Case Study: My Adventures in Forex Trading

Posted by 15 January, 2009

399240900_e76c0795cc_b

Welcome to our Forex Case Study on Happiness Is Better.

To ensure you don’t miss anything, be sure to subscribe to our free full RSS Feed!

I am being coached by Forex expert, Mindy Yost. She has been Forex trading for over 8 years and full time for 6 years. I will be detailing my progress through a monthly report. I opened a demo account and am currently trading under her guidance through Skype (wow, Skype is really handy!). Skype is essentially an internet-based phone/text communication service (VOIP).

To start off our training, Mindy had me read through a handy website, Baby Pips. If you’ve never heard of Forex before, it stands for the foreign exchange (currency) market. Forex trading is the buying or selling of a currency “pair” and the one that I am learning about is the Euro paired with the US Dollar and is called the EUR/USD.  In the Forex world, there is a thing known as a pip. I had heard the term pip before, but I really didn’t understand what it meant. A pip is the increment by which a currency pair is measured for trading purposes. In the case of the EUR/USD, a pip is 1/100th of a cent and would be displayed as $0.0001. Baby Pips explains a pip as “if the EUR/USD moves from 1.2250 to 1.2251, that is ONE PIP. A pip is the last decimal place of a quotation. The Pip is how you measure your profit or loss.” The Pip VALUE however is a little different and is determined by the size of the trade you make. In Forex trading you cannot trade one EUR/USD at a time. Forex is traded in 100,000 units at a time in a standard account, and 10,000 at a time in a mini account.  I am using a mini account so the pip value when I trade one mini lot is $1.00 ($0.0001 X 10,000). So, when I am in a trade, I will earn or lose $1.00 for each pip the market moves. If I were to trade multiple mini lots at a time, the pip value would be determined by multiplying $1.00 times the number of mini lots I made the trade for. Basically, the more pips the market moves in the direction of my trade the better! If the market moves against my trade, that can be a bad thing. But, as Mindy says, the market can only do two things – go up or go down, so if you are willing to wait it out, your trade will probably be profitable sooner or later (if you have enough money in your account to cover the loss before the market goes your way).

So what makes Forex trading so attractive? One major advantage Forex trading has over traditional stocks is leverage. Leverage means that when you make a Forex trade, you essentially only put down a small deposit for the trade.  In most cases the Leverage Ratio is 200:1. So, when I do a one mini lot trade, instead of fronting $10,000 to make that trade, I only put up a $50 deposit to control the 10,000 units in the mini lot. Another new term to me is that of a “Margin Call”. In Forex trading, the Brokerage House will not let you lose more money that is in your account, so if your trade go so far negative, that you no longer have any more money to cover any additional loss on you trade, they will close your trade at the accrued loss.  This means that you will have lost a lot of money and is a bad thing, but, unlike some other venues, at least they will not call you up and ask for even MORE money! Leverage is always a double edged sword, and can work for you or against you. One thing that Mindy has stressed to me is the importance of properly funding your account. The best way to protect yourself in Forex is to “over fund” your account and put way more money in it that what you expect to trade with and then make small trades. Also, remember these things: 1) do not open an account with money you can’t afford to lose, 1) do not open an account with “a little” money as a test-the-waters type of trial, and 3) don’t trade Forex unless you have nerves of steel. You can properly fund your account yet trade in small quantities to minimize risk while you are getting your feet wet. However, if you do not properly fund your account, you run into the possibility of having the broker perform a margin call and lose your money. Another attractive feature of Forex is that it’s a large market that can’t be altered or controlled by a few people. To give you an idea of the enormity of Forex, about $4 trillion is exchanged daily compared to $25 billion exchanged on the New York Stock Exchange. There are also no commissions charged by the brokers and you can trade basically 24 hours a day, 7 days a week.

If you are interested in Forex trading, it is advisable that you read through School of Pipsology on Baby Pips and if you want to contact Mindy for mentoring, let me know (happinessisbetter@gmail.com) and I will give you her email address.

