So throughout this post, I will refer to him as “Bob.”

What I thought was interesting was that when Bob first considered getting into Forex, he made a simple chart of the pros and cons to help him decide if it was worth getting into.  Like me, he had gone through other businesses before getting into Forex so he had some things to compare it to.

The reason I found it interesting is that it is a peek into the mind of the average person who wants to get into Forex.  It is a great list that covers most of the bases.  After Bob’s list, I will add my opinions on some of his points.

If you are deciding if you should get into Forex or not, this may bring up some important points that you may have not considered.   Keep in mind that these are his opinions and your situation may be different.

Here is his list:

What I do not like (or might not like) about the FOREX market

• It is active work. Not a passive income.
• It is possible to lose money very quickly.
• The hours where profitable trades may be found might be “unsociable”.
• It could be considered betting and this might lead to addictive behavior.
• The wins can come fast and big and this might lead to bad habits or behaviors.
• Brokers might go broke and take my money.
• I have to look at a screen “all day”.
• I am a small fish. Big players might be preying on guys like me.
• The market is always open so I will be tempted to trade even when I should not.

What I like about the FOREX market

• Versus most businesses – There are very few taxes to consider. No GST, Land tax, council rates, stamp duty. There are no customers, debtors, creditors, stock, invoices etc.
• It is a “clean” market.
• Versus Real Estate – It does not rely on capital growth, rental returns, changes to the tax law, insurance claims, property maintenance etc.
• Versus Share trading – I do not need to analyze company reports. I do not have to keep my eye on a hundred variables that might influence company price and dividend, continually. I am not paying inflated salaries to directors and auditors etc. I am not wasting millions of trees with paper trail.
• There is relatively little paper trail to consider. Most recording can be done electronically.
• Versus Option or Futures trading – All of the above but the FOREX market is open 24/5 each week
• I can operate when I want. Any time of day and any time of year. I can stop any time I want and there is nothing to undo. No company structures, no equipment storage etc.
• I can operate from anywhere in the world where there is an internet connection.
• There is an unlimited upside opportunity
• I can trade for others when I become a good trader
• I do not need employees
• Transaction costs are low
• Money can be stored offshore in different currencies
• When I become good at it I will have the ability to create an income for life. From anywhere.
• The market is almost immune to manipulation.
• There is no one “making the game” (eg poker, TAB) and creaming the profits. There are many brokers so a low spread can always be found.
• Brokers and software developers are continually developing trading tools and the tools are inexpensive (or free).
• There is very little chance of not being filled at a price, even if there is a big move in a market.
• There is actual real life need for currency exchange.
• Each transaction is a simple transaction with a result that is known pretty quickly. I am not hanging around for days or years wondering if the investment was a good one.
• I think my brain is well suited to trading currencies
• People still need to exchange currencies, even if there is a zombie apocalypse.
• Skills learned in trading these markets will be useful for analyzing silver and gold.
• Success will be determined by rational thinking, research and execution. It will not be achieved by social manipulation, membership of a clique or brown nosing to a boss as happens in many jobs. The Forex market does not care which clubs I belong to or what car I drive.

My thoughts on his list

First, I’ll address his reasons why he though he might not like Forex trading.  One concern was that he may lose a lot of money.  This is a very valid point, the leverage can kill your account if you are not careful.  However in Forex, I feel that if you use stop losses and proper money management (only risking 1-3% on one trade), it can be safer than other markets because I find there is less slippage in Forex.  Most of the time, my stop losses are filled at the levels that I set them.

He expresses a concern over losing all his money if his broker goes out of business.  In light of what happened to Refco, this is a valid concern.  However, if you trade with any of the major brokers nowadays, you should be fine.  The US government has since raised the requirements for brokers to prevent such an event from happening again.  If you are very concerned about this, research a prospective broker and find out their current cash reserves and capitalization.

The next interesting point that he makes is that trading is similar to gambling and there is a potential to get addicted.  If you really do have a gambling addiction, then trading is probably not the best business to get into.  However, if you treat it like a business and not a game of chance, you have the potential to become successful.  Most people see trading as a fast ticket to wealth…it is like any other business, you have to learn before you earn.

Another concern that he has is that he may get pushed around by the bigger players in the market, since he is a small guy. Actually, being the small guy can be a good thing.  I forget where I read this statement, but there is a positional advantage for every player in the markets.  The independent trader has flexibility and agility.  He can get in and out quickly while it may take the big institutions longer to take and unwind large positions.  In addition, the currency markets are so liquid that it is usually very easy to get in and out.

