Trading Psychology · 2023-09-06

The Edge in Forex Trading That Not Every Trader Knows — Part 2

Continuing the content of the previous part, we consider finding a competitive edge in Forex trading.

Link to the Part 1 article: The Edge in Forex Trading Part 1

To know what your edge is takes a lot of time, effort and careful research.

Added to that is experimenting many times and making mistakes. After each such time we will draw many lessons for ourselves. We only need to have one small edge, and maintain it for a long enough time to earn a profit.

My perspective on the trading edge

I want to share with you how I think about my edge in the forex market. Perhaps these ideas will give you a different perspective on trading. At present, these edges are true for me personally. And I am still digging deeper in my thinking about them to take advantage of them when participating in trading.

First, I see that I myself have the following things:

• My starting point is not the financial field and my family also has no one who has participated in this field before.
• I taught myself about trading to find opportunities to increase my income and get rich. So I was not formally educated in trading and investing.
• There are many people in the world participating in the market together; they are smart and in terms of knowledge are all better than me. And another thing is that my capital is not large.

You see, I have many weaknesses when participating in the Forex market. A market where the daily trading volume reaches trillions of USD. And basically I do not have any edge at all.

But I also say that we should take advantage of our weaknesses to turn them into edges. We will analyse this issue in greater depth.

Turning weaknesses into your edge

I am an outsider participating in the financial market and have not gone through any school. Although I have a second degree in business administration, it does not help when participating in the financial field either. Therefore, I chose to focus on technical analysis instead of fundamental analysis, simply because I find it easier to approach.

Not everyone is born able to access trading in the right way

As an amateur trader, not a professional trader who makes a living from trading, I do not have to bear the pressure of making a living when participating in the market. That means if there is no suitable signal, I also do not need to participate in all the fluctuations of the market.

I have a full-time job, so therefore my trading time is in the evening. That is a wonderful timeframe for trading in the Forex market. And I will focus maximally for only 1-2 hours to trade. Instead of having to trade all day and for a long time, which makes you lose focus and be extremely stressed.

When you devote all of your concentration in a short period of time it will be much more effective. I will fight other traders when they are tired. And I still keep good concentration and spirit.

You should focus on a single currency pair only

Because I have little time to trade, I only focus on 1 single currency pair, GU (Pound – US Dollar), and recently I switched to the USDJPY pair. The reason is that it has many good opportunities to enter trades in the evening. And another reason is that if I only focus on 1 currency pair, in the long term I will do better.

Just like Bruce Lee's saying: I do not fear the man who has practised 1,000 kicks, I only fear the man who has practised 1 kick 1,000 times. That means if I trade 1 currency pair long enough it will be a very powerful weapon. And I only focus on 1 chart, observing and sitting waiting for an opportunity. Instead of constantly switching between different charts, which will make my mind lose focus and be effective at a very low level. Observing many charts will not be good. That makes us flooded with too much information and that is not good for decision-making.

I focus on technical analysis and I have had time to research many different trading methods. From supply and demand, price action, candle patterns, Ichimoku… and using a great many indicators. Above all, I also had time to write a few automated trading robots myself. But the ultimate nature of all indicators is that they take data from price. Therefore, I focus on analysing price more and choose to go with the stronger side in the market.

My trading method

Within the scope of this article, I can describe it briefly as follows:

It is based on an idea from a story like this: The cheetah is the fastest predatory species in the world, but it can spend hours or days hiding in the bushes observing its prey. It will wait for a thin, weak, even limping antelope. Only then, when there is no chance for the prey to escape, will it strike. Professional trading is the same.

And based on Warren Buffett's idea: I do not try to jump over a bar more than two metres high; I look around and look for a bar about 20 cm high to step over.

