Forex Traders Conversation: Scalping, Money Management, Patience, Discipline, Consistency

by Vahid | Good To Know | Wednesday, July 15th, 2009

Hello My Friends

I has a good conversation with one of Forexoma Live Market Analysis members. I thought I’d better to share it with you. Thanks to Vincent for giving this chance to me and for asking good questions.

Vincent:

Hello Vahid,

I have been meaning to ask this of you since my original membership. I did not want to ask this in the general forum, but you can advise if the forum is appropriate. I will ask now, before you become overwhelmed with the overall Forexoma service.

I have a small account. About $3,000.00. I was introduced to Forex through a book “Forex Trading made E-Z” by George Smith. From reading that title I came away with the goal of making 5% per day on my account. This could be accomplished by getting just 15 pips per day (50:1 leverage). I guess this is called scalping. I scalped awhile and found it tedious, and also required that I sit at the computer for hours, which was hard because I have a job, also I hade to make numerous trades to deal with losses and the numerous spreads. Due to the wide stops, I soon lost over $500.00, not using good money management. Had I used money management (2% of account), it would take forever to really make good profit, but I would have conserved capital.

In one of your articles you say that one can double their account realistically every month. Here are my questions:

1. Is 15 pips or 5% per day realistic?
2. How can it be done without scalping?
3. Can your program realistically double one’s small account is a month?
4. If I use money management of 2% per trade, on a $3,000.00 account, I can only seek to lose or gain $60.00 per week (with your typical 100 stop or gain). It would take me quite a long time to see gains.
5. I am looking to go into Forex full time, but I have a Wife and children to support, so I cannot do it on $3,000.

I would appreciate your opinion and general direction. Of course I know you cannot tell me what to do, but just some ideas would be appreciated.

Vahid:

Hi Vincent,

You made me write an article. I just tried to answer your questions, then I found myself writing an article. Could you please let me have this answer on the site and so the others can also see?

Hers is my answer:

I read your message carefully and now I go directly to your questions:

1. Is 15 pips or 5% per day realistic?

Setting any kind of monetary or pip goal is hazardous. Forex is not like other businesses. A baker can make himself to bake 500 breads every day. When he is behind the schedule, he can work harder and faster to catch up. We can not do this in forex trading. We will lose if we do. Because in forex trading, we have to wait for the market to give us something. We can not make anything from the market. One day you make 200 pips, the other day you lose -100 pips. As long as you learn to become profitable, you are a good trader.

2. How can it be done without scalping?

Scalping needs a lot of experience and speed. Only people with several years of experience can succeed in scalping. Even some of these people can not. I do not recommend scalping at all. Brokers are also against it and may stop you if you keep on doing it.

3. Can your program realistically double one’s small account is a month?

It depends. We never know what forex market will have for us. We may triple our accounts in one month and in the other month we may not be able to make over 10%.

4. If I use money management of 2% per trade, on a $3,000.00 account, I can only seek to lose or gain $60.00 per week (with your typical 100 stop or gain). It would take me quite a long time to see gains.

A $3000 account is a small account. You should not expect to make a living through it. However, if you be patient and keep on raising your account and reach it to $20,000 and then you make only 25% profit per month ($5,000 per month), you are done. If you don’t touch your money for one year, then you will be a billionaire next year

Lets see how your account balance will be after one year, if you make only 25% per month with a $20,000 account:

1st month: $25,000
2nd month: $31,250
3rd month: $39,062
4th month: $48,828
5th month: $61,035
6th month: $76,293
7th month: $95,366
8th month: $119,207
9th month: $149,008
10th month: $186,260
11th month: $232,825
12th month: $291,031

It is unbelievable. Isn’t it? The problem is our greed doesn’t let us see the bigger picture. We want to triple our accounts every month and it is several years that we are trying to do this and it was failure so far, but if we were happy with 25% profit every month, we could have made a living so far. Even 10% per month is great.

This is the secret:

Patience, Discipline, Consistency!
Patience, Discipline, Consistency!
Patience, Discipline, Consistency!

99% of the problem comes from having no patience. You start making profit, but you get greedy and want to make more within a shorter time. What happens then? You wipe out your account. Sounds familiar, right?

5. I am looking to go into Forex full time, but I have a Wife and children to support, so I cannot do it on $3,000.

You can. If you follow what I told you. Forget about setting monetary or pip goals. Pick sharp and strong forex signals when they come and don’t care about the percentage of the profit you make. You will be amazed at end of the month.