The final negative point that I will comment on is the fact that he thought that he has to sit in front of the screens “all day.”  I think this is a common misconception of people who are new to trading.  You can choose to be a day trader, or you can take position trades that last weeks or months and only require a check once a day.  It just depends on your goals and your style.

Now on to the positive stuff…

He makes some great points in the pros category.

A couple things I want to comment on…first, watch the offshore thing.  People talk about sheltering their funds offshore to get around paying taxes.  I don’t believe in that, getting caught is serious.  It’s better to just declare your offshore holdings, pay what you owe and sleep well at night.

I especially like his last point that the markets do not care about who you are.  That is one of the best reasons!  You can become successful regardless of race, religion, creed or sexual orientation.  You don’t have to kiss up to anyone and brokers like Oanda make it easy to get started with a very small amount of money.

Oh yeah, and don’t forget about the “zombie apocalypse.”  That shit is serious son, there are even videos on how to survive if one happens.  But yes, you will probably still need to exchange currency with the people who are not zombies. The guy in this video forgets this important point…and he calls himself a “zombie scientist”.

Just joking BTW, I know what you meant Bob.

But these reasons are worthless unless…

Anyway, if you are just starting out, I hope Bob’s list and my comments have given you something to think about.  As you can see, there are a lot of great reasons to get into Forex trading and the pros greatly outweigh the cons.

However, regardless of the intellectual reasons to get into trading, the bottom line is that you have to love the act of trading…period.  If you don’t, you should get into something you do love and figure out a way to get paid for it.

Forex trading is not just about the money.

Many thanks to Bob for letting me share his list!  Did you make a similar list when you were first starting out?  What else can you add?

This got me thinking about how it would be great to also have some 4 hour chart strategies that would still have excellent risk reward ratios, but would be trades that I would only have to check once or twice a day.  In addition, Metatrader 4 alerts could also be a big help in detaching me from the computer screen.

Although trades based off the 4 hour charts would probably have larger stops, the rewards could be as follows:

1. Larger profit potential.
2. Trade entry time is not so critical.  I would not have to get into a trade right away, there would be more room for error.
3. Trading a longer time frame would give me more time to do other things I love to do.
4. Backtesting is easier because there would be fewer setups per time period.
5. Since I could test more pairs, I could also trade more pairs, providing more opportunities.
6. Once I master a profitable strategy, I could teach it to people with day jobs.
7. It would allow me to practice patience and not trading for the sake of trading.

My only apprehension is that I have been known to get antsy in the past when trading a four hour strategy.   Anyway, those were just some thoughts that I had on my trip.

I will probably hold off for now, but a four hour trading strategy or two can definitely have a place in a trader’s arsenal.

If you know someone who insists on doing this, here are a few things that may help you convince them otherwise.  Hopefully you have better luck than me.

Cost Savings

In my last post on inflation and gas prices, I showed a picture of current gas prices here in Honolulu.  Based on this picture, let’s break down the cost savings.

Regular gas price as of the picture: $4.37

Premium gas price as of the picture:  $4.57

The difference is $0.20 or about 4.5%.

Let’s say you fill up twice a week and have a 18 gallon tank.  At a premium of $0.20/gallon, that mean you are paying an extra $7.20/week.  That comes out to an extra $28.80/month or $345.60/year.  Just because you are using the wrong gas.

Of course, the more you drive, the bigger the savings.

And with gas prices looking like they will continue to rise, the more savings the better.  Here is today’s chart for crude oil.

Crude oil prices currently forming a solid uptrend after breaking 95

Other Factors

Just because something costs more, that doesn’t necessarily mean that it is better.  In the case of gasoline, it is just different.

I think this paragraph from the Octane Rating page of Wikipedia sums it up best:

Octane rating does not relate to the energy content of the fuel (see heating value). It is only a measure of the fuel’s tendency to burn in a controlled manner, rather than exploding in an uncontrolled manner. Where the octane number is raised by blending in ethanol, energy content per volume is reduced.

So in order to control the temperature at which gasoline burns, they have to blend in ethanol.  This increases the octane rating and the price.  What is created is a gas product called “Premium.”

Why do they need to control the temperature at which gasoline burns?  This is because higher performance engines run hotter.  To be exact, there is more pressure/compression in high performance engines, leading to higher heat.

