Monthly Archives: July 2010

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After writing my last blog post, Michelle suggested the next one be on the seven deadly sins of Forex trading. I don't know whether she was joking or not, but I decided to go with it anyway. The list below is the seven which came to mind as the ones most likely to do real damage to a trader.

  1. Thinking that Forex trading is a get rich quick scheme. They say 90% or more of new traders fail. I don't know if that's the actual number, but it certainly is a high figure and a big part of the reason for that is unreasonable expectations coming in. Forex trading is promoted to many as an easy way to make lots of money. While that can eventually be the case, it tends to take a lot of hard work and a fair amount of time to reach that point. Those who think they'll be able to jump right in and have the profits rolling into their account from Day 1 get slapped in the face with reality pretty quickly, and for many it is the end of their trading – whether they've lost a lot of money or not. Successful trading is a long-term thing (see Taking the Trading Long-Term View), and many folks just are not prepared for that.
  2. Not effectively using demo trading. I will be the first to tell you to get into real money trading as quickly as possible, but taking the time to do proper demo trading is important. There are two purposes to demo trading. The first is to familiarize yourself with the platform you're using and, if you're a real newbie, with the basics of prices, P&L, and all that. The second is to work through the trading system development process to know that you have a workable methodology you can employ to good effect. Of course demo trading is not the same as live trading, as just about any experienced trader will tell you. If, however, you cannot profit in the demo environment, you don't have a lot of hope for profitable live trading.
  3. Failing to pay attention to detail. Making stupid, simple mistakes will cost you money. Yes, sometimes you mess up an order entry and it works to your advantage. Most of the time, though, when you make a mistake it hurts. I'm talking about totally avoidable mistakes here, like forgetting to put in a stop, or putting in the wrong price for an order, or buying rather than selling. It's basic attention to detail. There's really no excuse.
  4. Not thinking through your approach to the market. A lot of folks jump right into the market with two feet without taking any time to think through what they're doing. This is something which hit home with me when my book, The Essentials of Trading, came out. I wrote it for folks just getting into the markets, but found I was hearing also from many who'd been in the market for a while and found they needed to go back and revisit the foundational elements of their trading because they'd been all over the place in their development. They'd bypassed that aspect of things when they got started. By that I mean they didn't think enough about things like trading timeframe, markets, and personal elements which feed into that what, why, and how they trade.
  5. Getting fixated on your win %. New and developing traders spend WAY too much time thinking about the frequency at which they have profitable trades. I've written on the subject numerous times before (such as here and here), so I won't go off on a long rant. It's a simple question of whether it's more important to you to be right or to make money. For some folks the being right (or at least not being wrong) thing is important to them. They probably shouldn't be traders because trading is about making money. You can have 90% winning trades and lose money just as you could have 10% winning trades and see your account balance growing nicely.
  6. Thinking more about rewards than risks. We trade to achieve positive results, to grow our account balance. As such, it's quite easy to fall into the trap of thinking more about all the pips we can make rather than all the pips we could lose on a given trade. A good trader thinks about both at least equally, and if you listen to some of the elites in the business they indicate a clear focus more on the potential negatives. If you're thinking to yourself "I prefer to be optimistic" then you're being naïve. Trading first and foremost is about making sure you don't expose yourself to the chance of getting taken out of the game because of big losses. After all, you cannot make gains if you can no longer trade. Traders with an "optimistic" mindset have a tendency to take on too much risk.
  7. Getting too excited. Whether you are having a good run of success or coming off a bad performance, if you're chomping at the bit to get into that next trade you need to take a few deep breaths. This sort of excited state can lead to very bad decision-making. I'm talking things like taking trades which don't meet your system's criteria, trading too big, or trading more markets than is good for you. Some folks can get away with trading while agitated. Most, of us, though, don't readily notice how our emotional state feeds into our trading choices. Brett Steenbarger has written some good stuff on the subject.

