Most of the time when I tell someone that I trade currencies on the FOREX market, they many times think that means I collect old coins, or, to ignore me, say something like, "Might catch some rain t'day, maybe."

Sometimes, however, the person knows about the FOREX market, but their response indicates that they think it's just a sucker's rigged market where everyone loses their money. At that point, I do a brief summary of my recent blog post 05/13/20: Why I Think The FOREX Currency Market Is The Safest To Trade.

They don't believe a word I have to say....

And I just let it go by saying something like, "Might catch some rain t'day, maybe."

• Learn the mechanics of trading either by self study or through a course.
• Set up a simulated trading account with a broker, and practice what you've learned.
• When you achieve good simulated trading results, open a small live account.

And that's a good, generic, starting set of guidelines for someone to go by. But certainly not anything someone wouldn't necessarily already know, or be able to figure out in 10 minutes of research.

Obviously, each of those above 3 steps can be segmented into dozens of smaller, more detailed topics. For example, learning the mechanics of trading could be broken out into: what a pip is, how to calculate lot size based on account balance, how to develop a trading plan, learning a trading platform, drawing indicators on a chart, differentiating criteria for trade entry, etc.

To thus take a beginner, and start teaching them 'the mechanics of trading' is thus fraught with problems from the start. That blog post goes on with the following:

So... just how do you trade?
Almost any book on beginning trading goes into the basics of what you need to know to trade. It's a pretty simple process in itself:

Outline of Trading

• Identify a trade opportunity.
• Determine the viability of the trade.
• Place the trade through the trading platform.
• Manage the trade.
• Close the trade.

Sounds simple enough.... But, therein lies the problem: it is simple. The reason that's a problem is because most folks only look at the resolutions to them as "what" to do, and "when" to do it.

For example, an approach to identifying a trade opportunity in a USD quote currency (such as GBP/USD) might be to look at price dropping down through some support boundary on news of a U.S. Fed rate increase. Both of those conditions are indicators of price erosion (price should continue to decline) for that pair, right? But what more often than not happens is that price flips around, and spikes significantly upward.

Why would that happen? It might at first glance appear that you made some bad judgment as to interpretation of what you see going on with price action on the chart, or that there must be other news trumping the Fed rate hike.

Unfortunately, FOREX educational resources — whether that be books, videos, or courses — can only generalize broad "rules" that address a large student base of varying knowledge and experience. It is classic regression to the mean — training developed for the mean. However, the statistics show that this type of education fails because 90% of the traders who study it fail.

Having said that, I want to make sure you understand that I'm not implying that FOREX education resources are bad or deceptive. They are not. They provide, for the most part, good, solid information. It's just that the information is cast so that it is easily consumable by the most number of people. So, it isn't that the education is bad, it's just that it is lacking in focus on the underlying principles that information is based upon.

In the price movement scenario I just mentioned, for example, the facts that price dropped below support, and the Fed raised interest rates is just the information. But that really doesn't give you anything to trade on.

Of more importance to just information is: Why was that support trend line drawn where it was, and how significant a line is it, and what time frame was it drawn on, and why did the Fed raise rates, and what and when was the Feds last actions, and what are the current economic and political climates in the two pair countries? I could go on. Endlessly, actually.

It's that last paragraph I want to focus on — the why of trading, i.e. you don't just do something, like place a trade because the fast ma just crossed the slow ma, but rather because of why that might have happened.

Beginning someone out with this simple concept in mind is far more productive from an educational standpoint than just rote learning of 'rules'. Someone just starting out learning how to trade needs to see how trading is done first, not 'what' to do.

That's the way my dad did it for me. We were driving back home along Lake Shore Drive in Chicago from sailing our small 12 1/2 foot Penguin class sail boat, Ding-Ho, when he pulled off into the parking lot at Soldier's Stadium.

He turned the car off, got out, told me to get in the driver's seat, told me to "turn the car on by twisting that key", showed me how to put it in gear — one of the early Volkswagen 'beetle-bugs' — and to push in the clutch as I slipped the shift lever into first gear.

Why should learning how to trade be presented in any other way than that?

Well, if that makes sense, then why isn't it the way trading is taught? I don't know....

The new person to trading doesn't have that view, and so I present trading to them on a white board as that high level view.

And, that high level view is what a successful trade should look like by looking at the end goal first.