Think about it, will a Honda Civic engine need more pressure than a Porsche 911 engine?  Of course not, the Porsche will get you going much quicker than the Civic…that means more energy required.

With the engine running hotter, regular gasoline will start to explode in different parts of the engine instead of in the piston chamber where it is supposed to detonate.  This causes knocking and pinging noises and can damage the engine.  So with the ethanol added, the gasoline explodes at a higher temperature and will only explode once it gets to the chamber.

If you stick this gas into a regular engine like the Honda Civic, it can lead to the gas not being burned completely because the engine does not have the necessary heat.  This can add unnecessary stress to the emissions system and wastes fuel.

But I Own a Ferrari

Well then, you obviously have to use premium and you could probably give a shit about an extra $346 a year.  But for the average person driving a car that was built for 87 octane, there can be a significant savings by using the correct grade of gasoline.

Not only in the cost of fuel, but also in the overall maintenance of the car.  With gas prices going up again, every little bit helps.

If you have ever had to go to the DMV in a large city, I’m sure you could agree that it is not fun.  I can’t remember any time when it didn’t take less than an hour.

Given this fact and the ‘state worker hours’, I procrastinated on renewing my driver’s license even though it was expired.  In the past, I would have to stand in line for a long time…actually I take that back.  I would have to stand in several different lines for a long time.

Based on previous experience, the routine in Hawaii would include:

• Filling out an application
• Waiting for the clerk to put the application into the computer
• Taking an eye test
• Getting fingerprinted
• Taking a written test (still no testing computers in Hawaii)
• Having the test corrected
• Taking my picture
• Finally having the privilege of paying the cashier for the whole experience

But after getting bounced by a douchebag bouncer at a dive bar for having an expired license, I figured that I better get a new driver’s license as not to interrupt my drinking time.

I went down to the DMV at about 9:00 am in the morning yesterday after putting myself in the correct mindset to deal with the bullshit and having skimmed the driver’s manual the night before.

Am I in the right place?

I'm smiling on the inside

The first thing that I noticed was that it was pretty empty in there.  Stepping into line, there were only about 6 people ahead of me and only a few people waiting on the benches.

I thought that I got lucky because it is usually packed from when the doors open at 7:45 am.  “Score!” I thought.

The first line moved quickly and the application check and eye test were painless.  Then I was instructed to go straight to the cashier.  I paid my reinstatement fee and was almost immediately called to take my picture.

I only sat down for about a minute and I was called again.  This time they handed me my brand new license.  The clerk even told me “Have a great day!” All in all, I was in and out in about 20 minutes.

WTF?

Isn’t this the DMV?  Where’s the pointless test?  And the rude clerks?

After rubbing my eyes and actually reading some of the signs, I realized that the Hawaii had done away with renewal testing and extended the renewal time from 5 years to 8 years for people between 21 and 71. You can even renew through the mail.

I can only assume that it is because of budget cuts, but it makes a ton of sense. That is why it was so empty!

My point is that it was much, much easier than I had pictured it would be.

How many times do we do this to ourselves?

So the moral of the story is how many times do we create excuses not to do something because of how difficult we THINK it will be?  Maybe you have excuses for not backtesting, trying a new trading strategy, not using a spreadsheet to track your trades or even not learning how to use a computer properly just because you think it will be hard.

I remember listening to a great book by Dr. Wayne Dyer called Excuses Begone where he outlined this concept and it made a lot of sense, I never thought of it that way before.  There is an equal chance that something you have/want to do is easy.

Sometimes I still do it (like in this case), human nature I guess. I usually catch myself and get to work.   If you find yourself doing procrastinating a lot, keep this in mind…it might be much easier than you think.

We had some great relief at the pump when crude was down in the $70′s, but now that it is above $100 a barrel again, we could start to see $5.00/gallon gas once more.

Front month crude closed at $113.08 according to the quote from INO.com.  But you knew that already…

How does this translate to prices at the pump?  Here is a picture that I took today at a gas station in Honolulu:

Do you notice anything else?  Charging a higher price for a gallon of diesel…crazy.

But this isn’t inflation

I was watching CNBC last week where one of the Fed Presidents was talking about the economy.  “Money Honey” Bartiromo was asking him his opinions about where the economy is heading and more specifically about inflation.

He said that gas prices are rising rapidly and that he is paying more for a box of cereal than before.  But he doesn’t consider that inflation.