Now, I'm sure others will have their own thoughts on the seven deadly sins of Forex trading. What about you? What's your list?

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

The gang here at Currensee has decided to start a weekly post called "How can I help?" What is "How can I help?" all about? Well, it's about our members! It's a weekly post touching on a topic our members are asking the support team about. It's our goal to help you understand Currensee and get the most value out of the platform. We encourage our users to ask questions, be inquisitive, and be honest about what does or doesn't make sense to them.

I'm Marcie Smith - the first words out of my mouth are always "how can I help?" And now I leave you with this week's topic: My trades aren't showing, HELP!

So you say your trades aren't posting correctly. Not a problem. Let's figure this out together.

  • First, are you trading MT4? Yes? Awesome.
  • Second, is it installed on all computers that you're trading on? Yes? Also good news.

Here's the deal. Remember when you installed the Currensee Bridge/EA? Remember when you installed it on one of your charts? Here comes the question, is that chart running?

Did you answer, no? (it's OK you can admit it) Here's the thing, if the chart is running your data will be sent to Currensee, but if it's not running we won't get the data and you'll end up out of sync.

We know that sharing your trades or at least seeing your trades in your positions table and your profile performance is important to you, but the key to that is making sure that the secure universal bridge is running. Other questions about the EA? Let us know, we're happy to help.

Questions about anything else? Email us at support@currensee.com and we'll be sure to answer promptly or even feature your question in next week's "This week in support" post. Happy Trading!

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

1 Comment

Earlier today our VP of Marketing Michelle Heath wrote a nice post about the Old Spice guy. As promised we have created our own rebuttal to his Orli video. Enjoy!

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

1 Comment

In a world where the continuous stream of economic and fundamental statistics swamps even the most hardened trader, it’s important to maintain some sort of structure around how you can manage your positions through these numbers and not be caught out by short term spikes of volatility. It also allows you to have a game plan about how you can position yourself so that you’re not paralyzed into inactivity.

Thursday was a classic example of this and created trends that were reversed or continued as each statistic hit. The only real constant was foreign exchange where the dollar weakened or held station as each new story broke. This lack of volatility in relationship to bonds and equities was a good indication of the dollar’s continued inherent weakness that I have touched on in last week's post as well as the post the week prior.

The day started at 3am with the Chinese economic numbers, which caused a spike in the E-mini and a fall in the dollar. The numbers were not as bad as feared. By the morning all eyes were on the Spanish bond auction, which was well received. Stocks rallied, bonds fell slightly, and the dollar had already weakened further before the number.

Next were JP Morgan’s results, which at first glance were startling good. However, a look below the surface saw that some 36 cents of gain was due to lowering their reserves against bad debts. I perceived this to be a somewhat dubious one-off adjustment that, if I’m right on housing as I have been, could well be reversed in the quarters ahead. stocks spiked again, but reality on the JP Morgan stats caused a drift back, and bonds collapsed far more than had been there reaction to Spain. A second bond negative story was what got the trend moving.

However, by 1.30 there was claims data and the NY Fed and PPI. The market focused on the most up-to-date figure on the Fed as equities went lower and the dollar fell again. The bond bounce was muted.  Industrial production for June was slightly better and caused a brief equity rally. The importance of analyzing and understanding stats was significant in the same way for JP Morgan, in that the rise was due to utilities increasing, which was due to the heat wave. That is an artificial expansion.

Finally, the Philly Fed arrived, which was weak as well, and now equities could slide aggressively until (in classic technical fashion) they filled the gap from Monday. This caused the bond market to erase all its losses and the U.S. bond market to rally to new highs. The dollar had already exhausted its ability to trend having been under pressure all day. Also, rumors of the Goldman’s settlement saw all the equity losses erased, but it was too late in the day to influence currencies or bonds in any meaningful fashion. In fact bonds just held there station.