Let me digress just a little here and tell a story that demonstrates my thoughts on this. It's taken from a 52 page trading book I wrote for my own educational process: Forex Trading: A Scalpers View.

"It's about a book that stands out above all of the others I have read not only about chess, or how I view trading, but about finding the solution sets to life itself.

The book is chess grandmaster Jose Capablanca's 1966 book, Last Lectures.

The first chapter is titled, The Importance of the End Game. What Capablanca did was to show the chess board with all of the pieces removed except for the two Kings and a few pawns.

He then talks about how to move just those pieces to best compromise the opposing King into a position where no move is possible.

What he did was to teach the student two critical things.

First, and most important, was what the end of a successful game should look like. I saw this, and a huge light went off in my head even though I had been playing chess for years at the time. That realization allowed me to so better grasp all of the strategic theories that other authors had presented in their works.

Second, was that he started his discussion on how just two of the pieces moved. And, he related these moves directly to the overall strategy of a chess game.

How much easier of an introduction to chess could someone have? Every book of the time (and probably most all since) begins by setting the entire board up and then trying to teach not only the individual characteristics of how the 6 different pieces moved, but also all of the major opening series from both white and black perspectives. What a mess....

So starting at the end to learn the game of chess makes great sense.

But, what's that all have to do with trading?

Well, instead of learning how to identify a trade setup, you need to first how to successfully close a trade."

Here's a crappy screen shot from a video on my YouTube channel for Longwood Currency Trading which shows me discussing that high level view:

The video this screen shot is taken from is FOREX Currency Trading Is Simple!, and is basically the way I introduce currency trading to a new student.

The 'meat' of the approach is covered in just the first 8 minutes or so, the rest goes into a little more discussion of a few of the key things that a trader has to know to form that 'simple' view in their mind.

Video: FOREX Currency Trading Is Simple!

Because this approach is... well, simple, most folks brush it off. I've run just that first 8 minutes of this lecture by countless people, but the tendency is to hold onto life long beliefs and habits of learning. And that's fine because it saves me the effort of then trying to 'teach' someone in the manner necessary — which is to drag them across the goal line.

However, if after someone listens to my pitch, and then looks up at me and says, "Really? That's it?" That's when I know they 'see it'.

The first part of that is to then learn the general mechanics, the plumbing, of trading. That's easy: I give them a reference to a book, and tell them to read the first 50 pages. I explain that if they do that, then they'll know just about all the mechanics they'll ever need in order to trade.

To give you a sense of confidence in this process, it's after they read that book reference that I can then begin to teach them how to trade. I'm not interested in if they remember any of that material; only that they will recognize that they've seen it before when I mention it to them.

In software engineering, that type of approach is referred to as 'iterative'; in the psychology of learning it's called Programmed Learning which was introduced in the mid-1950s by behaviorist B.F. Skinner.

Programmed Learning

"After each step, learners are given a question to test their comprehension. Then immediately the correct answer is shown. This means the learner at all stages makes responses, and is given immediate knowledge of results." [Ref: Wikipedia]

Within Programmed Learning, Skinner proposed a process he referred to as Operant Conditioning:

Operant Conditioning

"According to the Skinner model of operant conditioning humans learn behaviors based on a trial and error process whereby they remember what behaviors elicited positive, or pleasurable, responses and which elicited negative ones." [Ref: JRank Psychology Encyclopedia]

Iterative software development is steeped deeply in both of these behavioral models, and is defined similarly:

Iterative Software Development Life Cycle (SDLC)

"Iterative process starts with a simple implementation of a subset of the software requirements and iteratively enhances the evolving versions until the full system is implemented. At each iteration, design modifications are made and new functional capabilities are added. The basic idea behind this method is to develop a system through repeated cycles (iterative) and in smaller portions at a time (incremental)." [Ref: TutorialsPoint]

This is not ancillary evidence that this approach is valid. It's the way we learn.

The Iterative Learning Process

• We learn first by being presented with the big picture so we know where we're supposed to get to, i.e. the goal.
• We then learn a basic principle.
• We are then reminded of that principle by being quizzed, tested, or having the principle repeated to us.
• We learn the next, sequential basic principle.
• We are then reminded of that principle by being quizzed, tested, or having the principle repeated to us.
• We then go back to the previous principle and improve the current principle by that iteration.
• We learn the next, sequential basic principle.
• We are then reminded of that principle by being quizzed, tested, or having the principle repeated to us.
• We then go back to the previous principle and improve the current principle by that iteration.
• Continue to loop though this process until that branch of the problem is complete
• Go to the next problem and repeat this process until the system is completely built or understood.

