase is worth the added stress?

The general idea of ‘investing’ is all about maximising profits through minimal investment, both in terms of money and time. The Forex market is no different.

return on investment

Every time you open a trade you are increasing your risk exposure, so a trader who enters into several trades over the course of a single day is actually exposing themselves to high levels of risk and stress more than a trader who opens only a few positions over the course of a trading week.

In the case of the professional Forex, or stock/CFD trader, managing time and risk will always be a priority. We manage our time effectively by using the daily timeframe to effectively anticipate where price is going to move over the course of the next few days.

By using higher timeframes, like the Daily or 4 hour chart to forecast the next few days worth of price movement using price action alone, we can identify a nice low risk trade setup which have a high chance of maturing into profit over the span of a couple of days. This way, we do the minimal amount of work, spend less time in front of the charts but take larger profits chunks from the market.

On the flip side, trading junkies will focus on the smaller vibrations of intraday price movement and make several errors by chasing price buying at the top of moves and selling at the bottom. This will drive stress to critical levels and cause the market junkie to get dangerously emotional with his/her trading.

There are of course occasions where shorter time frames do trend, but they don’t last for long and are prone to sudden whipsawing. Anything less than a 4 hour chart is rarely going to help a trader in finding low risk opportunities which can double or even triple a return on their initial investment over the long run.

The mantra of less work yielding more results is therefore not only the smart way to capitalise on market movements with greater certainty but it also acts as a strong line of protection against anomaly movements and unexpected swings which so often wipe out the capital of a junkie who may have invested hours opening and closing countless trades.

Fitting Trading Into Your Life

As with any source of income, or job, the way you fit your Forex trading into your life will say a lot about where on the spectrum of professional vs. junkie you lie.

Both professional and junkie trading habits exist in all levels of trading. There is no formula that says that if you spend most of your time trading the markets that you are a professional, any more than spending less than an hour or two per week will make you an amateur.

Instead of measuring trading by the amount of time invested (as we’ve seen, more time actually leans you closer to being a junkie than a pro), try considering it in terms of work to life balance.

Forex Junkies cannot maintain control of trading because they are wholly enslaved to price movement. Each new candle that appears causes stress and anxiety. Every pending news release or financial data release has them sitting on the edge of their seat as they are hypnotised by the rising and falling price figures in front of them.

chart template

We like to keep trading as simple as we can, we don’t believe anything should be complicated in the market. By using price action on the higher timeframes, we don’t need to be at the trading screen for hours on end, in fact we only really need to analyse the market for about 15 min a day. This allows the trader to be involved with the markets in a professional full-time manner while allowing them to keep their day job if they so wish to.

Through careful planning in money management and observing price action movement, the professional will use their trading strategy to prevent their trading activities taking over their normal lives by knowing exactly when and how they are going execute trades.

The professional trader can be out enjoying life with friends and family, not even having to be at their desk or computer screen while the market movements are making them money.

So What Type of Trader Are You?

Most of you will perhaps share certain elements of both these extremes. Traders aren’t always complete junkies or complete professionals. Having said that, if you are reading this and are completely empathising and identifying with the junkie, then it is time to take a serious look at your trading habits. Perhaps it would be more urgent to take a good look at your profits and losses over the time you’ve been trading.

Even if you’re not at the point of a fully-fledged market junkie, there will no doubt be ways that you want to improve. Maybe you want to take a modest profit level and move it up to the next bracket. Maybe you are happy with the money you are making but want to achieve that same level without spending so much time in front of the computer.

In any case, I would encourage you to take a long look at two key components. First of all, how much money have you actually made over your trading career? The odd day of high profits which are then wiped out over an ensuing week of poor decisions might feel good at the time but it’s no use in the longer term. Secondly, how does the amount of time you spend trading compare to the amount of time you would choose to spend if you could?

Certain types of Forex trading, like spread betting, are classified as a form of gambling but that doesn’t mean that it has to be approached in the same way. A high percentage of traders fail because they make this one mistake and fall into the bad habits of obsessive compulsive decisions and are continuously chasing the get rich quick fantasy.

 

Take Home Message

If you are serious about your trading and truly want to achieve financial freedom through sustained, profitable trading, you need to start treating your activity as you would any job in business. The junkie can’t be helped unless they want to be helped. If you really want to find success in the markets it’s time to break these bad habits and start with the rehabilitation process.

We are strong believers in price action trading, this is art of looking at individual candlesticks to determine the probable future direction of a currency pair, commodity or stock. When utilizing price action you don’t need to worry about using external indicators or news events. You can remove all the unnecessary variables from your chart and work with the raw price movements.

Using price action trading strategies is a sure fire way to simplify your trading. Simple works best in the markets. Junkies tend to have over complicated systems with chart templates that look like the cockpit of a space shuttle. Price action works extremely well on the higher time frames.

Making the switch to price action is a good way to start your rehabilitation process, clean up your charts, and become a master chart reader. If there truly is any Holy Grail system out there, I am confident it would be based on price action trading.

 

Guest post by Graham Blackmore of  The Forex Guy