How to Make Money in Trading: The Straight Talk

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Dear Friend,

I am reliably informed that this is the highest probability method of making money from the markets:

Step 1: Buy a trading system or attend a seminar.
Step 2: (Optional) Try it and lose money.
Step 3: Sell it to as many people as you can. Make sure you give them as much unrealistic hope as possible and sock them for as much as you think you can get away with. Oh, and it helps if they’re desperate for money.

If you’ve already completed all three steps, please move right along. I have nothing nice to say to you, but your conscience (if it’s still alive) might be wanting a heart-to-heart talk…

AS FOR THE SERIOUS TRADERS…

For those who have only got to Step 2 (the losing money bit) and are tired of struggling, we MAY (or may not) be able to help you – it depends.

It depends on you, really. For those who believe that there is a Holy Grail that will turn your laptop into a lean, mean, money-spitting machine overnight with a wave of a wand, let me save you some trouble – I don’t have it. Really. Try some of the guys who just left – they might have some leftover scam products in stock.

So that leaves, hopefully, the few of you who are really serious about making money in the markets, who know that it isn’t something that is going to happen overnight, and are willing to put in the work to get it. 

I understand what it is to be where you are, and I am sorry that the industry is so full of scams and lies. That’s just the way it’s been since I’ve known it, and it makes it even more difficult for the committed few to learn the skills they will need to achieve success. Everyone has muddied the waters so that it is practically impossible to figure out what works and what doesn’t. (And by the way, most of it doesn’t.)

So, the smartest thing to do is…

LEARN FROM THE MARKETS THEMSELVES.

That’s right – don’t let someone else (especially me – I’m the one without the Holy Grail, remember) tell you what works and what doesn’t. When you’re told something about the markets, verify it for yourself. The ultimate secret of success is simply plain old hard work and determination - train your eyes and mind to track the market movements which have existed all along. Plain elbow grease – who would have thought? That’s how I made it as a trader, together with the help of a very generous mentor.

THIS “SECRET” MADE TRADING SUCCESSFUL FOR ME…

I remember the point I became a real trader – the moment light appeared at the end of a very long tunnel. Frustrated and foiled by yet more confusing markets, I finally came close to giving up one Christmas. I finally begged my coach to spend time with me on Christmas day (he was always booked out the rest of the time), working through charts, and I consider it the ultimate generosity that he agreed. And boy, I was prepared going into that coaching session.

You see, after years of trading with nothing to show for it, I was desperate. I knew the talk, but couldn’t walk it. Something extremely vital was missing, and I was determined to find it. We worked for a solid three hours, analysing charts on multiple timeframes. I refused to grant him any quarter, and I progressed the charts forward candlestick by candlestick, to see what he was thinking at every single moment of chart development.

Those versed in intraday forex trading and backtesting will know that doing that on a charting platform is possible, but not for multiple timeframes. Which is why I had three platforms installed on my computer for the occasion and running concurrently. It’s amazing what lengths determination and sheer mule-headedness can push a person to, but I was going to find that missing part of the puzzle…

…and I did. The secret is staggeringly simple. In fact, I’ll let you in on it. It has two parts, and here they are:

Part 1: Prices move in repeatable patterns…

Part 2: …BUT NOT ALL OF THE TIME.

That statement is perfectly true, but also perfectly useless for most readers. If someone truly understands that statement, they would go a long way towards becoming profitable traders. To truly understand that, and also how to act in the face of that, I had to hound my coach that Christmas until I extracted every last bit of insight I could get. It is nearly impossible to explain all the nuances in writing, without rigorous training of that sort. So, I will try instead to explain it by pointing out what it is not. In other words, we have to look at…

…HOW TRADERS LOSE THEIR ACCOUNTS: THE REAL REASONS

Very few people disagree that chart patterns repeat. Look back at most major market turning points, and you will see beautiful head and shoulder patterns, double tops and double bottoms galore. Here is the problem:

Losing traders recognise a pattern too late. 

Confirmation, confirmation, confirmation. That’s what the “gurus” like to teach when they show you how to trade. Let me get one thing clear – I am not against confirmation. Confirmation can be invaluable to timing a trade entry. The problem is, the confirmation most people learn is exactly the kind which will get their accounts lost. It is definitely not the confirmation professional traders use.

If you wait for that trend line to break, for the MACD to cross, for the stochastic to unfurl, for the sun, moon and stars to align, for the water temperature to be just right before you enter into a move, guess where you will enter. That’s right – you will enter just as the professional traders get out.

