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How to be a successful forex trader using Forex Expert Advisors - PART 3
09 Nov

How to be a successful forex trader using Forex Expert Advisors - PART 3

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The “greed-panic” cycle in trading with EAs
 
One of the biggest enemies of the trader is the human nature. The so called “greed-panic” cycle is a psychological phenomenon which lies at the heart of most failures from the time markets and trading started to exist. It is interesting that this phenomenon is one of the reasons why many people fail to gain profit even when trading with a reliable trading system that is profitable in the long run.

One of the biggest advantages of trading with automated trading strategies (EAs) is that our mentality is involved to a limited extent. And yet it plays a certain role. Although we may be able to fight the urge to intervene in trades, it is even harder to resist the “greed-panic” phenomenon and here is why. Many traders start using an EA when it is at its peak performance and the equity curve is skyrocketing. Sadly, this is often the exact moment when a drawdown comes in. Even the greatest trading system has its bad periods and when these occur, many traders just throw the system aside, because they are not committed enough to resist the “greed-panic” cycle. A great example in this respect is one of our best-performing trading strategies, “WallStreet EUR33+GBP30”. The latter is positively a very good system with high long-term profitability and uses very reasonable stop loss levels. On the equity curve, we can pinpoint several clearly defined points which correspond to “greed-panic” cycle points. Many of the system’s users started taking unreasonable risks in point 1 and then dumped the system in point 2 just to witness its quick recovery. As our example demonstrates, up to know, this cycle has occurred once more. Despite all that, the system recovers after each bad period and will keep recovering in the future, because it implements a solid trading logic and uses a proper risk management strategy.

So, what can we learn from that?

1.    Do not get overly excited when your trading is showing fantastic results. Keep calm and maintain a reasonable risk level, because the “rocket” mode will not last forever.

2.    Do not panic when your system falls into a bad series. If you have a good and reliable trading system, stick with it - it will recover sooner or later and you will be rewarded for your patience and self-control.

3.    Remember! Risk management is the key to successful trading. Wise risk management is what keeps you in the game!


 

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Disclaimer U.S. Government Required Disclaimer – Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts. Clearly understand this: Information contained within this course is not an invitation to trade any specific investments. Trading requires risking money in pursuit of future gain. That is your decision. Do not risk any money you cannot afford to lose. This document does not take into account your own individual financial and personal circumstances. It is intended for educational purposes only and NOT as individual investment advice. Do not act on this without advice from your investment professional, who will verify what is suitable for your particular needs & circumstances. Failure to seek detailed professional personally tailored advice prior to acting could lead to you acting contrary to your own best interests & could lead to losses of capital.

*CFTC RULE 4.41 – HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.

By using FXAutomater's products, you acknowledge that you are familiar with these risks and that you are solely responsible for the outcomes of your decisions. We accept no liability whatsoever for any direct or consequential loss arising from the use of this product. It's to be noted carefully in this respect, that past results are not necessarily indicative of future performance.