It’ll be at least a month or two before I start trading with real money, but in the mean time I’ll be showing you the results of my demo account.

Here is our first report on how we are doing with our demo account.

ACCOUNT SUMMARY
Beginning Balance 15,000.00
Comm Trading Commission 0
Rollover Rollover Fee 19.6
PnL Profit/Loss of Trade 466.2
Depos Deposit 0
Withd Withdrawal 0
Option Options Payout 0
Comm Options Commission 0
AdminFee Administrative fee 0
MngFee Management Fee 0
PerfFee Performance Fee 0
Void Deposit Rollback 0
ASPComm ASP Commission 0
MargInterest Interest on Usable Margin 0
Ending Balance 15,485.80
Floating P/L -1,955.80
Equity 13,530.00
Necessary Margin 300
Usable Margin 13,230.00

We’ve profited $466.20 because we are trading in a mini account and we are only trading one unit (we are cautious and HIGHLY suggested by Mindy) at a time. If you look at the Floating P/L, you will notice we are -$1955.80 in the hole. As previously stated, we have not lost that money because we have not re-exchanged the currency pair. Mindy has told us that the market always goes up and goes down, and as long as you are willing and able to hold onto the trade, we will more than likely not lose money.

Stay Tuned!

Do you trade in Forex? How do you like it?

Photo by: Zack Attack

Other Posts:

Interview: 2 Million Dollars Made in Network Marketing – It’s All About Leadership!
6 Reasons Why I Joined Toastmasters
Goals for 2009
Goals from 2008 – How Did I Do?
Interview: Do You Have What It Takes to Own a Franchise?


------

Don't miss the next article, add our RSS feed
If you enjoyed this article, please Stumble it!
Follow me on twitter

Categories : Alternative Income,Entrepreneur,Personal Finance Tags : , ,

Trackbacks & Pingbacks
Comments
January 15, 2009

Great case study!

My first experienced trading forex made me loss $148 on mini account.

You are far better than that.

Your post will be a great addition for the reader of my blog Forex Trading Cafe Free Resources For A Millionaire Trader

Posted by Mr.Trader
January 15, 2009

Hi Dustin,

I guess I’m a bit confused. How is this any different than holding a stock and using a margin account? What is the advantage of forex trading over trading options?

January 15, 2009

This is interesting stuff although I wonder about the statement by your coach that as long as you are willing to hold the trade long enough. What is that based on? That everyone always guesses correctly on relative movements on paired currencies? Please keep us updated on this. Thanks.

Posted by Mr. GoTo
January 15, 2009

@ Mr. Trader – Thanks for the comment. I’m glad to hear that this post is a great addition!

@ Steve – Thanks for the question. I don’t know a whole lot about options to be honest. If you are buying an option, you buy it for a set amount of time and at the end of that period, you receive either a profit or a loss. In Forex, you are in control of when you buy and sell so you can hold the buy or sell for as long or as little time as you’d like.
Here is an article you may want to read: http://www.streetdirectory.com/travel_guide/148398/foreign_exchange/forex_trading_vs_options___discover_the_difference.html

One pretty big advantage is that Forex risk is limited. In Forex, you can only lose the amount of money you have in the account. Theoretically, your risk is unlimited in options since Forex has margin calls.

@ Mr. GoTo – It’s a matter of the trading strategy that my coach employs. It involves intricate trading entry points and exit points as well as a well developed money plan. She is certainly not a typical trader. It also requires that the account be properly funded. Thanks for the comment!

Posted by admin
January 21, 2009

Does this coaching have a cost?

Posted by Robby
January 21, 2009

Hey Robby!

There is not a cost associated with the program Mindy offers. Thanks for the comment!

Posted by admin
January 27, 2009

How has currency trading worked for you since then?

Posted by Mark
January 27, 2009

Hey Mark,

Great question!

