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How To Become A Trader: Understanding Indicators | The Trading Travelers
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How To Become A Trader: Understanding There is NOT a Holy Grail

Although in my early years of trading I refused to believe it, the truth is, when it comes to becoming a trader there is no holy grail. When asked how to become a trader, the answer is simple: lots of studying, mistakes, and practice. There is no one indicator, system, or combination of the two that will work indefinitely. In fact, they will likely break many times before you are successful. I hate to be the bearer of bad news, but I am very much a realist and, in my opinion, most “systems” being sold on the internet are junk.

Here’s Why:

Indicators: What is your favorite? MACD, ATR, Stochastic’s? If this is sounding foreign to you, these are just fancy names assigned to mathematical algorithms which are displayed on a trading chart. These algorithms are based on data pulled from a chart or particular market(s) and then displayed in pretty lines.  A lot of traders use indicators to help them determine when to enter or exit a trade, myself included. However, these indicators will not work every time, and chances are indicators can be interpreted 10 different ways by 10 different traders. Also, it is important to note that almost all indicators are based on lagging data. That is, all of the data used by many indicators is data that has already passed. Therefore, it is “old news” in the market’s eyes.

ForexTrading1

Systems: Trading systems, high frequency trading, black box trading, arbitrage – they are all based on the same principle. These are trading systems. A quick Google search for “best forex trading system” will turn up countless systems promising to help you get rich, retire early, and drive a Ferrari. Although these promises are not quite as ridiculous as the Dinar Revaluation Scam, they are a close second. Not all systems are merit-less, but most do over-promise and under-deliver.

So what are systems and how do they work?

Systems take into account indicators and other proprietary rules that, when met, will execute trades. That is, if conditions A, B and C line up, then we will buy X market and sell when D, E, and F line up and tell us to sell. On the face, this is a good idea. More information on a market is always better, but again, relying on lagging data can be troublesome. Most of those “best forex trading systems” touted on the internet are automated, meaning you turn them on and let them run as you sit back in amusement of this ATM that you just turned on. Others may be manual trading systems, which will give you an alert based on these rules in which you will react. In any case, the idea behind trading systems is to use a set of rules to trade. All trades should be based on something, but applying static rules to a dynamic market is where issues arise.

Static vs Dynamic Information

How To Become A TraderWhen discussing how to become a trader with those that have a grasp on the trading world, I will usually get asked about these trading systems, indicators, or what do you think about [insert one of those “best forex trading systems]”? Don’t get me wrong, some of these systems do work and I have even helped develop a few of my own. People love to hear about developing a black box system. It must sound dirty, edgy, or…something? But what those people don’t like to hear is that static rules don’t work in a dynamic environment. The market is a dynamic environment, meaning things are changing every second of the day. Indicators and most systems are static, meaning a set of rules has been implemented and they will not be changed. This can become an issue when say a government decides to implement a Quantitative Easing …. 1, 2, 3, 4…what number are we on now? Markets will react to this data and there will be a minor paradigm shift as a result of digesting data such as this. Most of those static indicators cannot account for these events and thus go boom! Therefore, in order to make a system work, traders need to be cognizant of events that can cause that holy grail system to go awry, adjust the rules, and reapply. This is the issue that I have with that “best forex trading system”. Most buying those systems will not know when to turn on, off or modify a system. Thus, the uninformed get burned, and as a result forex trading gets a bad reputation.

A better alternative:

Rather than combing the internet for “how to become a trader” or “best forex trading system”, approach trading from a different angle. Don’t look for a solution provided by a third party, a master trader, or guru. Look for market inefficiencies. Great, but what does that tell me? There are many instances across all markets that allow for opportunity without having to pick a side. This is what I prefer. Rather than throwing darts at a wall and hoping for the best, I like to utilize time. Curious still? More to come.

Let me know what “best forex trading systems” you have tried in your pursuit of becoming a trader and how they have worked for you.

 

About the Author Charlie and Brittany

We are Brittany and Charlie - we traded the 9 to 5 and the so-called "American dream" to live our own dream and see the world. We sold all of our belongings and left the US in August 2013. For 5 years, we lived primarily in Thailand and built our online business and location independent lifestyle while we traveled to over 30 countries. We’ve had house sitting gigs on 3 different continents and we’ve even appeared on HGTV’s House Hunters International.

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Leave a Comment:

6 comments
Marc Denoyer says April 23, 2014

the field of trading is not as easy as it seems ot be. Thanks for showing proper path to the new investors.

Reply
Charlie and Brittany says April 29, 2014

No problem! Thanks for commenting, and good luck!

Reply
Kelvin says May 1, 2014

Thanks for this blog since it inspires me and shows me that forex trading is after all not a zero-sum game.

Reply
Matthew says June 25, 2015

Great blog! You are so inspirational to me.
I have been trend following stocks for the last 12 months and my goal is to do what your doing in a few years.

Reply
Blair says October 13, 2018

Good article. I started trading FX in 2000. Have been trading fairly consistently since then. ( Like you, lived in Thailand also!) I completely agree with you about all the systems out there; there is no holy grail system. Most systems for sale, are by traders who don’t make money trading, but make money selling systems…
The other reality that no one every tells you is how much money you need in your account. You aren’t going to make a living off $1000 account. And you aren’t going to get rich and retire with buckets of money, but, you could make decent returns.
Maybe our paths will cross one day. We are off to Asian this month, then back for ski season in the Rockies.
Good luck!

Reply
    Charlie and Brittany says October 23, 2018

    Sounds like you have it figured out – Thailand and the Rockies – two of our favorite places! Yep – the trading world isn’t as glamorous as people like to think (or people make you think). You can definitely make a living if you know what you are doing, but its definitely not a get rich overnight kind of thing!

    Reply
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