So how do you ride the waves of stories? This depends on what time zone you are trading in. European traders are at an advantage because they have the benefit of riding through all the major statistics, which allows for two major trends per day. American FX traders normally just have one, but equity traders can still get two (as occurred on Thursday). They could end up being all one big trend or a major reversal of the morning move.

Obviously the first thing is to have a firm grip on all the likely market moving events. In order to prevent paralysis, signals must be taken as normal and stops entered. If the statistic moves your way trailing stops can then be applied and the time frame this is applied to is critical. My statistical analysis shows that trends typically last between 15 to 20 bars before some sort of corrective phase. This means that if you want to ride the morning and afternoon trends, a 15 minute chart is the correct one. If there is (as on Thursday) a sequence of tighter times between statistics, this must lower down to 5 minutes.

There are two basic ways to ride the trend (But first, just to use a simple 3 period moving average moved one bar forward so its value is fixed on the current bar. When it changes direction or price closes back in the opposite direction of the average you exit. This is the tightest form of trail you can use.):

  1. For those who wish to track price action, the use of simple fractals or swing points can be used. In a downtrend as soon a price closes above a bar that was the highest point as the middle bar within a 5 bar patterns, you exit.
  2. For those that are the most risk averse, you can use a 3 bar pattern, but this method is unlikely to ride the entire trend. In an uptrend it is simply the opposite, so you monitor the lowest middle bar within a five bar pattern. With this method, when a market such as the dollar simply trends throughout day this will normally capture the entire move.

Finally, remember that when a trend day occurs the most common occurrence is that the close will be very near to the absolute high or low of the day.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

A big thank you goes out to Casey Stubbs from Winners Edge Trading. Our webinar on Wednesday evening was one of our most successful yet. Casey walked us through the ins and outs of Simple Moving Averages. Watch the full webinar below.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

2 Comments

If you haven't heard about the Old Spice video campaigns you must be either living under a rock or rendered speechless by Isaiah Mustafa's six-pack, towel wearing bod. Some say he's a god. I say the campaign is brilliant (and happen to concur with the god-like references). Weiden + Kennedy, P&G's ad agency, pulled together one of the most integrated and truly buzz worthy social media campaigns of 2010. Their timeliness, randomness, and honest-to-goodness humor has put Old Spice on the map in terms of social media. Instead of us gushing about it, feel free to read the great articles by Mashable and Fast Company. But of course our $0.02 anyway.

As I thought about what worked so well in this campaign, I kept thinking about the 4Ps of marketing and how, in this new social media world, we need a new P. Sure, every successful marketing mix has something to do with product, price, placement and promotion. But what they don't teach you is what we learned this week about a healthy dash of social media and a heaping helping of a hot guy in a towel.

As marketers, we spend most of our time cooking up clever ways to share our brand with the people we think are most interested - a.k.a. our target audience. Whether it's chocolates, cars, ShamWows or Forex - there's a buyer for what we're selling. They just don't know it yet.

Brands have to work harder than ever to earn our attention. We've all heard the urban legend of the viral video that refused to produce the golden YouTube views and its silent death at the hands of its maker. Tragic. We've all seen the Facebook pages that vie for us to like them only to disappoint us and the Twitter streams that offer nothing of value in 140 characters or less. Sigh.

The great thing about the Old Spice campaign is that it took something that's been around for decades (my grandpa wore it for years) and made it new by starting with fans and followers. It is what every good campaign should do - start with the people and let them build it. It's something they don't teach you in school but something I admire in practice. IMHO, People should be the 5th P. Think about it. Social media is all about People. It's about engaging People in conversations, creating new ideas, forming and sharing opinions and connecting. These are People who may or may not like your brand. But, they know other People. And when they see and hear cool stuff in action, they tell them.