Applying it to my trading work, I will consider what the current trend is. It can be up or down, it does not matter. What is important is to determine whether the buying side or the selling side is prevailing. There are people who will go against the trend to create pullback waves. I will go to a lower timeframe to observe; when the pullback trend reaches important support or resistance zones and at the same time its momentum weakens, it is like a weak and limping antelope. I will wait for a few reversal patterns to appear here, then immediately enter a trade.

However, these things do not guarantee that I will certainly win. Because you know, when an antelope is cornered, it may resist strongly. In the market it is the same; people often call those stop-loss-hunting candles. Therefore, to protect myself, I will place the stop loss where price is least likely to reach. Or when price goes to my stop loss it means I was wrong and I completely accept that. Because that always happens in the market.

And what about taking profit? I will place the take profit where price can most easily reach. I do not try to go really far along with a trend because it very rarely can happen. And I do not have time to do that because I am a short-term trader. Anything can happen in the market and I do not want to stay in it for long. I want to spend time standing outside observing, then jump in and exit quickly. The longer I stay in it, the more I lose my edges.

Capital management is an important part of the edge

One weakness of mine is that my capital is much smaller than professional traders and investment funds. I can give an example like this: the capital of professional traders is quite large. They can start with 50-100 thousand dollars. And simply, each month they only need to create a profit of 10% on the capital; it will be 5-10 thousand USD. With that amount of money they can have a comfortable life in Vietnam.

But for individual investors just stepping into the market, you can start with capital of 1000 or 2000 USD. Suppose we can create a monthly profit of 10% like professional traders. Then it is only somewhere around 100-200 USD. With this amount of money, it will disappoint many of you. Our expectation is that we must earn 1000-2000 dollars on our capital. It means you have to earn 100-200% profit per month. That is very hard to happen, like you trying to jump over a 2-metre bar. Professional traders, meanwhile, only need to find a 10 cm bar and gently step over it.

However, you can combine trading with your own account and with a few funded accounts. This helps you be able to earn a larger amount of money with lower risk.

Besides my personal account, I also have a few accounts from firms

Therefore, when we first start researching trading and investing, we should not expect to double or triple our account in a short time. That very expectation will kill us and make us sink deep into losses and mental pressure. So when the account is small, let us take advantage of it to learn how to trade. If we lose, we can start again easily.

The harsh truth is that it will take many years of study and training before you can earn a regular and consistent profit. I want to emphasise that is regular and consistent profit, meaning maintaining the profit level for a long enough time. Take advantage of it, because we are small, so we are not afraid of being wrong and stumbling.

Do not create additional pressure for trading

And for those of you who have a full-time job and are researching trading and investing, I sincerely advise you to maintain your job; that job will help you a lot in the process of investing and trading. Because when you are not put under pressure to trade to make money, you can spend time waiting for a good opportunity to enter a trade. Traders who make a living are under great pressure to have to earn a profit, but you are not. The pressure you have is unrealistic expectations about this trading and investing job.

Take off that pressure and it will help you go in the right direction on the journey to find freedom from this job.

A few heartfelt words about the job of trading

The above is my personal perspectives after many years participating in the Forex and stock markets. And I want to share those ideas with you. To find your edges, please spend a little time away from everything so you can focus on thinking about it. That is really very important, because it will supplement the shortcomings or weak points in your trading method.

I notice there are many people making topics about trading methods, trade entry methods or trading tricks to make money in the market…. That content will attract many interested people because it targets human expectations. I myself am no exception: when I first participated in the financial market I was often attracted by content about trading methods and price patterns giving a high win rate.

I find that building articles with that content is not a strength of mine. And I notice very few people share knowledge and experience about beliefs or psychology and capital management when participating in the financial market. While previously I spent a lot of time researching and studying it, I will have many advantages when developing this content.

And above all, I really find it very necessary for each of us personally when participating in the financial market, especially in the Forex market.

Thank you very much for following to the end of the article; I hope you have a different perspective on the job of trading. Please comment if you have any questions or want me to produce content you are interested in. I will listen and answer.

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