You Are the Forex Expert
The number-one reason traders fail in forex is this: Most traders do not have expertise. Most traders begin trading a system without much experience trading a system. When the first bump in the road appears (e.g. an extended losing period, a lack of signals for a week, a couple of difficult to- interpret signals, etc.) the system is abandoned. The traders who consistently pull profits from the market are experts, without exception. To become an expert at anything, you must do it at least 10,000 times. If you want to become an expert in your chosen trading system, you could take 10,000 trades, which will probably take you years to achieve, or you could back-test your system. By seriously testing your system over thousands of trades, you will quickly achieve expertise with your system.
Seriously testing your system means making trades just as you would with your live account: trading from the right-hand edge of the chart, without the benefit of hindsight bias, using a strict application of your trading rules. The naked trader has an advantage over traders who trade “normal,” indicator-based systems. A trader who is trading a system incorporating seven indicators must view and interpret all seven indicators for each trade, before, during, and after every signal is initiated. This is cumbersome and slow. The naked trader has a chart with no indicators, a very clean chart. These charts are easy to interpret. In fact, the naked trader gains experience with his system every time he sees a chart in a newspaper, on television, in a book, regardless of market. This is because the naked trader can see, at a glance, whether the chart suggests a buy signal, a sell signal, or no trade signal. A chart on the nightly news helps the naked trader march toward expertise. In this way, the naked trader has a distinct advantage over traders using indicators. Expertise will come more quickly, more easily, and allow the naked trader to interpret any chart, in
any market, at any time.
Experts in cognitive psychology agree that experts at the highest level find it difficult to teach their expertise. Experts know what to do, in fact, because their expert behavior is automatic. They do not think about what they do, they just do it. Novices spend a lot of time thinking about the procedures, setting things up correctly, and so forth. Experts spend time thinking about how they interpret information—a very different approach.
So what does this mean for your trading? It means you should backtest extensively. Your goal should be to pull out of the novice trader stage and into the expert level as quickly as possible. The fast way to achieve expertise is to gain experience trading your system via testing. All novice traders spend a good proportion of time in orientation, “Is this a good signal?” “Does this set-up qualify as a valid trade set-up?” “Should I take this trade? I am not sure if this constitutes a good signal . . .” Expert traders spend more time evaluating the trade once it is initiated. In other words, experts are concerned with Market Biofeedback, and novice traders are concerned with understanding the system rules. This is understandable, novice traders spend time thinking about possible trade set-ups, novice traders are still learning the trading system. Expert traders spend more time managing trades and focusing on making sure that open trades are managed efficiently, to extract maximum profits from the market once those profits become available.
One of the true paradoxes of expertise is this: Experts find it difficult to verbalize the decision-making process. Expert traders are often unable to adequately explain how to duplicate their results. This is frustrating for the novice. Experts often rely on unconscious thinking, or a “gut feeling” when making decisions. The subtle cues experts use to make a decision are ingrained and rote, often inaccessible to conscious consideration, and this is frustrating for novice traders who are seeking expertise. Novice traders are better off spending time gaining experience through testing, building toward expertise, rather than trying to find a shortcut to expertise by mirroring experts.
Unless you want to allow a computer to do all the trading for you— in other words you trade only fully automated trading systems—you probably will want to achieve trading expertise. Your shortcut to trading expertise is to back-test. Although it may seem like hard work, the fact is you can simply accumulate years of experience over hours when you decide to manually back-test. It is, quite simply, the best shortcut to trading success. The very successful traders, who are consistently finding profits in the market, who are trading for a living, all of them share one characteristic:
They back-test their systems and earn their pips on their back-testing software. Why not join this successful group of traders today?