Those scumbag gurus are simply pandering to their audience. New traders love confirmation – the idea of a security blanket is just too tempting. And so, in one stroke, they have automatically set themselves up to lose money. Remember, if you wait until the winning horse is clear before you place your bet, all the money has already been made. In trading, you pay for that false sense of security with real money – yours.

The REAL secret lies in the other type of confirmation – knowing when a strategy is likely to work. If you’ve already tried to outwit the market with even simple systems such as moving averages, you will know that sometimes they work like magic, and others they don’t. Here’s the secret: To succeed in trading, you must figure out when a strategy has the greatest likelihood of success!

It’s obvious when you think about it. If you have a hammer, you use it on nails. If you want to pull down a building, you need a wrecking ball. The ball isn’t going to work on the nail, and you’ll be a long time pulling down a building with a single hammer.

In short, you need to use the right tool for the job. If you have a market getting ready to make a big move, a momentum breakout strategy might work. That’s like the wrecking ball and the building. That same momentum breakout strategy will kill you in thin, sideways markets. That’s the hammer market – you need precision and accuracy, so you wait until you can get a good clear reversal entry using some kind of cycle methodology, whether it’s RSI or stochastics or some other oscillator.

That’s one of the biggest tips I can give you right there – it’s not about the system. That $39.99 system you paid for will probably work, but you must know when to turn it on and off. Many traders fail because they are looking too closely, and completely missing the big picture - MARKET ENVIRONMENT. Understand the market environment, and the highest probability response will reveal itself…

…Which brings me on to the next subject:

THE GREAT INDICATOR CONTROVERSY

At some stage in practically every trader’s career, they go indicator crazy. They are out hunting for that magical indicator that will give a signal just at the right time to enter or exit a trade, or for the setting of a moving average that will magically pull in the profits. Hang around long enough, and they’ll figure out no such thing exists…

…In disgust, they move on to “naked chart trading” – trading without indicators. “Indicators are lagging!” is the cry. “They cannot predict future price movement!”

Of course not. Anyone who thinks about it for two seconds would agree. But naked chart fanatics have thrown the baby out with the bath water. Don’t get me wrong – naked chart trading works, and I do a lot of it these days, but indicators have their place too. 

In fact, I’ll tell you how important indicators can be: Without indicators, I would never have made it as a trader.

Surprised?

Those of you who have read my regular trading articles at DailyFX.com might even be shocked. That’s right. I can trade nearly any chart with just plain vanilla candlestick patterns these days, but to get to this level, I had to use indicators.

Why? It’s simple - indicators are objective. For the most part, they are used wrongly by the trading community. The overemphasis on using indicators as triggers into a trade (for example, waiting for a moving average crossover) has caused this. This is the very last step of the trade entry process, NOT the first. Remember the secret of trading? Price patterns repeat…but not all the time. 

That’s right, folks. The best use of indicators is in telling WHEN the chart is in an environment where a price pattern is going to repeat. That’s when we have the biggest bang for our buck – the moving average crossover will work then. Other times, it will simply eat up your account for breakfast, lunch and dinner.

KAYE, YOU’RE JUST TALKING ABOUT TRENDING AND RANGING MARKETS, AREN’T YOU? (NO, I’M NOT…)

I wish I was. Even the scam gurus learn a thing or two over time, and now the better ones will tell you if a strategy is better used in trending or ranging markets. That’s a vast improvement over when I first learnt how to trade, but it is simply not enough to make you money.

It is not enough to know WHEN a strategy is likely to work, but also the LEVEL OF MAGNIFICATION you need to use.

If you are going to dive into the markets, you must know what you’re doing. If you dive into a toddler’s pool, the results could be messy. Similarly, if you try to get to the bottom of the ocean by holding your breath, you might just live to regret it. You must find the size of pool that is just right, or get the right equipment.

In trading, the right pool size is about timeframes. It is about knowing whether a trade is occurring on the 15-minute, hourly, four-hourly or daily chart. If you miss the timeframe, you will either enter the trade too early (and lose money by being stopped out) or too late (and lose money because you have gotten in after everyone else).

In my opinion, this is one of the most important and best hidden secrets in trading. Basically, even though people now do talk about multiple timeframes, almost no new trader is willing to put in the work to discover why they are important and how to use them. There’s that hard work and determination thing again. Hence, they are doomed to diving into pools in the dark. Occasionally, they may get lucky, but mostly the market takes their lunch money, and the pros just chuckle. The patterns repeat day in and day out, but most people are so myopic they don’t catch more than a glimpse of it at best.

