If I didn’t know any better, I would think Forex traders hate money. Well, at least 95% of them.
The way they overtrade on the lower time frames and make emotional decisions is perplexing. And let’s not forget the blown account or three in the first year of business.
But I’m not judging. I was once one of those traders.
I blew through multiple accounts before I finally found my stride.
And I know the 95% of traders who lose consistently don’t actually hate money. But if you didn’t know any better it would appear that way.
So how can you learn to love cash?
And I don’t mean a desire for more money. Everyone wants more money; that’s nothing new. But few have the restraint necessary to make it as a Forex trader.
I’m talking about the kind of love for money that leaves you sitting on the sideline day after day waiting for the right moment to strike.
It’s a protective instinct. That’s what you need to make it in this business – a stronger desire to protect what you have than to make more of it.
If you’re interested in learning how to do that, then this post is for you. We’ll discuss why I love the sideline so much as well as a few ideas to help you stay patient and protect your capital.
The Sideline Has the Best Seat in the House
I love being on the sideline. If you follow my trade setups, you’ve no doubt seen me mention having a position on the sideline on multiple occasions.
Sure, I enjoy putting on trades and of course booking profit. But what I like even more than that is knowing my capital is safe and sound. There’s no better feeling especially when I’m laying my head down at night.
Nothing can touch my cash regardless of what happens in the market. That’s an invaluable position to be in, and it’s one I try to maintain as much as possible.
It’s why I’m so selective about where and how I risk my capital.
With this in mind, I have a question for you…
What is a trader?
Take a moment to think about what it means to be a trader. Is it someone who trades or is there something more to it?
The truth is anyone can place a trade. There’s no skill in that.
To me, a trader is a money manager plain and simple. If you aren’t able to manage your funds, you’re going to give any profit right back to the market.
So if you want to grow a trading account, you need to know how to place the right trades, but that means knowing when to stay on the sideline.
The two go hand in hand.
How can you achieve a level of patience and vigilance that will take you to the next level?
Here are a few ideas…
1. Don’t get stuck on one trade idea
How many times has the following happened to you?
You short the EURUSD following a break below support. The momentum is in your favor, and everything seems to be falling into place.
The next morning you wake up to an alert that your stop loss was triggered.
What!? How could that have happened?
The setup was perfect!
You rush to your computer and notice the pair has rallied past its average daily range, so you short it again.
Within the next 10 minutes, you watch the pair slide 20 pips. Time to make back that overnight loss, right?
Later that evening the market has once again stopped you out. This process repeats another two or three times and before you know it you’ve lost 20% of your account.
I can certainly relate to that scenario. In my early years of trading, I had the hardest time separating my ego from the price action on the chart.
Back then I always thought it was me versus the market. The truth is it was me against my ego.
I was my own worst enemy.
Today, if I lose on a trade, I take a seat on the sideline for the next 24 hours. That’s my rule.
Even if another setup comes along a few hours later, I have to pass on it.
By staying out of the market following a loss, it keeps my ego in check. The 24 hour period serves as a way for me to collect my thoughts and refocus my efforts.
2. Think long-term
I’ve previously written about the idea that trading Forex is a process, not a project. This is because it has no end date.
You don’t wake up and say, okay, I need to know everything there is to know about Forex trading by April 23rd!
It just doesn’t work that way.
As you progress through this journey and eventually reach success, you’ll find that the line between struggling and consistently winning is blurry at best.
Even once you find your stride and begin to build your account, you’ll still be learning.
You’ll also have good months and not so good months.
Thankfully the learning process never ends. Because if it did, things would get boring in a hurry.
With this in mind, you can find comfort in your new favorite seat on the sideline.
Why rush something that has no fixed end date?
In fact, trying to rush this process will only make things worse. The learning curve is much less steep when you slow things down and take it one day at a time.
That’s the beauty of this Forex journey. There are no deadlines, and trading profits are hardly a scarce commodity.
Everyone wants to find success today. But find solace knowing that you’re a better trader this month than you were last month.
Approach the market with that mindset, and you’ll be unstoppable!
3. Learn how to pyramid
This may sound a little odd, but learning how to pyramid into a winning position can help you stay patient.
Allow me to explain with a simple comparison between two traders, Joe and Sue.
Trader Joe’s average profit is 1R. So for every 2% of his account he risks, he stands to make a 2% profit.
Not bad, right?
The challenge here is that Joe needs a winning percentage greater than 50% to have any hope of making money.
That may not sound too bad, but Joe comes to realize the market has an odd and often cruel sense of humor.
