"Tragedy Of The Retail Forex Trader"

 

Are You Ready To Set Aside Your Fancy Indicators

And Focus On The Real Facts That Create

Consistent Trading Profits?

 

I have to start with this question because not everyone out there is comfortable listening to the truth, even when it’s backed by cold, hard facts.

Some people prefer excuses to real achievement, and others prefer fantasy to reality.

This manifesto will not tell you what you want to hear – it will tell you what you need to hear.

If you’re not ready to have your assumptions about retail Forex trading sorely tested (and probably turned on its head), close this page right now.

If, however, you’re ready to explore the counter-intuitive truths behind why you’re struggling with trading, proceed with an open mind.

 

We All Want To Believe

 

These days, everything you could ever want to know about trading can be found with a simple Google query. Brokers are everyone, and anyone can learn to trade online in less than a week.

This really seems like a time where even the “little guy” can get rich, doesn’t it?

Here’s the dream we all want to believe: “Anyone with a laptop and internet connection can start trading and making money. After some practice and experience, we’ll be able to quit our job and make even more money trading full-time from home.”

Ahh. If only it were that simple, we’d have a world full of homemade millionaires.

You see, this is only half the story.

It all really comes down to a matter of capital and strategy.

Allow me to explain.

 

The Secret Ingredient to Financial Success

 

I began trading back in 2005 when the retail Forex industry was relatively new (it still is, by the way). Indeed, I was able to attain a significant level of success trading a few hours a day by myself, even though I was stuck in a day job back then.

The most important advantage that retail Forex trading gave me was the availability of leverage. Of course, there are many other advantages, but this is by far the most important for someone with less than $100,000 to start making serious money.

If you’ve studied how people attained great wealth within 5 – 10 years, you’ll find the common denominator to be their ability to use some form of leverage. This is perhaps best demonstrated by the financial success of Mark Zuckerberg (of Facebook) and Jeff Bezos (of Amazon.com) who leveraged the internet to reach more than a billion people online.

A small hedge fund can trade millions of dollars in assets, which puts it way out of reach for more than 99% of the world’s population. With the leverage provided by the retail Forex industry however, just $20,000 will do it. Never before in the history of the world has such an opportunity been made available to regular people.

The fact of the matter is that the world of trading has changed. Previously, only wealthy individuals were allowed to speculate in financial markets. These days, a college student can deposit $500 into an account and start trading in 2 weeks.

Traditionally, any gains made from a $500 account wouldn’t be worth half the effort (for both the trader and broker), but with leverage, the student can now find himself with a significant increase in pocket money, with no additional effort.

And what about the young working professional or retiree with a $20,000 account? There is suddenly the very real potential for a trading income that can replace that of a full-time job. This is what usually causes people to pick up trading – the promise of a new income steam. Not necessarily to get rich (not yet, anyway), but an extra $300 – $700 a month now wouldn’t hurt, right?

 

But Here’s The Rub

 

Pit an average retail trader against a multi-million dollar hedge fund – with all their specialized knowledge, resources, experience and manpower – who do you think will win in the end?

Clearly, all things being equal, the hedge fund will easily beat up the retail trader and take his lunch money.

But notice I said “all things being equal”.

 

The Silver Lining

 

Military history tells us that although strength is a key to winning wars, weaker forces have indeed defeated stronger ones, many times before.

Can this also happen in an online trading environment?

Coming from Singapore, where we have a conscript army (all able-bodied men must serve in the military for two and a half years), I’ve learned a few things about winning and losing on the battlefield.

If you’ve taken a look at the world’s military history, guerrilla warfare was the prime cause for many of the major upsets in war. History has consistently shown that small groups of men, applying the proper strategies and tactics, can cause great damage and stand up to armies of far greater size.

Firepower is not all that counts. If the general of a large army fights the guerrilla on the same terms as he would another large army, he is in for a rude awakening. The guerrilla has no regard for the rules followed by the great army.

An expert is not afraid of another expert – he is afraid of the fool because he has no idea what to expect.

This is the same reason why the world is having such a hard time fighting terrorists – they don’t operate on the same terms. The enemy is no longer wearing a uniform we can easily recognize and attempt to shoot down. How do you fight an enemy you cannot see?