Vincent’s Reply:

Hello Vahid,

Thank you so much for the enlightenment. My heart already knew your answers, but my head wanted to hear otherwise. Please feel free to share your words with the forum. Maybe you can start a thread called “Realistic Expectations for Forex Trading”, just a suggestion. The Internet makes one think they can do phenomenal things in a very short time.

A couple of quick remaining questions:

1. Does the support and resistance breakout work just as well on the small timeframes, or do indicators work better?

2. If one does not set a daily goal, how does one know when to stop trading (other than the obvious like needing sleep). The small timeframes especially can offer 10 to 20 pip opportunities all day long.

A final suggestion for a possible upcoming lesson or video:

Topic: How do you approach a blank chart? When you open a chart for the day, how do you know where to draw the trendlines, find support and resistance, know where to place the entry, profit, and stop. A video of you going through the entire process would be great.

I have taken enough of your time. May you continue in good prosperity in all areas of your life.

Thanks,
Vincent

Vahid’s Reply:

Hi Vincent,

Thanks! I will publish it on the weblog because more people can read it.

Your questions:

1. They work in all time frames. The only thing is that small time frames have small signals. I mean when a breakout on the daily chart can make an 800 pips movement, the same breakout on the 1hr chart can not move the market more than 100 pips.

2. You just sit at the computer and you wait for the signals. If you see a signal, you will take it. If not, you go and come back tomorrow. As I said, we never know what forex market wants to give us.

However, you should know that you will get tired of small time frames very soon. I was in the same stage too. You can not work with short time frames for good. You will hate them and you will prefer to work with big time frames.

About approaching the blank chart, I will make a video for sure but here I explain a little.

I do two things first: 1. I shift to line chart and 2. I zoom out as much as I can.

I do this to see the real support and resistance levels and trends. I draw the lines on the line chart. I find forming patterns and … and then I shift to candlestick chart.

Thank you too Vincent. I enjoyed the conversation.

Further Reading:

11 Comments:
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Comment by juan contreras

2009-07-15 04:03:02

hi vahid i want you to write an article about the wolfe waves and also the harmonic trading pattern, is it possible yo do it ? it would be a great report, thanks a lot

juan contreras

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Comment by Muaz

2009-07-15 10:03:27

Vahid, Well written article….you know your stuff….. Thank you

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Comment by nor

2009-07-15 10:10:36

Hi Vahid, i have been clicking at your ‘ORDER FORM’ but very unfortunate the same message comes out ‘ THIS PROGRAME IS NOT READY TO JOIN YET ‘ . Could you assist me. Thanks

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Comment by Vahid

2009-07-15 10:25:19

Hi Nor,

You are seeing the old page. It is in your computer cache. Refresh the page: Ctrl+F5

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Comment by Dick

2009-07-15 12:33:15

Thanks Vahid, this article has cleared up some questions I have had for a while.
I look forward to seeing a video of how you approach a blank chart, a picture is worth a thousand words!
Thanks for he great website and training.

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Comment by Nnachi

2009-07-17 16:11:28

Thanks Vahid for your very insightful explanations. I was wondering if maybe you could explain how one can use the Elliott Wave Principle to determine the age of a trend. I ask this because I have found that each time I spot a trend and open a position hoping the trend will continue, I sooner or later discover that the market has turned against me. I have read somewhere that the Wave Principle can actually be used to determine whether a trend is just starting or has run its course and a reversal or correction is about to start. Otherwise, what other tool can be used to determine if a trend is about to end? Thanks

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Comment by Vahid

2009-07-17 22:47:07

Hi Nnachi,

I will have some articles about Elliott Waves. Your problem is that you enter when it is too late. A trend profit is laid in the second wave. So if you like to enter, you should enter when the second wave is started. The other waves are just noise and usually have no strong movement.

One of the easiest ways to find the beginning of the second wave is range breakout. Please read my below article to learn about it:
http://www.forexoma.com/more-about-using-fibonacci-in-forex-trading/

