Tag Archives: Forex trading

The Pillars of Trading in Modern Markets – Part 5: Psychology of the Trader, August 22, 2014

Hello Traders,

This article completes the mini-series of 5 articles on the “Pillars of Trading in Modern Markets” I have focused on this week.

Yesterday I offered my view on the Psychology of the Market. Today I shift the attention to the Psychology of the Trader, not less important.

20140822_trader_psychologySo here follows a definition of Trader Psychology: it is the beliefs system that has to be in place for a trader to be successful in the markets. 95% of people lose money in the market not always because their trading method is flawed, but rather because they approach trading with a wrong set of beliefs. The common sense ideas and beliefs we bring from our everyday life do not work in the markets.

Note: This is the most important aspect for a trader to understand. If we as traders start with the right foot and question every impulse we have when we approach the markets, we put ourselves in a better spot to become successful in trading.

If, on the other hand, we just second our impulses and let ourselves react and take trades that are not in synch with the market psychology and current price structure, we create from the beginning a very negative energy associations with our trading experience. If you are a starting trader, avoid this at all cost!!

For instance, a lot of traders will initially fall in love with the concept of trading breakouts. This is basically entering the markets above recent highs (for longs) and below recent lows (for shorts). But although it can be successful this is not the best practice, for sure not for all instruments and for all time frames.

Note: The best way to trade the markets is to identify a new trend and then trade retraces before the price starts moving again in the direction of the identified trend.

But before new and experienced traders discover low-risk trades often hidden in price retraces, and learn to manage risk and obtain risk-free trade (another technique used to control and reduce risk even more), they “learn” to apply common judgment and common sense ideas to trading. A huge mistake! Totally wrong! Watch out!

For instance, in our daily life there is a widely accepted principle of “non-solution of continuity“. This has been probably borrowed and adopted from the law or physics or from nature. I am making reference to natural processes which when initiated, do not reverse quickly. For instance, before a process can be completely reversed, it will continue for a while.

Think of a body in motion like a car. If you hit the brake, the car will start slowing down, continue forward for a while, before eventually coming to a complete halt.

This is not true for market prices of EUR/USD or the S&P500 e-mini futures, and any other financial instruments for what matters. In fact, it is said commonly in the trading environment that “price can turn on a dime”. In the markets there can be events that suddenly reverse the process, as well as price direction.

Note: There may be possibly dozens of beliefs that we, as human beings, bring into trading from everyday life experiences. Most of these beliefs are what makes us losers in the markets. If you do not understand you need a ‘dedicated’ set of beliefs to function properly in the markets, you will not be successful. You need a ‘dedicated’ set of beliefs to be a successful trader- and that’s the bottom-line.

This article and the other 4 written this week pretty much cover the most relevant aspects involved in Successful Trading.

If you find any difficulty understanding any particular aspect- or have any other queries in general, leave a post in the related post or send your queries to my email address: fibstalker@gmail.com.

I will be glad to assist you with all your queries. I plan to have a Skype call one of these days, with all the followers. If you are interested, contact me at the email above.

I would be happy to hear from you your thoughts, ideas, feedback, or any other comments. Looking forward for your notes.

If you liked this series, please share it with friends and trading buddies on the social Networks! Thank you!

Have a great Friday and weekend.
Giuseppe, ~FibStalker


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The Pillars of Trading in Modern Markets – Part 4: Psychology of the Markets, August 21, 2014

Hello Friends,

Today I continue my mini-series of 5 articles with a new article. I will complete this series on Friday.

This week every day I am publishing a brief article. The focus of the series is on the “Pillars of Trading in Modern Markets”.

In Yesterday’s post I have written about Money Management.

Today’s topic is considered complex, difficult to master and somehow boring by traders. But remember that in life is very typically that the things we do not focus on are those we need the most!

20140821_bandwagonI am going to talk about Psychology. Psychology is paramount in trading. Some authors and traders bring this to an extreme saying that Psychology is 100% of trading.
Why? If you think about it, you can have a good method in place and risk and money management well honed, but still if the psychology you bring into the market is not okay you are still going to lose money. I do not think is 100% because you can somehow incorporate the market psychology and good practices into the method, but Psychology remains the most important element in trading.

First of all, how do I define the Psychology of the Markets? This is the response of traders and participants in the market, considered as an aggregate group of individuals. Market Psychology is reflected in price action and in price structure.

I am more concerned with the latter, price structure. In fact, I am totally convinced that price structure in modern markets is overwhelmingly dictated by the activity of some classes of algorithms, trading on all the major instruments characterized by very high exchange volumes.