ARE YOU GETTING THE IMPRESSION TRADING ISN’T SO EASY?

Good! In fact, some of you may decide right here and now that trading isn’t for you. And that may well be the right decision. For many people, the work required to make it is simply too much. That makes it a wonderful profession for those who actually do make it, because in reality, there is very little competition for profits – there just aren’t that many winning traders. It is even worse in fast markets, which is what intraday forex or commodity trading in particular is about. Most pros will not trade anything faster than an hourly chart, and a 15-minute chart is pushing it. Except for very specific instances (when the market is in just the right environment) and with just the right strategy, the 5-minute chart is as good as handing the market your money.

So what does it take to succeed?

There are two paths. One of them is optional, and other is not. The non-optional path is to observe the markets both live and in hindsight and gain actual experience seeing what happens in the market. No matter what else you do, this is an absolute requirement for success. No one made it without doing this.

The optional path is, well, optional. But it could make the journey a lot smoother. That’s where you pay a mentor like me to share his experience with you. The good news is that compared to 10 years ago, there are actually comparatively more professional traders willing to share trade secrets. If you don’t like my style (some people just don’t think they can learn from someone like me, and that’s okay), look for them. They’re not necessarily easy to find, but they’re out there. Armed with what I have told you, you have a better chance of identifying them.

To help you, I’ll tell you…

…HERE IS WHAT YOU NEED IN A GOOD MENTOR:

1. Emphasis on the bigger picture. For most traders, the bulk of their losses come because they are diving into toddler pools in the dead of night without looking. I’ve already explained why both precision and the big picture are important. A good mentor should always be guiding his clients to that realisation.

2. Methodical trading. Very few trading strategies are 100% mechanical and profitable. That’s why trading robots and “expert advisors” (EAs) rarely, if ever work. Most will involve a small element of discretion. The smaller that element, the better. Yes, discretionary trading can be profitable, but if you’re just learning, it will just instill bad habits. Walk before you run.

I know this from experience. When I was learning, I ended up being privileged enough to sit with fund traders, retired head traders for trading desks in major banks and even the odd astoundingly gifted trader who just knew what was going to happen next. Every time I tried to master a system that wasn’t methodical, the results were ugly. Finally I accepted the fact: Those traders could see trades coming a mile away, without being methodical, simply by the weight of their experience. I just wasn’t good enough at the time to do it. Now, I’m the one who can call winning trades from thin air and make others blink. But I remember what it felt like to be completely lost, and I make sure my clients are methodical in their journey to success.

3. Transparency. This is the most important bit. It is astounding how many dirty tricks there are in the industry. Results based on backtesting alone are out. Accounts can be easily falsified. Even third-party verified account results can mean nothing. (Just open a few accounts and keep trading until you get one profitable, then get a third party to verify it. There you are – “proof”. It doesn’t matter that the other ten accounts went down in flames – no one’s watching.)

This lack of integrity actually makes it difficult to prove anything for both scammers and good traders, which is why I publish my trade calls beforehand on DailyFX.com, a third party website. Once it’s out there, they aren’t going to retract it because it will make me look stupid. It’s there to stay. That’s the best proof I can offer. Oh, and because article writers can simply bury their “bad” calls under a barrage of new articles, I’ve made it even more difficult for me to wriggle out. The results of the trades I’ve written about there are followed up and the track record is right here on the Straight Talk Trading blog.

[HOW TO APPLY: If you wish to explore mentoring possibilities, use the contact form at the bottom of this page to apply for a mutual interview session. I personally promise you that there will be no pressure to join. (If there is - hang up. That's a red flag right there.) The purpose of the interview is to see if the one-on-one Mentorship Programme we offer is a good fit for you - your right to decide if it works for you is fully respected, just as we ask you to respect our right to politely decline to provide training.]

THE TRADING JOURNEY – THREE BARRIERS ON YOUR WAY TO SUCCESS

Trading is a journey, and whether you join us or not, we wish to share the road-map to success. Every trader will be faced by three obstacles, three barriers on their way to success. Just knowing where you are on the journey will help you to decide what to do next.

The First Brick Wall: Unrealistic Expectations

Ignore the flag-waving gurus for a moment and think about it. Most A-grade, top quality hedge funds do well to return 40% a year. What makes you think you can do better? Well, for one, funds have a lot of money to move around. It is much more difficult to do this nimbly. The retail trader has a small account by comparison. That means that it is easier to control trade precision. Does that mean you will make millions overnight? No! But it means that earning more is possible. 5% a month is an excellent achievement. Straight Talk Traders aim for 5-20% return on their account monthly.  Some will make more, some will make less. They won’t get it every month, and some months will be losing months, but on average it will work out.