It’s not whether you’re right or wrong that’s important, it’s how much money you make when you’re right and how much you lose when you’re wrong.
Trader Sue, on the other hand, isn’t concerned with having a high win rate. She knows that winning in this game is all about pyramiding into advantageous positions and cutting losses short.
As such, her average profit is 2.5R. So for every 2% of her account she risks, she stands to make a 5% profit.
Compare that to Joe’s average 2% profit, and you can probably see where I’m going with this.
Because Trader Sue’s average profit is more than twice that of Trader Joe’s, she’s less likely to overtrade. And by not overtrading, she’s less likely to put her capital at risk without good reason.
Her ability to maximize profits means she can stay on the sideline longer. She knows that it only takes one quality setup each month to make a considerable amount of money.
If you knew you could extract an average 5% profit on each favorable position, would you feel pressured to trade more frequently?
I bet not.
The Risk of Losing Will Cloud Your Judgment
I’m just going to go ahead and say it – when you’re in a trade, your judgment is compromised.
There are no two ways about it.
It doesn’t matter if you’ve been trading for five months or five years. Having capital at risk during a trade will, in some way, influence your decisions.
Why am I telling you this?
I’m telling you because there is an opportunity cost associated with trading. You are never just risking the money on that one trade; you’re risking money you could be making elsewhere.
You’re also compromising the neutral state of mind necessary to find quality setups.
For instance, let’s assume you’ve decided to short the EURUSD. The setup materialized after a retest of new resistance, and for all intents and purposes, the initial idea to sell was a good one.
Unfortunately, the Euro had other plans.
The trade has gone sour, but the market hasn’t triggered your stop loss just yet so you decide to ride it out.
Hours later you spot a perfect bullish pin bar on the AUDUSD daily time frame. It’s sitting on a confluence of support and is pointing in the direction of the overall trend.
Just like the EURUSD trade before it, this one looks promising.
Now, here’s where your mind can play tricks on you…
The fact that you have an open position that’s in the red is going to influence your decision in one of two ways:
- You’ll hesitate and miss a profitable trade for fear of having a second losing position
- You’ll pull the trigger prematurely because you want to make back what you might lose on your EURUSD short
As long as that EURUSD position is open, it’s going to influence your decisions in some way. You probably won’t even be aware of it, but it’s there in the background tugging on your emotions.
So what does all of this have to do with learning to love cash?
Simply put, as long as you’re on the sideline with no open positions, your mind is free of distractions. You’re able to see favorable opportunities as they materialize and dismiss those that could get you in trouble.
In essence, you have no exposure and can, therefore, see the market for what it is rather than what you’d like it to be.
To make money in this business, you have to put on trades. But not just any trades.
Finding the right ones is the hard part. Not because they’re overly difficult to spot, but because they don’t come along every day.
The moment you go from being 100% in cash to having capital at risk is the moment you sacrifice the clarity of your judgment.
So be sure to make each trade count.
An Expensive Place to Look for Excitement
I took this one from Jack Schwager, author of the Market Wizards series of books.
There is a huge contrast between how most people envision trading and the reality of the career.
Think about the last movie you watched where trading was involved in some way. Perhaps it was either the new or old version of Wall Street or something similar.
They always make it look exciting, right? I mean, who can blame them? After all, it is a movie.
In some cases, that excitement you see may be justified. If they’re showing a scene from an old school pit on one of the exchanges, that environment was certainly not dull.
Guys screaming left and right, pushing, pulling…you get the idea.
But the environment for today’s retail trader is a far cry from the action in those pits.
In fact, it’s pretty boring.
As Schwager says, the market is an expensive place to look for excitement. And anyone who has been in this business for a while can relate to that notion.
When I first started trading equities way back in 2002, I admit, I was looking for the excitement more than anything else.
As an 18-year-old, I had no desire to learn the process. Nor did I have the patience to do so.
I just wanted the action, and of course, the money that I thought would follow. I think most new Forex traders can relate to that.
When you’re out of the market, you feel as though you aren’t in the game. There’s this overwhelming feeling of not making progress as if you’re missing out on the action.
So how do most traders cope with this uneasy feeling?
They rush to get back in a position as soon as they’re out of the last one. It doesn’t matter what the market is doing at the time. They need that rush again, so they jump right back into the mix.
But here’s the deal…
If your trading isn’t boring, you’re doing something wrong.
Quality trade setups on the higher time frames don’t come along very often. You may only get a handful of opportunities each month, and that’s okay.
Once you know how to make a profit of 6% or more on a favorable setup, you’ll no longer need that constant excitement in your life.