Note: Entry levels, as well as support and resistance levels and areas are mainly identified by the interaction of classes of algorithms in the weekly, daily and 4-hour charts. When there are no planned or unplanned events that affect the psychology and emotional engagement of the market, prices are “quietly” driven into areas of target or resistance and support indicated by the algorithms. The proof is in price itself, when you learn how to spot the “footprints” of algorithms on price.

The algorithms that “govern” the markets are understandably monitored by mere mortals, i.e. human beings. These algorithms are taken down on Friday afternoons and stay inactive through Monday mornings. This is the reason for erratic, low-participation markets we see at the beginning and the end of the trading week.
Only decisions by Central Banks, significant macro-economic changes and geopolitical crisis or some other dramatic events do actually take price action away from the control of algorithms.
Algorithms then “readjust” pretty quickly.

In one of my trainings I demonstrated how modern algorithms have “internalized” the psychology of the Market. I prove this point by applying the rules that I use to study the effects of algorithms on price back to price data well before computers were invented! And do you know what happens? These rules work! They apply back to the 70s, 60s, back to the beginning of last century showing that they model something “fundamental” about the markets.

Note: I also believe this is the very reason why algorithms trading the markets are capable of flying “under the radar” and very few professionals are able to spot them. The reason is that they have incorporated “the way market works”, e.g. the price structure that is generated by the market psychology, the average reaction of market’s traders taken as an aggregate group. I find these considerations very fascinating. And these are not theories! I use these considerations every day in my practical analysis and trading.

You can find a recent example here.

See you tomorrow for the last topic.

Till then stay tuned, I will talk about the Psychology of the Trader.

Have a great day.

Giuseppe, ~FibStalker

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The Pillars of Trading in Modern Markets – Part 3: Money Management, August 20, 2014

Good Morning traders,

Today I continue my mini-series of 5 articles with a new article. I will complete this series on Friday.

Every day I publish a brief article. The focus of the series is on the “Pillars of Trading in Modern Markets”.

In Yesterday’s post I have written about Risk Management.

20140819_money_managementToday’s topic is very, very important. Is there a way to reach our objectives in trading?

Yes, there is and that happens through Money Management. When I mention objectives I mean profits levels and return rates generated by our trading activity. Now could there be anything more interesting than this?

So let’s have first a clear definition of Money Management in place, and look at what exactly is it about. Money management is the discipline and practice that allows managing the position in order to optimize risk management and magnify returns.

You can become very creative with Money Management. I have studied it in-depth and even wrote a research paper during my Master Thesis in Finance, and that helped in filling a gap in academic research in Finance.

It is possible to “play” with Money Management techniques and generate hundreds of different ways to calculate position sizing, entering partial positions at multiple price levels and taking partial profits at a different levels too. It is also possible to take a money management technique and literally “superimpose” it on top of any trading method, although within certain limitations and boundaries.

Money Management is really the way you can reach your objectives in trading, provided that:

  • they are realistic and supported by a quality trading system
  • your risk appetite is within reason
  • you use proper money management techniques
  • you get aggressive with other people’s money, i.e. the gains you extract from the markets

Note: I never risk more than 1%, even if I use trading methods and entry that have a 90% reliability rate (Oh yes! Such methods do exist: take a look at the FibStalker Trading Method coupled with the unique FibStalking Timing Technique, which allows procedural testing of areas of support and resistance).
It is possible to “supercharge” profits keeping the risk low on your own capital, which also serves keeping in “check” your emotional capital (which depletes at a faster rate than your financial capital).

Risk and Money Management are closely related. They help and serve each other; each one helping the other in reaching their full potential and objectives. So position sizing and money management help reducing risks, especially when you enter a trade in legs, drilling down into the smaller time frames; Risk Management contributes to reaching trading objectives, mainly reducing the exposure of your hard-earned capital, to the maniacally-depressive psychosis of Mr. Market (always remember PPC, #1 rule.)

I have talked about Money Management in my last Webinar on FXStreet.com which can be watched here:


See you tomorrow with the next topic.

Till then stay tuned. My topic for tomorrow will be the interesting Psychology of the Markets.

Have a great day.

Giuseppe, ~FibStalker

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The Pillars of Trading in Modern Markets – Part 2: Risk Management, August 19, 2014

Dear Traders,

Today I continue my mini-series of 5 articles with a new article. I will complete this series on Friday. Every day I publish a brief article. The focus of the series is on the “Pillars of Trading in Modern Markets”.

In Yesterday’s post I have written about the Trading Method.

20140811_advancedriskmanagementToday’s topic is a very crucial one- Risk Management. I will start by defining what Risk Management is, and the way I look at it.

Risk management, simply put, is the discipline and practice of protecting the trader’s capital. I have a rule in my trading – and its called PPC, Protect Precious Capital (rule #1). And this rule is rooted in a simple fact: “when the money is gone, the game is over”.