If you look at the account summary above, you will see my balance was $15,485.80 on January 15th. My balance now is $16,471.00 as of January 27th. That’s over a period of a little less than 2 week. This is of course “play” money and not real money.

If you look at the account summary above, my P/L was -$1955.80. That is the dollar amount of trades I have open that are negative. My Floating P/L is currently at -$1800.00 at this moment. This number has gone up and down a few times.

In about a month, I’ve made 9.8% on my play money, but I do still have trades that would be negative if I were to cash them in, which I won’t until they are positive.

I hope that makes sense!

Posted by admin
January 29, 2009

So basically you are trading a what goes up must come down principle and vice versa?.

Hate to dampen your fire on this one but its a dangerous game, you are not in profit until everything is realized.

This paragraphyou wrote would make me ring all alarm bells and head for the exit…

Mindy has told us that the market always goes up and goes down, and as long as you are willing and able to hold onto the trade, we will more than likely not lose money.

So good job you werent long EURUSD from 1.60 then amongst others.

Good Luck 🙂

Posted by Bobster
February 1, 2009

I chose a different path at the beginning of my trading and can recommend it. Rather than trading short term, I traded very small position, but with longer time horizon. Gradually I became more comfortable with it and now can trade even intraday. I must also note that I work in financial services and have exposure to trading also at work.
Anyway, good luck to you all.

Marcus’s last blog post..Foreign Currency Lending Makes Central European Families Insolvent

Posted by Marcus
February 5, 2009

@ Bobster – Here is Mindy’s response:

Yes, this is sort of the principle, but with conditions. First of all, if you will look at a EUR/USD Daily chart for the last 10 years, you will see that the price movement goes… up… and … down. Sometimes it goes up more that the previous up move, sometimes it goes down more that the previous down move – but up and down, none the less. Now, if you look at a EUR/USD Hourly chart for 30 days… same thing, it goes up and down, sometimes making a new high on the up move, sometimes not, sometimes a lower low on the down move, sometimes not, but up and down. Now look at a EUR/USD 15 minute chart for 5 days, you will see the same thing, up and down. You will see the SAME THING no matter what time frame chart you look at. But notice as well, the price NEVER goes straight up or straight down from Point A to Point B on any of the charts. There are really on two basis trading philosophies: (1) try to trade the TREND, in which case you are trying to see a move working and then jump on the band wagon, or, (2) be a CONTRARIAN trader, in which case you try to find the high (or low) where you trade into what you think the next move will be. The problem with Option 1 is that in Spot Forex, most of the time, by the time a “trend” is evident, it is usually about over, so traders who try to trade with the trend are usually entering their trade at a time that the trend is ready to reverse. This is why people who teach this style of trading always tell you to put a STOP LOSS on your trade at whatever amount you are willing to lose on the trade. THIS IS NOT A WINNING STRATEGY! By trading as a Contrarian, the problem can be not assessing the high or low properly, in which case it is possible to get into a trade prematurely. But, by using good technicals and keeping an eye on the fundamentals, it is in fact easier than you might think to be very close to right most of the time. And, in the situations where you do go in prematurely, since the price is already extended (or you wouldn’t be doing the trade anyway), then the trade you made will probably come back into favor fairly soon anyway – you will just have to wait a little longer. Also, by utilizng proper money management and trade size management, and offsetting techniques when applicable, you will have pleanty of margin left over to continue to trade and profit from other trades while you “wait it out” on the trade that went in prematurely.