If you take a course from someone and this is not the methodology that they use, treat it as free entertainment — and it better be free, or you're wasting your money. It's up to you if you want to waste your time on entertainment trading education, but don't waste your money.

Why didn't I use that simple, well tested, and experienced process?

I didn't because I thought I'd learn currency trading faster by learning from trading educators who were producing books, videos, courses, etc. Based on how I thought these resources were organized, I assumed... that this would be a 'fast track' for my own learning.

I trusted their process because I trusted the integrity of those I chose to study material from. Though there are a lot of fakes pushing crap out there, they're easy to spot, so I wasn't duped by that. I didn't misplace my trust in the educator for what they knew, but I should have rather mistrusted the manner in which that material was presented.

That mistake cost me $50,000 because I didn't think for myself. I'm not blaming anyone other than myself. There's nothing wrong with the educators or the resources they produce.

However, I learned the hard way that it's up to me — to us — to consume that information differently than the way in which it is presented.

After getting stopped out on that last miserable failing trade that brought my account to the wood, I knew I had to step back from this, and reevaluate what I was doing. I couldn't blame the resources I was following because I saw that the information itself was valid. It was just me that couldn't seem to implement that information correctly.

That's very telling....

The implication of that isn't that 90% of the folks who take up trading in the FOREX market are stupid, or reckless — though, of course, many are just that. But not 90%; just a small percentage, like in any other activity.

So how could so many folks fail then?

There's only one conclusion you can come to as to why 90% of traders lose 90% of their money within 90 days, and that is because of the education they either learned from references or from taking a course. And it's not because of the information in the reference or course, but rather the manner in which that material is presented.

So, how do you change that?

My martial arts Master, S.A. Brock, taught me way back in the mid 1970s that —

Back in the section Introduce A New Skill By Showing The End Goal I showed how Capablanca presented chess: one of the most complex games of all time. He showed the goal first. He showed how to checkmate the King starting with just a couple of pieces rather than the full board.

From that end goal, he built the student's knowledge in layers based on that overall fundamental view of the end of the game — what we call today 'iterative development'.

So, how do you reevaluate your trading process in the FOREX market?

You have to "alter the way that you think", as Master Brock taught me. You have to look at currency trading in a different way. It's not to make money: it's to win more times than you lose and to win more when you win than you lose when you lose a trade.

If you go back to the video I referenced above, I started out with the simple view of what a winning trade would look like. I then looked at conditions that had to be present in order to warrant taking that trade. And finally, I discussed the risk.

And remember: I show this exact process to someone who might not even know what a pip is!

They don't need to know what a pip is. They need to understand what the purpose of the whole thing is. They need to see a visual of that end goal.

And, as I've said before: if after someone listens to my pitch, and then looks up at me and says, "Really? That's it?" That's when I know they 'see it'.

When I first learned karate back in 1968 I started out the same way students had begun since probably around 600 AD: by learning the basics, the fundamental moves. And that's the way that I taught for 20 years. Until I took an objective view of what I was trying to accomplish.

I was playing a lot of chess at the time, and had gone through Capablanca's book again for what must have been the 5th time through when the similarities of the learning of chess with that of karate hit me: Capablanca was starting at the end, but I was starting at the beginning! What if I changed that?

Around 1960 learning chess from my dad the way Capablanca taught — from the end.

I did change it. And ever since then, when I begin a new student I don't teach karate: I teach self defense. It's a 1 hour per week class for 4 weeks where I teach just 3 end-the-fight moves. I start them at the end, not the beginning.

By doing this, the student then understands what power dispersion theory is all about and how to apply it to a target. Because of that, they are then totally understanding of the need to learn basics and fundamentals.

As a result of this better view of what they were trying to accomplish by seeing and learning how to deal with the end goal, they continued their training for longer, and were more successful than those who had not been introduced to karate in this way.

That's why when someone asks me what steps they'd need to take to start trading, I answer this differently by giving them that short 8 minute or so presentation I demonstrated in the video.

I do that for 2 reasons: First, selfishly because if they don't see it then I'm not going to waste my time working with them regardless of if they want me to help them; just won't do it.