It soon became clear to me that as a retail trader, I cannot expect to survive long in the markets if I traded on the same terms as the professionals. I had to trade like a guerrilla. So that’s what I did.

The outcome being that I was able to quit my job, trade from home (and often overseas while on vacation), and never having to worry about writing a resume or gaining employment.

Can one really make a comfortable income trading Forex at the retail level?
The answer is yes.

Will most people who attempt to do so, ever achieve this?
The answer is no.

This has little to do with the inherent difficulties of trading, but rather that it is the nature of trading for the majority to always lose. The fact is that for me to buy at a low price, I need the effort of others to keep buying to push prices higher for me to sell at a profit.

The purpose of this manifesto is not to tell you something about trading that can be easily found online (or indeed, anywhere offline).

This will not be about the history of Forex trading, or market entry/exit techniques that everyone seems to be so crazy over.

If you’ve spent considerable time, effort and money learning new trading tactics but still struggle to make a decent trading income, this manifesto will reveal what you (and countless others) are doing wrong… and how to fix it once and for all.

I will explain a few facts that will give you a completely different perspective of Forex trading at the retail level, and how you can “up” your trading game to a level far surpassing that of your peers.

 

The 204.34% Profit Track Record Behind This Manifesto

 

Just so you know, I didn’t dream up the material in this manifesto overnight.

I’ve been trading for 6+ years and have a track record of showing my trades LIVE in front of a public audience, attaining a 204.34% profit over a period of 2 years.

If you started with a $10,000 account (in April 2009) you would have grown it to more than $30,000 at the time of this writing.

 

Who Is Chris Lee?

 

You might know me from the Candlesticks e-book I published in early 2008.

In an industry filled with quick-fix tactics and trading robots that lost a lot of money for a lot of people, this e-book was an honest breath of fresh air for many traders.

 

 

After publishing this e-book, letters and email testimonials came in faster than I had time to read them (although I eventually did).

It didn’t occur to me at the time, but the e-book had provided a channel of constant communication between me and thousands of frustrated traders who kept losing money.

It gave me a unique insight to the real problems plaguing retail traders, and I’ve since spent considerable time and effort figuring out how to solve them.

 

Then about two years ago, I disappeared from the limelight and began working on a “trade along with me” program where I taught my trading method to members by taking LIVE trades in the market.

Unless you’ve invested in the e-book, chances are that you’ve never heard of me. That’s OK, because the trading principles I teach won’t be easily accepted by the masses, and will probably never be popular.

This is perfectly normal, because only a small portion of retail traders will ever see success in the markets – the game of trading is such that whatever is popular is unlikely to work.

 

Why I Changed My Mind About Sharing This Material

 

I have never given away information as important as this, for free. But I agreed to do it now for three reasons:

•  First, I am ever more disgusted with the made-up-yesterday magic pills and silver bullets being peddled online. I despise seeing people led down dead-ends with trading methods that can never work in the long run.

• Second, the global recession will make it increasingly hard for a lot of people to make a decent living. Jobs will be cut and investment funds will be wiped out. If there ever was a time to be serious about picking up the knowledge and skills to be financially independent, it is now.

• Third, there isn’t much time left. The retail Forex trading industry is changing in ways that do not benefit small-time traders. The faster you can build your account to $25,000 – $50,000 or more, the safer you are from the changes that are coming. More on this later.

I started my publicizing my trades LIVE in April 2009, right in the middle of the global financial meltdown.

This was the time when the investment giants Bear Sterns and Lehman Brothers collapsed practically overnight, Citigroup dropped below $1 per share, and the world continued on to suffer the longest list of bank failures in history. Talk about being at the wrong place at the wrong time.

Despite all this however, our small group of traders enjoyed a 79.38% win rate and an average return of 102% per year, on just the EUR/USD alone.

What I’ll be revealing here are some of the concepts and principles that got us these results.

 

I’ll Take You Beyond The Usual Short-Term Tricks

 

As you read this manifesto, I promise to take you beyond just another trade entry/exit technique that might make you some money temporarily.