In fact, you’ll no longer see the market as a place for excitement at all.
Start trading for the sheer opportunity and leave the desire for action at the door. Always focus on the process, not the profits.
Do that, and you’ll begin to see the market in a whole new light.
To make it as a Forex trader, you need to learn to love cash. Not the desire for more money, but the desire to keep that which is already yours.
In other words, protecting what you have needs to take precedence over trading profits.
An excellent way to do this is to learn to love being on the sideline.
In sports, the sideline is considered an undesirable place to be. It’s a place reserved for second and third string players.
But when it comes to trading, the opposite is true. The first string traders are on the sideline more often than not.
The second and third string traders are the ones who feel they need to be in the action at all times.
Never put on a trade out of sheer excitement. That feeling of having to be in the market at all times is the number one killer of trading accounts.
As Jack Schwager says, the market is an expensive place to look for excitement.
so true I think those of us who have small trading accounts think we have to be in at all times or rush our trades.
I feel you are describing my case
Wayne, it’s one of the tougher challenges when starting out with a small account. But a never-ending focus on the process rather than the profits will get the job done.
Thank you for this blog, it has opened my mind to a better and effective perspective of trying to protect my cash rather than pursuing more trades in the hope of getting more money from multiple tradings.
You’re welcome. Glad I could be of help.
Love this post. Very spot on the observations 🙂 emotions are very important in trading, which is why managing it is the key.
Thank you. Glad you enjoyed it.
Awesome post! Just lastnight i was thinking about how patience plays in trading and you made sense of it all to me with this post. Thanks Justin!.. ☺
You’re welcome, John. Perfect timing!
You are correct my man! We tend to rush in to make more money forgetting about protecting our capital. Our capital is the most important becoz without it you cannot even make money. As you have rightly put it, forex trading is a process and not a project. As beginners, we really need to learn the process becoz this is what will give us money. Thank you Justin!
You got it, Sam. Once you run out of capital, it’s game over so protecting it is always priority #1.
Thanks man,every information you share here is very valuable to me,I just wish I knew this earlier would have saved me few bucks,the truth is I always trade cos something is pushing me,the desire to make money NOW regardless of what the market is saying to me,wants to be part of the action cos standing on the sideline feels like I’m losing
Sydwell, the desire for constant action is arguably the number one killer of trading accounts. It’s something we all have to battle every day. But the sooner you can separate the money from trading, the closer you’ll be to profiting consistently.
Fantastic post. Spot on as always 🙂
Thank you very much!! You make everything clear!!
You’re welcome, Jorge. Glad to be of help.
Thank you for such a good article! This is a really great reminder to traders to be patient. Feeling of being in the game sometimes prevails over common sense. Even experienced traders can be trapped in this. But market needs to be respected always regardless of what happens.
Fully agreed with what was written!
You’re welcome, Dan. And to your point, experienced traders do indeed get sucked in by the desire for constant action. Because trading is a process of learning, even those with years of experience can find themselves trading when they’d probably be better off on the sideline.
Thanks for the article
I’m happy to read your articles always.
So true !!!! I feel like you are describing how I trade and loose all my money.
Please continue to help God will bless you.
Excellent article, i found out the hard way of trading way too often on the lower time frames. once i moved to the daily and weekly it taught me to calm down completely and look for the right set ups. Its a life long journey and one i want to partake in. i just need to learn to spot the right set ups! 🙂
Your articles is very inspiring and guiding me alot. Thank you for your willingness shared your experience. Cheers
You’re welcome. Cheers.
Very helpful, coz I used to over trade when I loose a trade.
I have found a solution, I must be on a side line
Straight talk from someone who’s been there, and done it. I appreciate Justin man!
To me this is an uncomfortable truth and an eye opener, thanks for this article. I have been trading for about two years now but I believe my mind was not in the right place. Thanks again
Thanks Justin. It is so true that good trading must be boring. I’ve been at this for a while but only in the last 5 months have I been consistently profitable – mainly by being boring. The other interesting thing is that my reading has shifted from stuff about methodology to stuff about mentality. Thanks for the good article.
The sideline is the better way to go not to be in an action at all times.No rush trades anymore.. thanks for this article
Looking forward to read more articles from you
This is exactly what I needed to read today. I’m struggler when it comes to patience.
I have been emancipated from mental slavery. Thanks for ever.
What protection you have should be prioritized over trading profits. Thanks Justin
“the market is a dangerous place to look for excitement”. It took me years to fully understand thisbeautiful quote. I love and appreciate your work.