I took an intro class and talked to several Forex traders, including at least 2 people I know personally who have made over $1M in Forex trading. So, as a client asked me on the phone a while back, “Erica, I read your blog and I just wanted to know…is Forex trading a good way to make money?” My answer is YES…but with some major caveats.

After studying Forex for a while and doing some trading myself (although unfortunately never doing real money trading, as the trading platform company I was using went bankrupt), I came to the conclusion that you can make serious money with it. 2005 was an interesting year to trade — this year would have been even better. Let’s see, bet that the dollar will lose value, go long, and you would have made a huge return this year!

One myth I would like to bust about trading is what some tell you: “Oh, it will only take 15 minutes a day to trade.” Well, right, that’s true — after you’ve spent a lot of time learning how to trade, picking a trading platform, learning the intricacies of your particular trading platform, and reading the news. The trade ramp-up period is a good month or two of reading and studying at least a couple of hours a day. I spend another hour a day reading economic news, and mostly from sources that I hand-pick, not general news sites.

What does it take, then, to be a successful trader? I don’t think a successful trader is necessarily the crazy-stressed type of person you see on TV or in the movies. (But then again, most geeks don’t wear pocket protectors either! ) I’ve thought about this a lot, talked to others who are successful, and talked to many who have not been successful, and I’ve picked up some interesting patterns. Here are my 3 cornerstones of successful traders:

1) Successful traders love to read. This is the #1 trait I’ve seen in successful traders that doesn’t really show up in unsuccessful traders. You have to have a passion for reading. Why? Because there is so much information out there that you have to sift through. News sites, newspapers, blogs, trading books, economics books, pundits, trading newsletters, trading forums…the list goes on, and on, and on. Don’t be intimidated, though. If you love to read, and enjoy learning new things, you have two of the basic skills it takes to be a good trader.

2) Successful traders are quick to discern patterns and cut through the bullshit. If you’re interested in trading, you’ve probably read the old adage that good traders don’t trade with their emotions. I’d take this a step farther. It’s not just about cutting out emotions, although that is a part. It’s about being able to sniff out patterns and realize why other people are saying what they are. In other words, to be a good trader is to be somewhat of a psychologist. If someone is saying the real estate market can only go up, who are they? What do they have invested? I use the real estate market as an example since I follow it as a hobby and I’m amazed at the amount of crap that gets spewed by people who want to sell you a house or a mortgage. Of course the market can only go up from here, because if it goes down, you won’t want to buy a house, and they won’t make any money!

Mainstream news stories often try to offer a “balanced” viewpoint, which stinks to high heaven to me. On one side you have an economist who works for a company that doesn’t care much where the market goes, because they make money either way, and he’s saying this country is headed for a recession. On the other side you’ve got someone from a home mortgage company saying no, of course the economy is just fine, and please won’t you spend that money, because some of it might go into his pocket? This is ridiculous and you, as a trader, have to be on the lookout for biased news sources. I strongly advise you to stay away from the Reuters and Associated Press articles as a trader and dig deeper. I will write another blog entry on this that goes into more detail, but for now, just be aware of the bias that goes into “balanced” opinions in the mainstream news. Do a web search on the people in the article. Who do they work for? What incentive do they have to say what they do? Take this into consideration when you make your trades.

3) Successful traders are quick to admit they’re wrong, and equally quick to do the opposite of what most people would. Keeping your emotions out of trading is good, yes, but equally important is keeping your ego out of the trade. Set your stop losses correctly. If you’re in a losing trade, don’t try to save face or convince yourself it’ll turn around. There are always winning trades to be made. Get out, cut your losses, and move on.

On the other hand, I also see traders quick to succumb to groupthink. For instance, last week a trading newsletter I subscribe to recommended buying a November option put on Standard & Poor’s Depository Receipts (traded as SPY.) To translate that to plain English, the newsletter was recommending I buy an option to sell SPY shares at a certain price (that’s what a “put” is), which means he thought SPY was going down. “November” just means those options to sell the shares will expire this month, so the newsletter writer also thought SPY was going to head down in a major way soon. There was no doubt in my mind that this was a risky play. He’s saying the S&P Depository Receipts, an index made up of major names like Microsoft and Bank of America, is going to go down in a major way. Aren’t we in a market that’s going up pretty quickly?