Second, is because if they do 'get it' then they will be so much more likely to do what I ask them to do because it's easy for them to see how that thing I'm presenting gets them toward that goal.

How can the guy kick the ball through the goal posts if he doesn't know what a kick through the goal posts is supposed to look like? And why would he practice 1,000 times his approach to the ball if he didn't know where the ball was supposed to go?

Golf legend Lee Trevino put it this way:

"Regardless of where I am, or what the weather is, or what the occasion is, every day I hit 1000 balls. When I step out onto the course, I know where the ball is going, my opponents only think they know where the ball is going."

So, how do you apply all of this to trading successfully in the FOREX currency market?

Well, what's the goal, the real goal? Save the Spotted Owl?

No, though that might be a good cause, to make money is the goal: "Shooooow me the M-O-N-E-Y" as Cuba Gooding Jr. yelled in the 1996 hit movie Jerry Maguire, or as Michael Douglas as Gordon Gekko scolded Charlie Sheen's character Bud Fox in the 1988 movie Wall Street: "It's all about bucks kid. The rest is just conversation."

But it's really more than just money; the image of money is not enough. There has to be more. There is....

Look back to Trevino's statement: "... When I step out onto the course, I know where the ball is going..."

Trevino's goal is not knocking the ball into the hole, it's knowing that it's going in the hole because he can absolutely visualize that happening because of all of the work he has put in.

I learned a long time ago in martial arts that simply practicing a move or technique was insufficient in learning it so well that you owned it. I learned that as I practiced I had to visualize what I was trying to accomplish, the 'goal', of that technique.

I became good at martial arts not so much because of my skill, but rather because of my absolute focus on what I was doing. I felt the energy surge from deep within my being as I projected it into my target. I could focus on the end...

               Focused at 23....                   And still focused at 68.

When I trade, it's not about the money as the goal, but all about the process of winning.

And what happens when you win?

You win money....

But winning has to come first.

That's why I first do that 8 minute presentation if someone asks me how they could start learning how to trade. That presentation is geared for showing the process of winning, not just making money.

Once you really understand the difference in those two concepts of focus, you'll be so much more likely to fully embrace the first, and the primary rule of trading:

Once you take money out of the equation, it becomes soooo much easier to follow basic trading guidelines. Without that removal, then the analysis of every set up becomes one of financial hand-wringing as opposed to a clear choice of: would taking this trade have a significantly higher probability of winning than it would of losing?

If you don't do it that way — focusing on the winning as opposed to how much money is involved — then you risk trading with your emotions rather than your knowledge and skill.

And that's why professional gamblers play with chips and not cash. Doing so removes a bet from being a car to just an odds on decision.

It's also why some professional traders, like Rob Booker, have switched to robots as it removes the emotion of trading. The robot doesn't care. Booker himself openly admits that he's a "... shitty discretionary trader." He knows when he is good, and that's when he trades. Other than that, when he sees the market going along smoothly, he lets his robot run trades for him.

It's just like where Kyle Reese played by Michael Biehn in the 1984 movie The Terminator puts it: "It can't be reasoned with, it can't be bargained with... It doesn't feel pity or remorse or fear... And it absolutely will not stop. Ever. Until you are dead."

Now, don't think a robot will solve your problems. It won't because it only knows what it's programmed to know. Since no one knows how the market will change — and the market, any market, changes all the time — then neither will the robot. There are so, so very many stories of robots that worked... until they didn't — "Until you are dead [broke]."

And when a robot doesn't work, everything goes to shit — including your account — in a very, very short time.

Only professionals should use robots. The professional at least has the intuitive skill to pull the plug when the market begins to change.

And look, even then most folks, even the pros, don't get this right. When a robot goes bad, there's usually (about never) time to react and pull that plug, anyway, and the account goes to the wood....

Moral of the story is: Don't use robots; make your own decisions. However, base those trading decisions on the goal of winning as opposed to how much money is involved.

That's it. That's how you need to start trading.

If you're already trading, but not finding the success you feel you should, then you simply need to "...alter the way that you think because you are a product of the way that you think and thoughts are things."

You do this by simply starting to think in terms of the importance of looking at the end goal as opposed to the plumbing of how to reach that goal.

Ooops! I've said that twice now: "...the importance of looking at the end goal as opposed to the plumbing of how to reach that goal." Must be important, eh?