The stuff I’ll be revealing to you is as true as gravity, regardless of the tools and indicators you might already be using.

If trading can be likened to building a house, indicators are the tools we use to build it; and what I’ll be sharing with you here is about the architectural design.

Regardless of the quality of building materials or workmanship, a poorly-designed house will collapse – it’s only a matter of time.

The key is to have your house designed with the right foundations to begin with.

If you’ve been trading for more than 6 months but are still struggling to make consistent profits, it’s likely that your problem is not about finding more tools, but rather finding the right design (plan) to properly use the tools you already possess.

 

FACT: Less Than 30% of retail Forex traders make money after 3 months.

 

Here’s a list detailing the major retail Forex brokers, and the percentage of profitable trading accounts every quarter:

 

 

This works out to less than 0.8% of retail accounts being profitable every quarter of a year.

So don’t be too upset if you find that you’re having trouble making money – most people don’t. And in this manifesto, I’ll explain why.

 

I will show you how to tell if a trading strategy is likely to work in the long run.

You don’t want to waste time and effort on a strategy that makes

money temporarily, but loses effectiveness after a few months.

 

For some people, this requires that you simply modify your existing trading method. For others, a complete strategic overhaul will be needed.

Whatever trading strategy you’re applying right now, regardless of the technical indicators you’re using, this information can raise your trading to a level you’ve may never before have thought possible.

 

I Also Promise You the Principles of Trading that Never Goes Out of Style

 

You can walk into a magic shop, buy off-the-shelf tricks and use them to entertain your friends and family for a few days – but you can only perform those tricks a couple of times before their effect wears off.

The secrets I’ll be sharing with you is not about getting new tricks… it’s about understanding the foundational principles of how to continuously mystify people.

Once you understand these principles, you’ll immediately see not only why so many retail traders lose, but also why they will never be profitable in the long run.

 

You’ll discover what you’ll need to do to change your

experience of trading from “difficult” to “easy”

 

You do NOT need any special background, education or skills to use this knowledge – other than the will to make the changes you know you’ll need to make.

I can tell you exactly what you need to do and even give you a map on how to do it – but you need to be the one to take action.

After going through this, most traders will realize they’ll have to make a few major changes to how they trade… and this will be met with internal resistance because it is human nature to resist change.

In the end, your willingness to make the changes you KNOW you’ll need to make, will spell the difference between long term success, and short-lived profits.

It’s your choice.

 

A Lesson in Recent History

 

Until recently, I purposely avoided the spotlight and all online publicity… despite being constantly sought after by numerous internet marketers and robot-selling vendors who asked for my participation in the promotion of their products.

If you’ve been surfing online for trading strategies in the past 6-12 months, you‘d have seen a couple of them. And if you’ve been my subscriber all this time, you’d know that I’ve never once promoted any one of those $97 “automated teller machines”.

I avoided them like the plague, for good reasons.

Just by looking at how those robots took trades, I knew there was no way they could be consistently profitable in the long run. It was only a matter of time before these machines blew up… which they eventually did, in just a matter of months.

The only people making money from this were the sellers of these “magic boxes” and a few traders who got lucky.

Whenever one of these robots blew up, the sellers simply disappeared and re-emerged later with a new website, selling a new robot, under a new name.

The retail Forex industry became an ugly place.

Every other day, I would hear about people blowing up their accounts with robots, and yet they would continue searching for the next “sure-win” automated trading solution.

This sickened me.

Don’t get me wrong – it wasn’t that I felt sorry for those robot users.

On the contrary, I think they got what they deserved. They were looking to make money without learning or practice. They were looking for a free lunch: pay $97 once for a robot that makes $500 per month, forever.

Yeah, right.

These people didn’t want to put in the effort to learn to trade for themselves… they wanted a chuck of computer code to think and make decisions for them, for a low one-time payment of $97 (“Quick, where’s my credit card!!”)

The truth is that automated robots are simply tools. And just like any other tool, their effectiveness depends entirely on when and how they are used. Sadly, most robot users don’t even know how they work.

It’s one thing to understand exactly what the robot is programmed to do, and under what circumstances it should, and should not be used.