Nevertheless, I executed the trade in my trading software, and lo and behold, the option price doubled in the past week. I picked up about $400, and I’m still in the trade, so it could get better. The most I could have lost was about $400, so it was a low-risk play.

Sometimes betting against everyone else is the right thing to do — as it was last week, when the market was volatile based on conflicting reports of better jobs (a small positive) and the Fed saying they didn’t want to lower interest rates again (a huge negative.) But you have to know why people are betting the way they are. Then, when you think market sentiment has gone too far in one direction, you can make a lot of money going the opposite way. It’s tough to time the market, but don’t let anyone tell you you can’t do it. The market, ultimately, is made up of people — and people tend to follow other people. Watch the market, read the economists’ comments, and make your own decisions. There’s no better test than to figure it out yourself and learn.

The #1 mistake I see people make is to get talked out of the market. I often hear, “It’s impossible — the only companies that make money in the market are huge corporations.” Hogwash! Sometimes big corporations are in trades to hedge their bets, and often they can’t move as quickly and as nimbly as you. Witness the corporations stuck with near-worthless subprime mortgages who can’t sell them because it would set off a firesale chain reaction in the market. Can you beat the market? Only if you think you can, and only if you ignore those who tell you you can’t. If you study, learn, and devote time to it, yes, you can make money…a lot, or a little, and you can start with as little as $200 or so.

I plan to post more about trading in the future. This is an exciting time to trade, and I hope you can get into the market and play. Feel free to post your results or questions here, and I’ll do my best to answer them.

Last night, I dove back into Forex for my 1-week anniversary of trading. Last night felt to me like the first night where I had true confidence in my trading skills, and it showed… I made 14 pips in 2 trades!

There are many different styles of trading, from “day trading” (where you hold open a trade from 1 hour to 72 hours), to “momentum trading” (you “ride the wave” and try to get a lot of pips in a short time), to this goofy little offshoot of trading called “pip sniping”. Pip snipers are the hit-and-run gangsters of trading. Pip snipers “pick off” tiny movements in currency and get 2, 3, 5, or 10 pips in a trade… and they do it as many times a day as necessary to make a ton of money in trading.

After a few days of trading, you definitely find the trading style of the 3 above that you’re most in line with. Day traders will leave trades open overnight and set careful limits and stops to get what they want; momentum traders keep half an eye on the market all day (and often set up SMS alerts when a market hits a certain level); and pip snipers are always ready with the trigger finger, poised on that “buy” or “sell” button. Yeah, I’m a pip sniper! (Actually, I think most traders start out as pip snipers, and then progress to other forms of trading.) There’s something about the adrenaline rush of pip sniping that’s quite addictive. “It’s going up!” you crow excitedly (or in dismay, depending on how you just traded.) “Now it’s going down!” Since the market changes every few seconds, you always have something going on. This is when it’s helpful to have two monitors; you can keep the charts open on the secondary monitor and glance over every few minutes to make sure you have a good feel for what the market is doing.

I’ve pip-sniped 3 pips so far tonight, and I called the market right on the money! I’m going to put up some example charts on makemoneytradingcurrency.com just as soon as I have time to write about how I trade.

As a side note, I started with $5000 in my demo account (demo account = not real money), and I now have $5025. In my first week, I’ve made 17 trades, of which 10 have gained me pips. That’s a 58.8% average, which is pretty good for week #1! I’ll keep these statistics updated as I continue trading.

I have been making several trades in the Forex market, mostly good. I am finding that it is definitely possible to make a consistent 10 pips a day. The chat rooms have proved helpful too; the 11PM moderated chat is a voice-capable chat, so it’s neat to be able to hear the excitement as the market starts moving.

The two classic emotions to avoid in Forex are fear (“I don’t know if I want to jump in yet”, even though the signals are telling you it’s a good time to get in), and greed (“I’m going to stay in a bit longer and try to grab some more pips”, even though the market signs are telling you to exit!) A classic example of greed showed up last night during the chat. The moderator advised us to get in on a buy. The market went up about 5 pips and then lost its momentum and couldn’t decide which direction it wanted to go. “That’s a warning sign,” the chat moderator said. “I would advise you to take your profits now” (which means close the trade.) No sooner had he said it than a chat participant jumped in and said “I think I’m going to hold my trade… I’m up 6 right now. I’ll sell if I get down to +3.” In the next minute, the market had gone down 12 pips, wiping out that guy’s profit and putting him in the negative. (Fortunately, I got out right before that happened since I took the moderator’s advice.)

