Articles by: David Williams

Fail-Forward Forex

Failing Forward on the Forex Market

25 years ago I failed college algebra.

Actually, I got a D. This is not technically failing, but since you needed a C average to get into the engineering school, it was not good news.

Now getting a D in college algebra might not be the end of the world for an art student, or a business major, or even pre-law, but for an engineering candidate it was devastating.

You see, the list of “required courses” for an engineering degree did not even include college algebra.  You know why?  Because it’s so basic, so trivial, they assumed you already knew algebra if you were even considering engineering as a major!

Seriously, it’s not even a pre-requisite.  It’s a pre-pre-requisite.  (I’m not making this up. Pre-calculus is a pre-requisite, and college algebra is the pre-requisite for pre-calculus!)

So, needless to say, I was depressed.  But I didn’t give up.  I’m not even sure why I didn’t give up – stubbornness – or maybe just refusing to fail.

When I look back on that experience, it reminds me of a saying I came across just the other day:

“Failure is not the opposite of success,  it is a step towards success.”

In this case, it’s true.  I learned from that failure. Among other things, I learned to never take a math course early in the morning again.  Ever.

I’m serious.  8:00 AM is just way too early for my brain to be solving equations.

Anyway, I really like that saying.  And I think it applies perfectly to Forex trading.

Let me tell you right now: If you are not ready to fail, then Forex trading is not for you.  Don’t even try it.

You and I (and every other trader) are looking for the same thing. To build that ultimate trading system that never loses and just wins, wins, wins.  The so-called “Holy Grail” of trading.

But if you think it’s just gonna happen without coming up with some seemingly great ideas, falling in love with those same ideas and then systematically destroying them, well, you are dead wrong.

And let me tell you, destroying those ideas hurts.

It really does.  Because you think your idea is so clever and it makes so much sense and it’s based on rock-solid logic.

Then you implement it and it fails horribly. Ouch.

But where would you rather be?  Still dreaming about an idea that’s bound to fail?  Or would you like to have failed-forward and be working on your next idea?

Whatever tools you use to build your Expert Advisor, make sure you can move quickly from your idea to implementation.

As sadistic as it sounds, the faster you can crush your ideas, the faster you’ll move toward success.

NOTE: I should clarify, I don’t believe there is such a thing as a “Holy Grail” trading system and I don’t really search for one, but I do continually try to improve my systems to make them as good as they can be.  And yeah, the holy grail system is fun to dream about.

 

Education

Trade Exit Quality

Test your EA’s Trade Exit

A little over 100 years ago, in 1903, the Wright Brothers achieved their monumental goal of flight at Kitty Hawk, North Carolina.

Most people don’t know that there were quite a few other people trying to build an airplane at the same time. One was Alexander Graham Bell; another was the President of the Smithsonian Institution.

All of these men were much better funded than a certain little-known pair of bicycle shop mechanics from Ohio with a wind tunnel in their garage.

But there’s a key difference that led to the Wright Brothers’ success.

The other guys focused on making a more powerful engine.

Orville and Wilbur Wright focused on the plane.

plane

Specifically, the Wright Brothers built their airplane as a glider without an engine – then mounted the engine later, almost as an afterthought.

They flew it in the breeze first, then added power later. That was the key to their success. They discovered that when you’re building an airplane, the wings are more important than the engine.

What does this have to do with Forex Trading?

When you build and test an Expert Advisor you need to focus on the part that’s really important.  The part that’s responsible for the bottom line.

Most traders spend their time and energy searching for the perfect trade entry.

But the fact is, the entry does very little for most trades.  Gets it started in the right direction, but that’s about it.

It’s the trade exit that makes the money.  Or loses money. Both of these goals are equally important:

(1)  Squeeze every bit of profit from your winning trade like wringing water from a washcloth.

(2)  Drop a losing trade faster than you can say “margin call” and stop the bleeding right away.

In the 3 Metrics PDF I describe a simple method I use to test the quality of my exits.

For each winning trade I make a note of when the trade was closed.  Then I look to the left and the right on the chart and find what the optimal exit time would have been.

I study the price action or indicators values around the optimal time and see if I could improve my exit strategy.

You can use the “exit test” the same way the Wright Brothers used the wind tunnel in their bicycle shop. To perfect the airplane before going out to “the big time.”

NOTE:  Right now I test my exits manually, but there has been talk on our forum about adding a method to test the quality of an exit inside of an EA.  If there is enough demand for this I’ll add this feature to a later release of VTS. That’s the way we roll.

Education
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