It’s another thing to run the robot on an account without knowing anything about its operative parameters.

Unsurprisingly, many people got burnt for their laziness and greed.

 

 

I’ve had the enlightening experience of receiving more than a few emails from people who were truly sincere about making money trading, but didn’t want to actually learn how to do it.

To this day I still can’t believe how naïve some people are. This is like wanting to be a Formula 1 driver without ever having to step inside a car.

It’s utterly ridiculous.

 

OK, I get your point Chris.

But You’re Kind Of… Rude?

 

Why, thank you. In the years that I’ve been teaching people how to trade Forex, I found that being “nice” doesn’t help.

An army recruit may resent his sergeant for being strict on discipline, but in war, it could very well save his life.

Trading is war, people.

If you want the financial rewards and freedom that comes with this, you’d better be ready to hear some hard truths. I’m not here to make merry.

I’m here to smack you on your helmet, tell you to hold on to your rifle, stay low and don’t get shot. Try to be a hero and the market makes an example out of you.

If you can do this, you stand to possibly change your life in ways you probably can’t even imagine right now.

I wrote this Manifesto to get people to WAKE UP and get their heads out of the clouds.

Trading is serious business, and unless you have some operative knowledge about how the game is played, you’ll always be the guy with the short end of the stick, wondering why your account keeps dwindling.

 

Get Ready

 

Trading at the retail level is inherently difficult because the principles that bring success often run counter to what we’re used to in our daily lives.

In other words, for most people, winning at trading is not something that will come naturally – it’s something that has to be learned and trained.

The concepts and principles I’m about to share with you were learned the hard way – through painful experience and careful reflection of my own trading adventures.

After dedicating almost every waking hour to figuring out the game of retail Forex trading, I now present this knowledge here for anyone who might have an interest in attaining financial independence with Forex.

Use this knowledge to better your trading and your life.

Let’s begin.

 

The Real Reason Why Retail Traders Struggle

 

Let’s start with uncovering the reason why you may be struggling with your trading.

Depending on your experience, you’re likely to fall into one of these categories.

Sound familiar?

Here’s the good news: there is a common cause to these problems.

And you’re about to find out exactly what that is.

 

An Open Advantage

 

I have a confession – I sometimes to go to trader gatherings acting as a new trader. I do this to experience first-hand, the real frustrations of people who are struggling with trading. Why do I do this? Because I get more realistic feedback as “one of the strugglers” rather than as a winning trader. People tend to be less straightforward with me when I’m perceived to be “better” or “different”. I want to know what’s really going on in their minds, not what they want me to think.

So what did I discover?

Almost every time, I’m struck by how everybody is approaching trading the wrong way.

You see, although retail traders understand the technicalities of trading (like, what the pip spread is), few actually use this knowledge to their advantage.

This is the prime cause for so much struggling and time wasting. It’s the reason why the overwhelming majority of new traders will fail in achieving their dreams even if they buy lots of “how to” products, study them religiously and work extremely hard at it.

This is going to be important, so read the following carefully.

 

Your Trading Business

 

Before we proceed, I need to make sure we’re communicating off the same level of understanding. This way, we’ll avoid any confusion and unnecessary guesswork along the way.

To kick things off, we need to step back and take a look at the business of running a trading operation.

All traders run a trading operation – some just do it better than others. Most are not even aware that they’re running one.

 

 

Losing traders treat their trades like lottery tickets: each one having no connection to the others. Trades are taken in isolation, each one serving as a lottery ticket that – hopefully – makes some money. If not, they just keep trying until they get lucky, or wipe out.

Winners, on the other hand, have a plan. As retail traders, they know that certain trading styles put them at a natural disadvantage, and so they cleverly avoid those. Each taken trade plays a role in an elaborate strategy that skews the probabilities in their favor.

Winning traders do not know which specific trades will be winners or losers, but they know they are likely to walk away richer than when they started.

 

Planning To Win

 

The first reason wealth eludes so many traders is poor preparation. The path to success begins with the words ‘I need a plan’.

But an effective plan is more than simply a series of steps to follow. How do you know your plan is likely to work?

Even among the minority of retail traders that have a plan, most have absolutely no idea how effective it will be. Here’s an example.

