The topic covered in this article is one of most important lessons you'll ever learn when starting to trade the Forex market (or any other trading entity). It is called The Cycle of Doom.
Once you have an understanding of what the Cycle of Doom is, you can then start to avoid falling into it. In this blog, I'm going to explain exactly what the Cycle of Doom is and I will show you six simple steps that you can put into your roadmap to becoming a consistently profitable trader.
This blog will completely change the way you think about Forex! It's going to save you a lot of time. It will save you a lot of money, not only lost in the markets but also lost on all those overpriced trading courses and webinars.
Sounds exciting? Let’s get started!
What is The Cycle of Doom?
When you start trading, you need to have a strategy. A profitable strategy.
So what is a strategy?
A strategy is a series of rules or criteria that tells you when to buy and sell. You can develop one yourself or you can buy one off the shelf. Either way, it is a good idea to have a profitable trading strategy. Once it’s ready, off you go into the markets and you can start trading away and making money.
It feels great, “I'm now a trader. I'm going to tell my boss to go and jump in the lake.”
But with any strategy, no matter where you get it from, you will at some point hit a losing streak.
Everybody does. Nobody likes it. Losing doesn't feel comfortable.
After all, we didn't come into trading to give money back to the market.
That’s why we've got to do something about it. So what do we do? We tweak the strategy.
We put in some extra criteria here and there and now we certainly can't lose.
What happens next? You hit that profitable streak and you start making money again. You're now an established trader. You've now got the best, most optimised strategy out there.
But wait… Then you start losing again. You start tweaking. You put in an RSI indicator or a MACD or a Stochastic. Surely you can't lose if you put in a Stochastic.
Wrong! There goes a losing streak again…..
Every time you go one step forward, you take two steps back. Your strategy is clearly not working.
So off you go to find another educator, find another course, another strategy to waste your money on…
You put these in place and you start making money and then that strategy starts to lose. You start tweaking and you end up in this Cycle of Doom, hopping between strategies and adding new criteria.
It’s safe to say you’re stuck in the Cycle of Doom. And that my friend, causes the downfall of most traders.
I'm now going to show you six steps you can put it into a roadmap to avoid you falling into this chaotic Cycle of Doom. If you can follow these points, it will give you a half a chance to become a consistently profitable trader.
So let’s get started.
1. Realistic Expectations
People come into the market with the wrong expectations because they're expecting something more than the market can give them. And that's why they fall into The Cycle of Doom.
People often ask me, “What should I be looking to achieve on my Forex account? Can I turn $500 into $10,000? Can I turn a thousand dollars into a $10,000 trading account?”
No. Simple as that.
4% – 5% monthly is a good return on your investment.
5% on $500 is about $25. Most people can't live on $25 a month.
Does that mean you shouldn't be trading? Absolutely not. You can still grow a $500 trading account prove to others that you can trade. And there are other avenues you can go down but be realistic in your expectations.
If you've watched all those videos about the Lamborghini's and guys laying on their beds of all these $$$, thinking that's what you want, that is not real. And if you're trying to achieve that, you are going to fall into that Cycle of Doom.
2. Strategy Selection
You need a strategy. You can develop your own or check out different strategies online. You can cannibalise these, use parts of these, but the point is to get a profitable trading strategy. If you want to read about the worst trading strategies, please click here.
Once you've got a profitable trading strategy, you need to backtest. Backtesting isn't just saying, “Oh, this is profitable” but knowing your strategy and the metrics of a strategy.
Why is that so important? Well, because when you hit that losing streak, you're not perturbed. You're not going to fall into that Cycle of Doom because you've seen that losing streak happen in your backtesting results.
You know your strategy is expected to have this losing streak, so you're not going to start tweaking it. It gives you much more confidence when you're trading your strategy when you know what to expect before it happens.
4. Trade Challenge
This step is very important. Let's assume you've got your realistic expectations. You've got your strategy. You've sorted out your strategy and you've run it through some vigorous backtesting. It's now time to put this strategy to the test with real forward-looking data. I challenge you to trade the strategy that you've written down on a note paper, with a checklist and you start to trade that on a demo environment
I'm a firm believer that you should be trading demo first to test your mental resolve, to test your discipline. People say, “Well if you're trading demo, it's not real money. You should have some skin in the game to make the emotions more real.”
Well, my attitude is, If you haven't got the mental ability to treat a demo account with real respect, that this is something that you want to take seriously in life if you haven't got the mental ability to treat it with respect and the discipline, you ain't going to make money in the real market when it comes to emotions as well. Demo all day for me.
Trading is all about probability. It is all about getting an edge and letting that edge play out over time.
Professional traders don't think in terms of one particular trade, “Is this trade going to make me or break me?”
They look at the number of trades over the course of a month, six months, a year, letting their edge play out over time.
6. Start Live Trading
Start Live trading in a real live environment with low leverage. What do I mean by low leverage? A lot of traders fall into The Cycle of Doom because they're over-leveraging. They're taking on too much risk. But too much risk causes too much emotion. If you've got realistic expectations, you're using low leverage and you've followed all other points highlighted on this roadmap, you're giving yourself a half a chance. Chances are you won't fall into that Cycle of Doom.
So there you have it.
Those are the six key pointers that if you go off will hold you in good stead on your road to success to become a consistently profitable trader. You don't need to be spending tens of thousands on trading courses, hopping between mentors and so forth. Just follow those six key points and you will be doing just fine.
Don’t forget to let me know how you get on in the comments section below! Happy trading and good luck.