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Comment by Roger

2009-07-25 09:02:13

I just wanted to add to Vahid’s comments because they are very general. Money management is very important, one method you can use with your account size of $3000.00 without blowing your account to quickly is to scale your trades. For example you are trading the 4 hour charts, you need a larger pip stop loss so you need to trade micro lots in order to give yourself enough head room for the trades. If you are using the 5 minute charts which enables you to tighten your stops you can use mini lots. last but not least you can diversify so essentially you are risking less on any one trade. The rule of thumb is never trade more then 2% of your account on ANY ONE TRADE! that does not mean you can’t trade more then 2% of your account at a time—Diversify. For example:
You are trading the 4 hour chart EUR/USD and see an opportunity to go long, well on the 4 hour chart I would use a 100 pip stop loss at the very least.
Base amount: $3000.00 x 2% = $60.00, now the most you want to risk is $60.00. In order to get a 100 pip S/L for $60.00 worth you would need to trade 6 micro lots with 100 pip stops for a 1:1 risk/reward value. Meaning that if prices move 100 pips against you, you would lose the $60.00, but if prices go your way 100 pips you make $60.00 assuming your T/P of 100 pips is in place or even better you could close out 3 of your micro lots at 100 pips and let the other three ride for even more profits (get the picture). Now the point of the story here is that you are not limited to this ONE trade. As an example, if you did this for 10 positions and all your trades hit your T/P targets of 100 pips you would end up with $600.00. The odds of ten trades going against you are very slim unless you have a really crappy trading system or method. The OTHER rule of thumb that no one ever talks about is that REAL traders will trade up to 25% of their total account size at any one time, JUST NOT ON ONE TRADE, THEY TRADE DIFFERENT POSITIONS USING MONEY MANAGEMENT METHODS I’VE JUST DESCRIBED. If you can’t stomach trading up to 25% of your total account then try 20% or 15% or 10%, just experiment and go with what makes you comfortable. In the above example i would be looking for other opportunities once I had placed the EUR/USD position and start over again. This time if I found an opportunity on the GPB/USD 5 minute charts for example I could tighten my stops to 30 pips and place a trade with 2% of my trading account, you simply need to determine was size lot to trade while risking $60.00 with 30 Pip stops. This would be $3000.00 X 2%= $60.00 (Mini lot=$1.00 per pip) so you could trade 2 mini lots with 30 pip stops. So on, so forth and you could place these positions up to 25% of your total trading account size or whatever makes you comfortable. I am in the process of setting up a website … (this part is removed by forexoma because it was a promotion. Sorry but promotion is not allowed here )
Hope this helps, I know it sounds a little confusing but it really is not that complicated, I will be developing an excel calculator to make all these position size and stop calculations for you. Anyways gotta go……my GF wants to go for a ride on my HOG, hopefully it won’t rain, I wish you all the best!

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Comment by Vahid

2009-07-25 09:55:57

Hi Rogers,

This was just a conversation and I answered several questions that Vincent asked. It was not focused on money management that I want to explain about it in detail. Questions were general and I answered in general.

I was happy reading your comment because it was teaching something useful but then I realized that it was a promotion because you finally talked about your website. Articles I have on the public area of forexoma are for sharing the information and experiences for free. People can use the comment form to ask their questions and even criticize me and I never moderate them. But it doesn’t give me a good feeling when I see someone is explaining something, pretending that he/she is helping people and then refers people to his website at the end of his comment. I think people have already been hurt a lot by the websites that are not managed and promoted by professional and experienced traders. I have personally tried many programs, even those that are promoted by some of the most famous people in forex industry, but I realized that even those people, are not real forex traders. They are just good in giving lectures and working as advertising engines of some brokers. When it comes to live trading on the live market, there is no difference between them who are the most famous people in forex industry and someone who has just started demo trading.

Please don’t get me wrong. I am not talking about you and your website. I am talking in general.

There are some forums that you can do promote your website. Also on forexoma forums, there is a category that forex traders can advertise their products, services and websites. You can talk about your website there. I am so sorry but I had to remove your website promotion from your comment.

The other thing is about your explanations about money management. It was good but a little complicated for majority of traders. People like my website because everything, even the most complicated things are explained in the simplest way.

If someone wants to follow the money management rules and not to risk more than 2% of his/her account, there is no difference between 5min and 4hrs chart. They should not risk more than 2% in any trade. If a trade in 5min chart has a 20 pips stop loss, this 20 pips should be 2% of the account and if a trade on 4hrs chart has a 100 pips stop loss, this 100 pips should also be 2% of the account. It is that simple to express

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Comment by Mark

2009-09-01 17:29:40

Hello Vahid,
I found your website through forexpeacearmy and am really impressed. I have been reading your commentaries about trading forex (the one about greed really hit home!). I have been trading forex for almost 3 years and have never become profitable. I am hoping some day I can learn from you. I have blown my third account recently and need to start over again
You are a very wise man…..thanks for your insights.
Mark

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Comment by Vahid

2009-09-01 22:38:47

Thanks Mark. Don’t worry. You will learn it. I am sure you already know everything you need to know. You just need to use your knowledge properly.

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