As mentioned several times throughout this site, the Agents are mostly responsible for moving the markets. These tend to have similar circumstances creating repetitive patterns on the charts, all of which speak a language to you. Understanding these patterns and this language provides you the opportunity to profit from the market.
However, not all typical chart patterns are created equal. For this reason, a trading system cannot always be 100% correct (look at what happened to Long-Term Capital Management (LTCM) and the eventual demise of their system and bankruptcy of their hedge-fund).
Changes in Market Conditions
Trading should be seen as a never ending learning process for traders. The truth is that the market is constantly changing. For instance, the significance of the machines (algorithmic trading) has been becoming more and more of an important aspect of this computerized, digital market.
Roughly 30% of all trading nowadays is carried out by the machines. Perhaps in a later version of this course you will be reading the significance of the machines instead of the Agents of the Fed.
So whether you are trading a rule-based system, price action, or any other system, you must constantly be changing to new market behaviors as this is what it takes to become a successful trader long-term.
Consistently profitable traders understand this concept very well. They know without the slightest doubt that anything can happen on any given pattern or trade. They have released themselves from any expectations. The only thing they know is that if the trade was taken from their trading system, the odds are in their favor and the probabilities will play their part until proven wrong. They do not know what the outcome of a particular trade will be, but they do know that in the long term, they are going to be ahead.
Since traders do not know the outcome of each trade, nor do they try to predict it, they always use stop loss orders and take profits in a systematic way, designed to make them money in a smooth upward equity curve.
Trade with the Mind not the Heart
The only way to really face market uncertainty is with confidence in your trading system and your judgement from reading the Forex source code. With this you should be ahead of the game due to the mathematical nature of probability, as we have seen in previous lessons.
However, even though you may have the knowledge of a profitable trading system and a deep mastery of the Forex source code, you will still need to cultivate the proper trader psychology to not be affected by losses and gains. I know that this is very difficult to grasp right now, and that many people will discount it; but once you will experience it yourself, the wisdom of it will become evident. You will need to feel the pain and emotion of losing. The difference between professional traders and amateurs is that the pros get back on their feet much faster. All traders must learn this crucial skill.
In my entire trading career, I have never met a single trader who did not struggle or have to make personal sacrifices while still in the process of learning the fundamentals of trading. Everyone has to go through the gauntlet while they learn how to trade.
When I worked for a proprietary trading firm, I met one newbie trader who was trading 9-4pm and who was not yet profitable; however, he got a second job during the evening and a third job on the weekends. He wanted so desperately to be a trader that he subordinated immediate pleasures for long-term success. And yet, his success was not ‘in the bag’: even with these extra jobs he had to take on just to fulfill his financial obligations, his trading career was not guaranteed; in fact, he faced many more hurdles before finally becoming profitable.
I will end this lesson with an important task for you to carry out. Although it may seem counter intuitive, it will test your commitment, and I certainly hope it will push you to the edge of deciding whether you should continue with your trading or simply give up and quit.
Once you have completed your assignment, you will surely have a different perspective on trading and what it means to be a trader with all of its financial, social, and emotional repercussions.
This alone is probably the most important section of the entire course as it will help build the mental habits of an effective trader while you are still on a demo account and not actually risking any real money.
You must learn what it feels like to lose.
Many of you will try to convince yourselves that you are different, that you cannot lose. But by losing, you will be taught one of the most important lessons to becoming a successful trader: facing yourself in times of high stress.
As mentioned above, you will need to learn how to get back on your feet from a loss. Every trader faces this.
Here is what I want you to do. Purposely blow up your Demo trading account by whatever means possible; using excessive leverage, not using a stop loss, over trading, etc. Let the agents win. Let them kill your account. Lose all of your [demo] account money.
Once your account has undergone a margin wipe out, only create a new demo account a few days later and only after completing the next lesson. Your ‘trading renaissance,’ as this lesson will provide you with the necessary tools and insight to gradually becoming a better trader.