This is the brick wall that causes no end of trouble for newer traders. It is not helped by gurus hyping up the returns on their “strategies”. If you believe me when I tell you that this is the top end of what is possible without going crazy with risk, then you will save yourself a lot of grief. Yes, it is possible to have an occasional bumper crop profit month of 50% or better, but it is better to keep one’s sights within the realm of the usual scenarios. There’s a lot less pain that way.

Second Brick Wall: Learning Curve

Many traders are intelligent people, and this actually can work against them. In case you think I’m being biased, I have an MA from the University of Cambridge.  I believe my alleged “intelligence” actually kept me stuck in a learning loop far longer than necessary. Most traders (up to 95%) will disappear from the trading arena within six months of them joining the industry, having lost too much for their taste. Most of that time will have been spent tussling with Brick Wall Two, which is the learning curve. They will be able to name hundreds of candlestick patterns, speak in tongues about complex strategies and fill charts with enough flashing indicators to rival a Christmas tree.

The one thing they will not be able to do is turn a profit.

Why? Well, they simply know a lot, but they do not know how it fits together. It is a little like baking a cake. I can throw sugar around the kitchen as well as the next fellow, but without the exact mix and recipe, it is useless. Let me be clear – this is not about chasing magical indicator settings. It is about knowing when to apply the correct tool at the correct time in the correct quantity. Otherwise, it is like mixing everything together and hoping for the best – you may get away with it once or twice, but it usually ends in tears.

There are two things to bear in mind in order to get past this brick wall.

Firstly, remember that the proof is in the pudding, and if a strategy does not work even in backtesting, you are probably missing a component or two. Most likely, the strategy will work in a specific market environment, but you have not figured out which one. Roll back your sleeves and get to work finding it. The answer is NOT, I repeat, NOT, in tweaking the numbers of the moving averages in the strategy. You could spend the rest of your life doing that and never find it.

Secondly, remember that practically all indicators are variations of a very few. If you’ve seen about 10 or 20, you’ve seen more or less their possibilities. The rest will be a matter of preference and experience with a particular indicator.

This can be a very painful part of the journey (or not, if someone who knows what he’s doing points out the right things to learn at this stage), but it is vital for dealing with the third brick wall.

Third Brick Wall: Integration

For those who were wandering lost in the woods with the second brick wall, there are three fates – to give up, to continue lost forever or to hit a crisis point. If you hit the crisis point, chances are good that you have hit the third brick wall. That is when traders ask themselves why everything they read about looks so good in theory, but never works in practice. It is when they study the markets for themselves, and actually look at the charts to verify what they have previously taken on faith. In short, they stop believing what others tell them and do their homework.

This is the make-or-break moment. If they succeed, they will integrate all they have learnt and experienced into a strategy that works for them. If you are here, CALL ME. Use the contact form below and tell me that you’re here. Very few people get to this stage and I can do a lot for you. This is the point where the benefit of knowing how to put everything together will make a huge difference to your chances of success. You won’t get here unless you’re serious, dedicated AND have all the parts to make it succeed. That means you’re just the type of trader I like to mentor.

I do not make a policy of pushing trading mentoring to traders in general, but at this stage it can mean the difference between success and failure. You see, this is the desperate moment. Remember that Christmas evening I spent with my coach when I was at the end of my rope? I was at this point. If you get here, you have already invested too much for it not to work. Even if we do not decide to work together, even a slight hint will likely put you on the right path, and I give out hints quite readily, as you can probably tell from reading this.

[ONCE AGAIN, HOW TO APPLY: If you wish to explore mentoring possibilities, use the contact form at the bottom of this page to apply for a mutual interview session. I personally promise you that there will be no pressure to join. (If there is - hang up. That's a red flag right there.) The purpose of the interview is to see if the one-on-one Mentorship Programme we offer is a good fit for you - your right to decide if it works for you is fully respected, just as we ask you to respect our right to politely decline to provide training.]

Take the map of the trading journey and use it. It will serve as a valuable compass on the road to success. Whether you join the ranks of Straight Talk Traders or not, I wish you the greatest success and joy in your trading and every other aspect of life.

With warmest regards,

Kaye Lee

Private Fund Trader, Head Trader Consultant, Practical Market Analyst
Straight Talk Trading

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