So what I mean, is to avoid coming to that point where you realize that your financial and emotional capitals are done and gone. To avoid this unfortunate outcome (that affect regularly a very large number of traders), you have to start taking control of the situation in an informed and practical way right from the start.

You have to do whatever it takes to protect your capital. And the first thing you have to do is to stop deceiving yourself that trading is easy and that next 100% “big trade” will happen soon enough and will cover up for your previous losses. I have lost money myself thinking like that and I regularly watch and talk to inexperienced traders who think that they can risk 10%, 20%, and sometimes even 100% (when they trade without stops) of their capital on one trade, only to discover that if they put pressure and expectations in their trading, they end up “imposing” their expectations to on Mr. Market.

But as we all know, markets can be highly unpredictable. Anything can happen, and this is a fundamental truth of trading. There is nothing we can impose on something that is totally free and wild like Mr. Market. We can have positive anticipations, but certainly no expectations.

When we deal with our capital we have to distinguish between financial capital and emotional capital, and keep them separate. Understanding of the former is quite straightforward: it’s the money you have in your trading account. But the latter is trickier. This is a measure of our confidence level in trading. If we lose confidence we become unable to act and make money. In fact, when act without confidence, it’s a sure-shot way of losing money.

Note: Confidence is always the combination of Knowledge + Proof. If we experience a streak of losses we lose the ‘Proof’ part of the equation. So we lose confidence even if we know very well how to trade a good system. In a status of no confidence, generated by a low emotional capital, we are not able to generate profits in the markets.

I have talked extensively about Risk Management in my last Webinar on FXStreet.com which can be watched here:


Till then stay tuned. My topic for tomorrow will be Money Management.

Have a great day.

Giuseppe, ~FibStalker


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The Pillars of Trading in Modern Markets (Part 1), August 18, 2014

Dear Traders,

I am starting a mini-series of 5 articles that I will complete this week. Every day I will publish a small article. The focus is going to be on the “Pillars of Trading in Modern Markets”.


What is that?

Do you know the pillars of successful Forex and markets trading and how do you reach your trading objectives?

If you do not, you don’t remember or think you know, keep reading…

The news that I want to share with you all today is that FibStalker Trading now has a bigger team! Yes, we are now quite a bunch of enthusiastic and spirited collaborators working with the same vision- together. This expansion is for the numerous activities, including organizing and maintaining good quality educational material, as well as for working on quality and communication for new services and products.

Also, in September I plan to launch a new website and some interesting coaching programs.

My followers know how constantly and consistently I work hard to give away something new and valuable to them for their trading. Whether it is an article or a free Webinar, a piece of research or unique knowledge and information that  cannot be found elsewhere, I strive to educate my followers!

And now I am extending this knowledge and practice to my collaborators, too. These are professionals who typically do not have any practical exposure to trading: an ideal situation. In fact this is the best possible mindset and environment to “grow” the right set of beliefs that can make a person successful in trading. I will talk more about this important aspect later on in this article.

I therefore agreed to teach them successful Forex trading. My followers know that my approach is very practical, to the point and oriented towards effective and tangible trading results.

In my introduction to trading I have talked to my two new students about the three pillars of successful Forex trading, which are:
– Trading method
– Risk & Money Management
– Psychology of the Markets and of the Trader

I have also explained in more detail the Pillars and differentiated Risk from Money management, as well as the Market Psychology from the Trader psychology. Here are some definitions you might find helpful; and notes you want to keep in mind:

Trading method: is the set of rules the trader must follow to come up with a trading plan (entry, stop-loss and profits target price levels, at least, but there are more) that has a high probability of reaching the profit targets, and a low probability of hitting the stop-loss.
Generally, the less discretion in the trading system the less experienced the trader has to be in order to be successful.

Note: I still see way too many trading methods using lots of indicators and ‘traditional’ technical analysis. When I see that, I always think about how difficult is to reconcile the different readings offered by each indicator. Less is more in trading. The more indicators and the more discretion you have to put into trading decisions, it just gets more difficult for the non-experienced trader to “get it” and make recommendations actionable.

This is the main reason why a lot of trading “gurus” who are successful traders are not able to effectively transfer their skills to their students. Their method is way too discretionary and, often based on certain fixed notions about “how the market works”.

Note: If you are asking yourself whether traditional technical analysis is able to capture the fundamental ways the market works, my answer is a loud and clear “No!”. And I will be able to demonstrate and talk more on this in a future Webinar on FXStreet.com.

Till then stay tuned. Our topic for tomorrrow will be another interesting one: Risk Management.

Have a great trading week.

Giuseppe, ~FibStalker

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