Huh?

And then I remembered why I stopped watching the news.  Clap off!

After reviewing my finances last year, I realized that my car was killing me. I had a 1991 Nissan 300ZX 2+2 that was similar to this picture:

It was a great car but it was getting older and it ate gas like a mother.  I was averaging about 21 mpg and being that it was so old, parts were becoming harder to find and more expensive.  I still think that it is one of the best looking cars to come out of Japan…ever. When I bought it from a guy in the Navy in 2005, it only had 35,000 miles on it.

The car had to go though.  Here was a rough breakdown of the average monthly expenses:

• Gas:  $240
• Insurance: $65
• Registration:  $11
• Repairs/Maint:  $75
• Total: $381

I always wanted a motorcycle

But I never had a good enough reason to buy one. However, being that money was tight and the car was a huge expense, it began to make sense.

For those of you who are graphically inclined, here is how it worked out on a chart before and after switching to a motorcycle:

Originally I wanted a Harley but after riding a friend’s Sportster, I wasn’t impressed.  Sure, there is nothing like the sound and feel of a Harley but the Sportster was pretty unstable at high speeds and of course Harleys are notorious for needing a lot of repairs.

So I did some research and found the Yamaha V-Star 650 Classic.  Reliable, affordable, sounds good and looks like a bigger bike than it really is.   Here is a picture:

As usual, I bought it off of Craigslist.  It only had about 2,000 miles on it and came with the cover and about $700 (short pipes and supercharger) of aftermarket equipment on it, so I thought it was a good deal.

Sure, I can’t carry anything and it sucks when it rains but I was willing to accept those drawbacks.  If needed be, I could borrow my girlfriend’s car if I needed to move something bigger.  It is only temporary anyway.

Costs

So how much do I save very month?  Here is an estimated cost breakdown for the bike:

• Gas:  $45
• Insurance: $9
• Registration:  $3
• Repairs/Maint.:  $10
• Total: $67

The numbers don’t lie, I save about $314 per month with the bike.  It gets 50 mpg and is a lot of fun to boot.

Safety is always an issue on a motorcycle, but here in Hawaii people drive pretty slow, even in the freeway.  So I feel much better about being on a motorcycle that if I was in Los Angeles, for example.  It is like trading, you have to have a healthy respect for the risk.

The additional savings is helping me to get my debt under control and work my way to becoming debt free again so I can continue to trade live.  Again, this isn’t something a sober Financial Planner would recommend (and neither am I), but it has been working well for me.

Let’s Riiiiiide!

I have been trying to recreate actual trading conditions as much as possible.  That is actually pretty difficult during backtesting because there is no waiting (or you can pause the market indefinitely) and there is no real money on the line.

In order to recreate live conditions as much as possible, after I close and log a trade and imagine how I would have felt if that was done in my live account.  For me, this has been surprisingly effective and that is what brought me to that conclusion.

Why?

So the question naturally arises.

Maybe I am being too hard on myself?  Maybe I’m relying too much on the winnings?  Maybe I don’t have enough confidence in the system?

The answer was all of the above.

With this knowledge, I have been working towards evening out my perception towards winning and losing trades.

How?

I think I have to become comfortable enough with a setup to truly know what to expect in the long run.  In addition, I need to get away from the feeling that I HAVE to make money right away.  Just like in any other performance activity, the best things happen when you let them come to you.

But not trading live is tough.  I can’t tell you how many times I have been tempted to open my Oanda platform and actually start taking some trades.

It would be so easy.  With just a few clicks of the mouse, I could get my fix.

But I haven’t done it.  I’m sticking to the plan and have been working on a project to improve my trading and take care of my debt.

More on that later…

I have also been working on a plan of attack on the best way to start chipping away at it.  I think that once I get the ball rolling, it will only start to get easier and easier.

Some people call it the debt snowball, the debt tsunami, the debt lowrider…whatever name you give it, the idea is the same.  Just get the momentum going towards that goal and it may be easier than I think.

My backtesting has really improved too.  I have been much more diligent in testing and recording my results.

In addition, the extra time and space in my head that I have gained by turning the live screens off has been very beneficial.  I now have more time to plan and figure out what I have been doing wrong.

I’m going to call this new project “Operation Debt Bomb…destroy your debt before it destroys you!”  I will reveal my first goal in my next post.

Until then, I hope you are trading well and have a great weekend!