Hats off to W+K for focusing on the People and to Old Spice taking a risk and putting a hot guy in a towel (seriously, thank you.) As a social network, we here at Currensee are empowered by great examples like this one and, because we are a little goofy and love social media, we decided to ask (and by ask I mean, make) one of our interns, appropriately named Orli, respond to one of the commercials. Watch the original commercial here. Our response will be posted momentarily. Happy trading, social media lovers.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

1 Comment

I’ve visited a few sites that claim they don’t charge any money and only increase the spread by a mere 1 pip, which doesn’t even make a difference at the end of the day. Zulutrade is an example of such a site and I though I’d take the time to try and explain to people how much is 1 pip.

I took one of the leading signal providers on Zulutrade. The photos shows one of their top 20 strategies there. I looked at the summary of that strategy.

As you can see, this strategy made 296 pips and has executed 141 trades. This means that if you pay 1 pip for every trade, you would have made only 155 pips on this strategy (296 minus the 141 pips that would have paid for per trade). That is about 50% of the reported performance. So in this specific example, 1 pip equates to 50% of the gain you could have made. I would say that’s pretty expensive, not to mention the same 144 pips would have been paid if the strategy had lost you money.

The big problem of charging traders with a spread increase is that you are not only defining a pricing structure that is not properly defined, but you are also creating a motivation of the signal provider to trade more often as opposed to incentivize them for successful (and profitable) trading.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

9 Comments

I’ve been hearing a lot of comments about different sites that enable traders to display their performance to the entire world. The comments were mostly claiming that these sites have unrealistic performance, and that the calculations are not even close to being right.

I decided to check for myself, and have connected a single real account to both Currensee and myfxbook to measure for myself just how far off the performance is. The reason I chose myfxbook is not to prove anything against them – as all the other sites seem to calculate performance in a similar way – but because myfxbook seemed to have the most complaints against them for inaccuracy. This is probably due to the fact that a lot of amateur traders and non-professional money managers use them.

The first picture shows the performance as recorded by myfxbook; the second is the performance as recorded by Currensee on the same account.

Performance on myfxbook

Talk about a difference in performance! I was very surprises to see how myfxbook is displaying a twisted version of reality, making this account actually look really good. Now I know why non-professional money managers use it.
Performance on Currensee

Here is how Currensee (and the rest of the professional world) calculates performance, and why performance shown on an amateur site is misleading:

Account Balance vs. Account Equity
Currensee receives its price feed from hundreds of brokers, and we compare the open positions of any user at any given point of time to the open prices that their broker has for the instrument they are currently trading. By doing that we prevent traders from logging their profits while holding large losing positions for a long time until the market changes. I couldn’t find any site that does what we do. The others, myfxbook included, log the closed positions against the account balance and completely disregard any open positions. The risk in doing that is that, as you can see, performance can be presented in a much more attractive (and wrong!) way, making it impossible for any trader or investor without the proper tools to evaluate the actual performance.

Measuring Risk 
Most amateur performance sites measure risk as either the max drawdown or the max losing trade. We measure three parameters for risk:

  1. Daily Standard Deviation – This is for us the most important measurement, and represents that volatility of the performance. In other words, does this trader advance his account in a gradual and consistent manner, or is the ride choppy and risky?
  2. Percent Days Losing – We measure the percent of the days the account is down to give fellow Currensee members an indication of the short- and long-term risk in the account. Having a high percentage of losing days usually means that the account would achieve performance on a long-term basis, while having a low percentage of losing days usually means that the account growth would be more gradual and consistent.
  3. Max Drawdown – Like others, we measure the max drawdown in the account – the only difference is that we measure it on the equity and not on the balance (See section "Account Balance vs. Account Equity" above).

Displaying a Risk Adjusted Return Parameter
Currensee uses a unique algorithm that measure a trader’s performance and risk, and displays a single number that evaluates the trader. Lately Tradency has replicated the concept we have been advocating for more than 6 months, calling their version the T-Score. Like Orli wrote, we are always flattered by others copying our concepts.

