Why forex trading is a grind!

Trading is not about sitting on a beach with a laptop or looking at the charts for 20 minutes a day, making a decision and then sitting back to watch the cash roll in.

Trading is a grind – it's a daily commitment to discipline. Whether I feel like it or not I must adhere to this discipline or risk making a mistake, or more likely mistakes that could ultimately blow up my account.

In yesterday's post I talked about educators and the image they look to portray online. As a high percentage of retail traders (people like you and I trading from home) blow up their accounts by not knowing what they're doing and taking on too much risk (via leverage) they have to keep the flow of new customers to sustain their business model.

People get into trading for very different reasons, but a common motivation is a desire for financial freedom. No more answering to a boss you don't like, and the ability to work whenever from wherever. This hope of a better life is what those in the marketing departments play on. Would showing their customers the reality of trading entice them into the business? Probably not! Far better to stoke the fire of dreams by showcasing the beach lifestyle, fast cars and a whole load of other rubbish that in reality, is not in fact the reality of trading.

In fact, good trading should be boring – it's a daily grind.

This morning, as with every morning Monday through Friday I'm out of bed at 5:45am.

My trading plan guides me on what I need to do every day to get a feel for the market and be in the best shape mentally to tackle what the day may bring.

By 8:30am I've usually finished this analysis and then as I trade the 240-minute charts, I check in at 10am, 2pm, 6pm and 10pm, to manage existing positions in line with my rules.

But the daily grind has already taken place. It starts at 6am when most of the world (my wife and kids included) are still asleep. This discipline is part of my edge and has two key elements – market assessment / market opportunity, which I undertake for all 23 currency pairs I trade.

Forex market assessment >

1. Review overnight news and upcoming news for the day (I use Forex Factory to do this).
2. Analyse trader sentiment – how are the majority of retail traders positioned? If the majority lose, taking a contrarian approach forms part of my edge (I use Daily FX / IG Client Sentiment to do this).
3. Calculate the daily relative strength of each currency pair, which enables me to rank each currency pair in order of yesterday's strength (this starts to give me a feel of where the market has been and where it could continue to head).
4. Calculate the overnight relative strength of each currency pair. What's happened overnight and what could this mean for today? I compare the close of the 10pm candle from the prior day with the 6am candle close (e.g. when news for AUD or NZD is released overnight, in conjunction with Forex Factory this gives me a more recent feel as to what's going on in the market).
5. Analyse where current price action is in relation to the daily and 240-chart SMAs (Simple Moving Averages). I use the 200 and 50 SMA, along with the daily 10 EMA (Exponential Moving Average) to help me identify if the market is trending or in range for each currency pair.
6. Review of correlation risk. It's very easy to get carried away in trading, and if a signal shows up on a particular pair, a similar signal could also show up on another pair at the same time. For example, last night in the US we had a statement from the FOMC (Federal Open Market Committee). The content of this report is not important, but the market reaction is. The market reaction was a weaker USD. Now I don't trade the news, but news often pushes a particular currency pair to new highs or lows (usually by running stop losses). I would never want to be long GBPUSD and EURUSD, and short USDJPY and USDCAD all at the same time – this would give me 4 x USD short exposure. I use my correlation risk analysis to ensure my exposure on any one currency is set at a maximum of 2 x my permitted risk (as dictated by my money management rules).

Forex market opportunity >

When the assessment is done, I take a step back. Go and make coffee (and cup of tea for my wife – it's always good to start the day in the good books) and let what I've observed from my analysis sink into my subconscious.

I then come back to my screens and review each currency pair again, in order to answer three important questions:

1. Does my existing trade (if I have one on) still make sense?
2. Is this currency pair presenting me with an opportunity to get in / or a requirement to get out (in line with my rules)?
3. How should I best manage any existing trade, by trailing my stop loss to reduce my risk exposure / lock in profit (see correlation risk above)? How I do this is stipulated in detail in my trading plan / rules.

And there ladies and gentlemen you have the unseen side of forex trading. The reality that is the daily grind.

In addition to the above there is also the recording of each and every position, and post-trade analysis to identify mistakes or opportunities to fine-tune my future performance.

Before I close out this morning's blog I wanted to touch upon something that was mentioned in the video I shared yesterday, on how many markets you should trade.

The video (at least to me) seems to advocate that to be successful you should trade more than one asset class. I.e. don't just trade forex, but consider equities, bonds and commodities too.

I disagree with this recommendation, particularly when it comes to currencies. Trying to trade too many asset classes in my opinion leads not to more opportunity, but to complete confusion.

Which is potentially more profitable – knowing a little about a lot or a lot about a little? Put another way, if you need an operation on your knee, who would you prefer to carry out the operation – a GP (General Practitioner) or a specialist surgeon?

My view is that you pick a lane and stay in it. Pick an asset class that appeals and fits with your style of trading.

For me this is foreign exchange.

I like forex because it's a 24-hour market (during the week) and is international. I find the interplay of currencies fascinating and although there is currency manipulation through the activities of central banks, given the size of the currency markets, in my experience they are less prone to the manipulation that you often find in stocks and shares. Also when currency pairs trend, they trend very well and these are the opportunities to make big money I'm looking to catch.

What's more, forex covers every asset class. Currency is used to buy equities, bonds, commodities, etc. Currency is the oil that greases the wheels of the world economy. If you trade forex you are inadvertently trading all of these other asset classes to some degree. For example, yesterday CAD grew in strength relative to USD. Why did this happen? Well it could have been for a multitude of different reasons, but it's no coincidence that yesterday also saw an increase in the price of oil. The loonie (nickname for the Canadian Dollar) is a large producer of crude oil. When the value price of oil goes up, the value of CAD tends to go up too.

I hope you found this post of interest, and if you have any comments or questions, please leave them below.

It's only 10 days now until the start of my trading challenge to turn £50K into £1M in 36 months!

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Is it really possible to turn £50K into £1M? Over the next 36 months I'm going to find out by trading my personal account with full transparency.
Follow my 36-month challenge to turn £50K into £1M.
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[Please note, the information presented is general educational material and does not constitute trading advice.
Trading foreign exchange (forex) on margin carries a high level of risk and may not be suitable for you or your circumstances.
Before trading forex you should investigate all of the risks, including the possibility that you could lose more than your initial investment.
It’s important to consider your investment objectives, level of experience and risk appetite. If in doubt seek advice from an independent financial advisor.]