The key thing to remember is that when the market is trending sideways; that is, it isn’t really moving up or down, that there is no science to predict where it’s going to go next. Since the Euro is in a general “up” trend right now, you’re more likely to guess right by buying currency rather than selling. But that’s a risky gamble — as I found out the hard way last night, when I put in a trade and lost about 14 pips because the market was trending sideways and I thought it was going to go up. Lesson learned: Wait for the indicators; don’t get impatient and try to guess where the market is going to go!

The good news is, although I’m down slightly from my $5000 start in my demo account, I’m not down much and I do seem to have the fundamentals of making a good trade. I just have to be patient! (If Forex actually teaches me how to be patient, that will be an amazing accomplishment. Heh!)

I’m going to set some goals for Forex. First of all, if I do double my money every 30 days by making 10 pips a day, I should have over $2 million after 1 year of trading. But I am going to set a much more conservative goal — that way, I don’t feel pressure if I’m not a millionaire on my 1-year Forex anniversary!

Here are the goals I’m setting:
1) Spend at least 30 days in the demo account. Make sure I’m making consistently good trades and am “up” (hopefully pretty far up) over my $5000 start (the $5000 isn’t real money, but you trade on the real market like it is) before even considering putting any of my money into the market.
2) Start with $1000 of my money once I’m really comfortable trading. Go for the 10 pips a day goal. But the real goal is just to have consistently more money in my account every day.
3) Once I’ve hit $5000, pull out money as needed to pay off debt, but continue to keep at least $5000 in my account.

The great thing about Forex is that having $5000 in your account does NOT mean that that $5000 is at risk all the time. In fact, on a single trade, you should only have 5% of your account at risk. That means that the most you’re risking at any given time is $250. By setting your stop losses correctly, you’ll never lose more than $100-$250 on a single trade… but you can make $300 or more on a single trade in a matter of minutes.

4) My goal, at the end of 12 months of real trading, is to have made at least $25,000 in the Forex market. How did I figure this out? Well, I spend about 8-10 hours a week on Forex trading. I could be spending that time doing consulting (programming, repairing computers, etc.) at $50/hour. $50/hr x 10 hours a week x 52 weeks = $26,000. So I figure if I make $25,000 in the Forex market, I’ll be doing at least as well as I would have by doing computer consulting, and Forex is way more interesting for me. Also, I think $1000->$25,000 in 12 months is a worthy investment.

There are my goals… I’ll keep updating as my trades progress and I learn more about the market!

There are two basic things you do when trading: 1) Look at/analyze the charts and 2) Make trades in the trading platform. The charts can be as detailed as you want, from 3 years all the way down to 1 second (which is called a “tick” in trading terminology.) General trend lines tell you where the market is probably heading, and more specific bars or “candles” tell you what the market is doing right now. (I will post some charts in the future, but here is a general idea of what they look like.) These charts update in real-time over the Internet, so it’s pretty exciting to watch the tick chart and have it constantly showing what the market is doing at any given moment.

You decide what you think the market is going to do based on previous data as well as analysis of that data (and the training course walks you through several “telltale signs” of where the market might be going based on reading the charts.) Once you think you know where the market is going, you enter a trade (buy or sell) and set some limits (the amount where you want to get out of the market, having made your profit) and stop losses (if you’re wrong, and the market goes the opposite direction, this will automatically pull you out of the trade so you don’t lose everything.) You trade based on “pips”, which are 1/100 of 1 cent. (That’s right–10,000 pips in a dollar!) The goal, which the training company reinforces, is to make 10 pips per day consistently. If you do that, depending on how much money you have in your account, you will double your money every 30-45 days.

While the training class was going on, I was watching the 1-minute EUR/USD (euro/US dollar) charts. During the middle of the afternoon, it wasn’t doing much. I entered a trade just to test the system and watched it bounce around for a little while. I entered a sell, which means I was expecting the market to go down. Now here is the key — when you enter a trade, you’re automatically down 3 pips. This is called the “spread” and it’s how brokers make their money. So to gain 10 pips in a day, you actually have to gain 13. My first trade wasn’t going anywhere, and I spotted a trend reversal that meant the market was going to go up, so I got out of that trade. I got out at +2, which actually means I made 5, but only 2 counted due to the spread.