Currensee’s TAI (Trade Authority Index) takes the following parameters into account:

  • Performance parameters, including return (based on equity, not balance),
  • History in the account,
  • Number of closed positions, and
  • Volume traded in the account and the consistency of the trader (consistency is calculated based on deviation from a strategy).

Risk parameters include:

  • Daily standard deviation (or as we call it, daily volatility),
  • Max drawdown, and
  • Percent days losing.

We take all these numbers, crunch them together, and give you who has the highest return for the lowest risk.

As you may know, I was also shocked to see the performance of some of the traders on myfxbook, and now that I know this is fake, I am relieved. I hope you are too.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

Tomorrow, July 14 at 4:30PM EST, join Currensee and Winner's Edge Trader Casey Stubbs for a special live webinar about how to find support and resistance levels using Simple Moving Averages.

Sign up here.

In this practical and results-oriented session for traders of all levels, Stubbs will discuss setting realistic trading goals and suitable risk and profit targets and will show you:

  • How to set up the moving averages on your charts
  • How to find support and resistance levels with moving averages
  • How to use moving averages to find good trade entry points

In addition, all attendees will get a special Currensee Marketplace offer to try the Winners Edge Trading Room with Casey Stubbs and Michael Storm for a special price.

Sign up here.

About Casey Stubbs:
Casey is the founder of Winners Edge Trading and is the main contributor, with his specialty being the EUR/USD trade setup. He is a founding member of Forex Factory News and continues to bring information to new and struggling Forex traders. He is working to help traders daily.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

2 Comments

Last week I sent an inquiry to readers of my New Trader FAQs book asking them for feedback and suggestions for additional questions that could be added to future editions of the text. One of the readers sent in a question I thought was a really good one. It was "What was it that turned you into a profitable trader?"

This, of course, is going to vary from trader to trader, so you're likely to get a different answer if you ask someone else, but let me share with you what I think was the real turning point in my trading. This wasn't some flip-the-switch sort of thing where I was always losing and then I was always winning, but it definitely laid the foundation for becoming a much better trader. It was doing my own analysis and not listening to others.

When I first got into the markets I was very often influenced by the opinions of others. For example, I got a few ideas from the stock broker who taught one of the courses I took in my early college years. Others came from things I read or heard from different sources. At this point, better than 20 years later, it's hard to recall the specifics but I know that while I was doing a lot of research on indicators and trading systems and whatnot, I wasn't producing much of my own individual analysis to come up with ideas.

That started to change with one specific trade. It was a position in NIKKEI put warrants. Think of it as something like being long on a short ETF for the NIKKEI (though technically it wasn't quite the same). This was 1990 when the index was trading up above 30,000. ETFs weren't anywhere close to being what they are today, and I wasn't in a position to trade the futures market, so these put warrants were the only real option for me at the time. I can't recall the specifics, but I know chart analysis was involved. I got long the put warrants at somewhere in the 5s.

Now, if you know your NIKKEI history you might be thinking, "You got short when it was above 30,000!? You must have made a fortune!" While it was definitely, by far, the best trade I'd ever made to that point in terms of return, it was a bit of a failure in terms of getting out. I bailed much too early, selling the put warrants somewhere in the 9s. They would eventually go above 25. I still cringe thinking about it. L

But the mistake of getting out too early is part of my point in how doing my own analysis and trading made a big difference. If you rely on someone else to tell you what to do you miss the opportunity to learn from both your successes and your failures. If that was a trade where I had just bought when someone told me to do so and exited when they said so, I would have lost the opportunity to get positive feedback on my initial analysis and negative feedback on my early exit.

Now, this is not me saying you shouldn't follow what other people do. Just do it the right way. If you want to develop as a trader (and not just let someone else effectively manage your money) then when you track another trader's actions you should work to understand their analysis and justifications for what they're doing. That way you can learn what works, what doesn't, and how a strategy works in varying market conditions.

What about you? What's been the turning point in your trading so far?

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.