Would you bet money on yourself in winning a street fight against Bruce Lee?

Probably not.

You know the moment you step within his reach you’re going to get your ass handed to you. It’s not a matter of IF you’re going to lose; it’s a matter of HOW QUICKLY you’re going to lose.

In the same way, retail traders pit themselves against the trading equivalent of Bruce Lee every day – they click the buy button thinking they might win in the end, when they never stood a hair of a chance to begin with.

Most retail traders have no idea how heavily the odds are stacked against them.

Here’s why:

1. Retail traders don’t know who they’re trading against; and

2. Their plan for success (if they even have one) don’t take into account their natural strengths and weaknesses as retail traders.

Now imagine on the other hand, that you’re a skillful chess player and you challenge Bruce Lee to a round of chess. Wouldn’t you stand a much better chance at winning?

This isn’t rocket science, folks.

In short, here’s what you need to do:

1. Learn about the technical aspects of trading (I’m not talking about technical analysis here)

2. Figure out your strengths and weaknesses as a retail trader (compared to professional traders)

3. Devise (or learn) a trading strategy that maximizes exposure your strengths while minimizing exposure to your weaknesses

4. Devise (or learn) trade entry/exit techniques that compliment your strategy

Most retail traders skip steps 1 – 3 and jump straight to step 4. They focus on the ‘hows’ of trading, but ignore the ‘whys’.

Take this example. In applying a moving average cross-over to identify trade entries, one should ask, “Why would a moving average cross-over work as a trade entry signal?” What are the reasons? Does this method maximize my strengths as a retail trader?

 

In my candlesticks e-book, I detailed not just candlestick patterns. More importantly, I revealed to my readers why those candlestick patterns work: it’s a matter of supply and demand from the buyers and sellers in the market.

Once you understand why candlestick patterns are effective, no memorizing of candle patterns is necessary. With this knowledge, you can effectively interpret any combination of candlesticks, in any market!

 

The difference between surface knowledge and true understanding

…is knowing the answer to the “why” question.

 

If a stranger walks up to you and tells you he can turn a $100 bill into a $500/month income stream, but won’t explain why his method works, would you hand him your money?

I hope not.

But this is exactly what people are doing online every day, even right now.

The world’s richest investor said it best:

 

Obstacles of the Mind

 

Before I expose why some trading strategies work (while others don’t), the first thing we need to look at is your thinking.

It’s ineffective to talk about trading methods without addressing the most important component of trading – your perspective.

In an industry filled with exaggerated (and largely unrealistic) claims, our first area of business is to correct any psychological obstacles that will hinder your progress.

By eliminating these obstructions, you’ll be able to grow your capital faster and easier than you’ve ever thought possible. These are the same overriding concepts that successful retail traders operate on.

See if you can identify with the following symptom:

 

There are two opposing ways of thinking when it comes to trading at the retail level. There’s opportunistic thinking and strategic thinking.

 

Opportunity seekers are always looking for their big chance to make lots of money. Their only criteria is, “Can I make money from this?”

So today it’s automated robots, tomorrow it’s something else, and yesterday it was some other concept already forgotten.

Opportunity-seekers pick up lots of trading techniques, use a few, and abandon everything the moment there are a few losses or the next “easy” way to trade comes by. The only question they ask is, “What’s the easiest way for me to make money right now?”

A strategic trader, on the other hand, is a completely different animal. He is clear about how much money he wants to make and how to get to that goal.

He knows the strengths and weaknesses of retail traders compared to their professional counterparts. He understands what drives market prices and devises (or learns) different methods for taking profits based on this.

After reviewing the pros and cons of each method he picks the one most likely to achieve the results he wants.

The strategic trader knows that the biggest opportunity lies with how his trading operation is run, not the hot new product that is promoted this week.

 

Here’s the thing: The overwhelming majority of retail traders are nothing more than opportunity seekers. They have no strategy for choosing the trading products they buy.

They hop from one method to another, and while they may have some arbitrary income goal they have no idea how to achieve it.

And since they don’t have a clear strategy they cannot follow any sort of plan to reach that goal… so they end up buying anything and everything that comes with the promise of easy money with the hope that this is going to be it – this is their chance to make it big.