Posted by admin
February 5, 2009

@ Bobster – Thanks for the comment. Here is the rest of Mindy’s response:

Yes. This is very true. But it is part of Forex investing. But, think about it this way. Let’s say that you have a trade that is terribly under water, maybe 1,000 pips. You are correct that this trade is taking up a lot of your usable margin. But does it mean that the EUR/USD will NEVER again go back to 1.3790? Of course not! It is just a matter of time. But, had you used proper offsetting strategy, you would also have a trade that would be floating a profit of anywhere from 800 to 950 pips of PROFIT. This offsetting trade is essentially protecting your margin and no matter where the market goes, as long as these two trades are offsetting each other, the drain on your margin will never be more than the difference between the two trades (certainly LESS than 200 pips). In a properly funded account, this is NOT A PROBLEM. And, if you take my class, I will gladly teach you how you work yourself back out of these situations without ever losing a penny on the pair, and how most of the time, you will get BOTH trades out profitably. But, that said, as long as you keep trading, and adding to your Balance each day, eventually you will make far more (and add more to your Equity) than the bad trade is draining anyway – especially if the price decides to Range for a week or so, at whatever level it decides to Range at.

Well, if you were a Trend trader, you probably would have been. But as a Contrarian trader, you would have KNOWN that the price was EXTREMELY OVER EXTENDED, and you would have ONLY been looking for SELL TRADES at that point, so, again, Contrarian philosophy wins again!!

Good Luck 🙂

Posted by admin
February 5, 2009

@ Marcus – Thanks for the comment. Here is Mindy’s response:

Actually, it is a very good philosophy for a new trader to trade small positions and look for longer term trades. There is nothing wrong with that at all. But, as you found out, you make far more money when you trade intraday because, many days, you probably book some of the same pips several times because of the way the price move both up and down. Do you look to “jump on bandwagons and enter trends” or do you try to pick highs and lows and trade the next move? My guess is that you are probably a Contrarian trader and you don’t even know it!

Posted by admin
April 8, 2009

Forex Trading – Get breaking Forex News, real time forex market analysis, current trading strategies, plus a global economic calendar, atDailyfx.com. Find fresh, updated content every day including technical and fundamental analysis and forex trading strategy. Have a forex question? Join the discussion in the DailyFX forums. Dailyfx.com is your forex resource center.

Forex Trading’s last blog post..German Trade Surplus Unexpectedly Widens as Imports Falter, Exports Fall for a Fifth Month

Posted by Forex Trading
April 16, 2009

Hi,

This is a wonderful opinion. The things mentioned are unanimous and needs to be appreciated by everyone.

robinson

Virtual Currency

Posted by robinson
July 7, 2009

You will have moderate success with your “never take a loss” system until the market takes a large swing. You will then be wiped out by a black swan.
As the LTCM boys found out, “the market can stay irrational longer than you can stay solvent”.

If it makes any difference I am a professional trader with a background in statistical arbitrage and quantitative analysis. Save yourself some money and read about outlaying market phenomenon and start using stop-losses. Loss management, not avoidance is the key to increased profit.
Profit=%Win*AvgWin-(1-%Win)*Avgloss

Where %Win= #of profitable trades/#of total trades

AvgWin=Total profit/#of profitable trades
AvgLoss=Total Loss/#of losing trades.

You can see from this that the only variable directly under your control is AvgLoss.

Think about it, if all it took to win was to never lose, then there wouldn’t be much to the game would there?

Posted by Mr.Danger
December 13, 2009

This is the most ridiculous trading strategy that I have ever heard in my life. Stay away from this “Mindy”.

As posted by Mr.Danger above, what you are doing is blocking your capital, holding on to even under extreme losses, and then making mild profits when the price does manage to swing in your direction. You would earn more if you just deposited that money with a mutual fund and let the professionals manage your money.

Seriously, I can’t believe that there are people like Mindy who propagate such crap and even then, they find students.

Trust me, use stoplosses and proper money management. Minimize your losses and let your profits run, only then will you will have a chance of succeeding.

ps. the above are the views of a guy who has been doubling his account every month for the past 2 years, based solely on proper money management.

Posted by pip magnet
December 15, 2009

need a mentor been trading demo for a while want to get a live account and need some coaching before i do anyone……

Posted by Toni
February 4, 2011

Thanks for the great article. Have been trading demo forex for a while and this article was really helpful.

Leave a comment

(required)

(required)