I watched the market on and off for the rest of the day, and at one point I noticed a 20-pip jump in 1 minute! Wow, that was huge! Our instructor noticed too. He had some open trades, and he immediately closed them for a nice gain. The market knew it had jumped a little too quickly, and in the next 3 minutes it was back down about 25 pips. I spotted the trend (it was headed back up since the general trend lines had just converged, and the 3 down minutes were actually not where the market was heading as a whole), and quickly jumped in with a buy order. I watched the trend lines take back off, and sure enough, in 9 minutes, I’d gained 10 pips, which was my limit. “Ding!” said my trading software, and automatically closed my trade. Beautiful! A nice 12-pip profit in my first day.

Now, that will not happen every day, and indeed with the demo account I fully intend to play around and make aggressive trades (who cares… it’s not real money anyway.) Before getting into real trading, you are supposed to make 30+ consecutive “good” trades (that is, you gained pips.) For the first 2-3 weeks, I figure I’ll make trades based on “gut feeling” and trend analysis and see how it goes. During that time, I will begin to develop my own system, and within 3-6 months I’ll begin trading with real money. At least, that is the plan. I will continue to update here!

To run it down quickly, I got back Monday, went to a Forex meeting on Tuesday (which was in San Rafael, which is over an hour away from my house, and ended at about 12:30AM), went to movie night on Wednesday (Sideways, which I didn’t like since I am not a 40-something going through a midlife crisis), went out with Bill Ayers to do a sales mentoring session in SF on Thursday night, went with D to Dave & Buster’s on Friday, and went to SuperHappyDevHouse on Saturday. Which brings us to today, and somehow I have survived the week. Leetle zoom has 1400 more miles on him (in 10 days!!) and has had an alignment problem fixed. He is also very dirty, and I have promised to show him some lovin’ by getting him a car wash next week.

Next week is already fully set to be a blur as well. Tomorrow I have my first Forex training. For those of you who don’t know what Forex is, it’s foreign currency (exchange) trading… kind of like day trading, but with currency instead of stocks. I have watched other people make a lot of money with this, and I am excited to embark on this as a hobby that will hopefully make me some money as well. The first training is 8 hours long and is a web class. Then I do some trades, get comfortable with the system, and take the advanced training, which is another 8 hours and which I will probably do next month.

My friends are split on whether I will make any money with foreign currency trading. On one hand, there’s DW, who is completely convinced I’m going to come up short on this, and feels my time could be better spent in other areas. On the opposite extreme, we have two guys (Reggie and Doug; Reggie’s the one in San Rafael and Doug is the one who signed me up) who do the foreign currency trading training, and they’re both multi-millionaires from it. (Ironically, though they are part of the same program, I met them at different times, they didn’t know each other until last weekend, and they have quite different strategies!) Either way, I’ve seen the numbers and I think I can pull this off. You are welcome to take bets on this as well; feel free to comment in this blog. My commitment to DW, and to you, is that I will be blogging all (or at least the vast majority) of my trades throughout time, so in 6 months or a year you all can look back on when I started trading and see exactly what worked and didn’t work. The good news about the online trading class is they give you a demo account, which you can use to trade on the real market but without losing any of your own money. They recommend you trade in the demo account for at least 30 days, but I will probably spend longer in it. As a footnote, Reggie showed me his demo account. With $10,000 invested (that’s $10K of your own money), he traded for 15 days and had $18,000+ at the end of the 15 days. The more interesting news is that he only guessed correctly on 43% of the trades (that is, he probably would have done better with a chart printout on a dartboard), yet still came out ahead.

I’ll be making a new “Forex” category on my blog so you can follow along and root for me (or laugh at me) as my time in Forex training progresses. My philosophy is: If people can spend 4 years in college learning how to make a salary for the rest of their lives, I’ll take 1-2 years and learn this and learn how to make money that will keep me from needing a salary for the rest of my life. Or not. We’ll see!

Also, look for a large (and really good) announcement from Simpli in the next 14 days. I also have an investor presentation on Friday in Vegas to raise our first round of seed capital for our next stage, so wish me luck there. This is going to be a crazy week, but hopefully I will have some time to update before next weekend.