They especially love (and fall victim to) “automated money” products promising huge rewards with little or no effort.

 

 

Forex trading is incredibly lucrative and one can make a lot of money in an embarrassingly short period of time.

However, the capital and skills required to do this consistently takes time and effort to build.

 

All right, assuming you now have the right expectations and understand the need to get serious with building a trading operation around an effective strategy (that you fully understand), let’s talk about what else stands in your way…

 

 

The semi-experienced trader buys books, videos and attends seminars to learn about various trading “strategies”. Most of these methods include some combination of technical indicators that serve as trade entry/exit signals.

Now before we continue, I want to state for the record that all of these methods work. All of them.

I say this because you need to understand the subtle truth behind this statement.

There’s a BIG difference between a method that works, and a method that works consistently.

And therein lies the key to understanding why so many trading strategies fail.

Would you rather make $500 on 2 trades, only to lose $450 on the next 2 trades? Or make a consistent $30 on each of 4 consecutive trades?

A winning strategy should not be based on how much money is made on each trade, but how consistent the wins are.

Consistency trumps absolute gains.

 

A Winning Strategy is not determined by how much money

is made on each trade, but the consistency of the wins.

 

So it’s not a question of whether the strategy makes money (even a monkey can make money trading), but whether it can make money consistently.

And how can we find out if a trading method is likely to make money consistently?

First, you’ll need to…

 

Understand Your Business

 

In case you haven’t realized by now, we are in the business of retail trading.

And just like how a savvy entrepreneur studies the industry environment before coming up with a business plan, so to must we take a good look at the retail trading industry and select the path of least resistance to making money.

You don’t want to get involved in a business that tries to sell ice to Eskimos. You want to run an easy business, not a tough one. Swim with the current, not against it.

The bottom line is that we don’t want to end up with a strategy that works against our natural strengths and weakness as retail traders.

Many people can’t make consistent profits simply because their trading method exposes their weaknesses while avoiding their strengths.

From here on, I’ll be sharing with you what you need to be doing, and more importantly, why you need to be doing it. Be sure to take notes.

Let’s go.

 

Principle #1: Trade on the Longer Time Frames

 

Why is it preferable for retail traders to trade on the longer time frames?

To understand this point, we’ll need to once again step back and look at our trading from a business perspective.

In business terms, our trading profits are the income of our trading operation, while our losses are the expenses. Nothing groundbreaking here.

There is, however, one type of expense that’s often ignored by retail traders… the bid-ask spread.

It’s the cost we pay our broker for their services, and it typically ranges from 2 – 4 pips on the major currency pairs.

So how does the pip-spread affect the way we run our trading operation?

 

 

Most people would choose $2, since that leads to more income and profits!

From an operational perspective however, there’s another reason why $2 is a better choice…

Allow me explain by posing a slightly different question:

In the same bread example, how many loaves of bread would you need to sell, to make a profit of $300?

If your sale price was $1, you’d have to sell 600 loaves to make a $300 profit.

If your sale price was $2, you’d have to sell 200 loaves to make a $300 profit.

Take a close look at the numbers…

By simply doubling your income, you reach your profit goal three times faster (not just twice).

This little-understood concept has immense implications when it comes to trading.

If you have an income goal of $80,000 per year, would you rather reach that level in 60 small trades or 20 medium-sized trades? Which is easier to achieve – being right 60 times or 20 times?

This is the first reason why short-term traders find it difficult to reach their income goals – they have to be right a lot more times than a medium-term trader (like me), who only has to be right a fraction of the time.

And there’s another reason why it’s difficult for short-term retail traders to consistently make money – their account gets quickly eaten up by the bid-ask spread.

Huh?

Allow me to explain further.

You see, a trader who pays a 2-pip spread on 1 trade (to make a profit of say, 200 pips), pays a smaller portion in fees compared to another trader who pays a 2-pip spread each on 11 smaller trades to make the same profit.

Here’s what I mean:

Trader A is a short-term trader looking for trades of 20 pips profit.

Trader B is a medium-term trader looking for trades of 200 pips profit.