Lessons

Lesson 6: Where to trade?

After polls on the forums, it appears that the group wanted a combination of practical and theoretical material for its next lesson. This will cover the theoretical part. I did write this yesterday (Saturday 28th of November 2015) before I decided not to release any more material. However seeing it sit in my documents folder, it seemed a pity to let it go to waste so I’m releasing it for the benefit of the community hoping that someone somewhere may at least gain some benefit from it.

At this point, you should have completed the foundation lessons and therefore you will have a good understanding of the fundamentals and a decent understanding of risk versus reward and money management. In effect, you are ready to start putting your book knowledge into practice in the real world and slowly building confidence and slowly learning. At the end of the day, the best way for you to learn is from experience. Unfortunately there is no substitution to this. Anyone who tells you otherwise is very mistaken.

Now I can try to tell you some of the different types of trading that are available to you. Specifically for you. Please understand that I’m not trying to tell you what you can and cannot do, however I’m trying to save you time. I do not wish you to try many conventional ways of trading only to be discouraged by the tiny to minuscule gains that you will receive. You see this is the part where it is going to become awkward for me, quite simply because I’m going to jump to a few assumptions about my readership and these assumptions may be wrong in some cases and may be construed as offensive in others, however I suspect that in many of the cases I am spot-on.

If you are following me on Etoro and reading this blog, chances are that you are trading for wealth generation for either savings later down the line or quite simply you want an additional stream of income to supplement your ordinary streams of income. In short in all likelihood you are not a rich individual who is trading with large amounts and have started with small to modest seed capital (i.e. hundreds or thousands).

One thing you have to realise about investment is the more you put in the more you get out. Since you’re starting with small amounts of capital and you want to achieve larger than ordinary gains (effectively having your capital earned for you at a market beating rate), you have to rely on leverage.

For example let us assume that you have $1000 and you want this to grow by 5% in one week. Assume that you invested this all (never a good idea but for this example we will assume this) in a buy of a single pair which we call USD/Random. Assume this pair currently has a rate of 1.0000

If you used no leverage, you would need this pair to increase up to 1.0500 in order to achieve your 5% gain. That is 500 pips in that week. While it is possible for this to happen, it rarely happens and is not very likely to repeat itself often when it does.

If you used 50X leverage ( like we mostly do on our social account on Etoro) you would need it go increase to only 1.0010 or 10 pips to realise such a gain. This is very likely, as no doubt you’ve seen us do this very often. Of course on the other side of this, with increased reward also comes increased risk but this is part of the game that you will know you have to accept. You cannot realistically expect to see gains of 100% with the risks of only 1%. At least not in this world.

Therefore since leverage applies to you, there are three methods of trading that I suggest:

1.) Your nest egg: This can be your social account that you leave alone on Etoro with gains compounding over time and building to a respectable amount.
2.) Your pocket money: This you can effectively do via contracts for differences. This is where you place larger orders (leveraged orders) and the amount gained or lost is the difference in value between the contract at the opening point and the closing point. Fortunately since you only need to place a small amount and cover the margin fees, you can conduct deals for several thousands with much less money and therefore profit greatly. This is useful for people that want something in addition to their nest egg, because let’s face it it does feel a bit better if you have the opportunity to touch and spend some of your money from time to time. After all, it’s all very great to say that we can be disciplined and not touch the nest egg, however how many of us legitimately have the self-control to leave money on touched for a year or two? How many of us might need the money a little sooner? We will have a lot of trade ideas for CFDs on the forum soon (keep an eye out for this), with many of you also contributing your ideas. You will be amazed at how successful you can be, you will surprise yourselves, and if things go wrong, what you have learned about strict money management will come through and save you.

3.) Options: an option is a purchase of the right to execute a trade at a given point in the future. It can either be put (sell) or call (buy). These can be highly profitable and have a smaller risk since if the deal does not work in your favour, you don’t have to exercise the option and you can simply let it expire thereby only losing the smaller amount of the reservation price. For example purchase the option to sell (put) 50,000 units of EURUSD in one hour from now. If the price of the pair has gone down, then you have profited. If it doesn’t go down, then you have only lost the price of the option which would be significantly smaller than but cost you would lose if you conducted a conventional trade. For this reason options are also a good way of protecting large positions as an insurance (hedge). We will cover this in more detail in a later lesson.

Now ideally at this point many of you have already completed your foundation test and are showing a much greater understanding for the fundamentals that drive the market. Even better, many of you are participating in debates on the forums and formulating your trade ideas. Ideas in which you are confident enough to follow through and from what I can see so far they are mostly profitable. Ask yourself, could you have seen yourself doing this just 3 weeks ago? Be honest! Keep up this enthusiasm, trade in the right places and manage your money well and over time you will see results become even more rewarding, building up more confidence, improving your understanding even further and coming closer and closer to realising your dream. Everybody started in your position once. Remember that every time you become discouraged.

Now that you know what sort of platforms to use and you have a basic fundamental knowledge, all future lessons will focus solely on trading. No more boring theory people. I promise. Well done on making it this far!

P.s. After posting this, I am really itching to go on and finish what I started. I want to try and build this community the way I envisioned, but I really can not do it if I have members going against me every step of the way. As a community, we were built on being transparent, having integrity and above all we have to respect for facts. When people start challenging that and standing up for people who abuse those who rely on them, then it all falls apart. Nothing is more painful that seeing your people defend the actions of guys who tried to do to others everything that you are against. Seeing that thrown in your face twice on your own forum. Really made me sick. Honestly do not know if I am going to go back to posting there after that.

4 Comments

  1. Hi Mo,
    I’m really embarrassed by anything that happens. I just want to say on behalf of those who are really motivated to learn hugely with you that we are ready to help you to improve the working environment. We could discuss some solutions on the chat?
    Anyway I respect and understand your decision, it was the beginning of a great adventure and thank you for everything you gave us! I had take many pleasure to follow your lesson and strategies, and to answer the Foundation test yesterday.
    Hope you’ll be fine soon, you deserve it!

    Julien

  2. Hi Mohammed. I’ve been searching so many times for sources to learn and understand FX, all what I found were boring and difficult. I really surprised when I’ve read your posts at the first time, because I found what I was looking for. I’m a beginner and I don’t have any experience with this sort of investing. I’ve tried to apply what I learned from you. Also, I like the idea of ” The Power of Compounding ” 🙂

  3. Dear Mohammed,
    regarding the community I’m afraid it’s in the nature of things that you’ll also encounter some ignorance in a forum, but I don’t have any doubt that your sense of ethics will win through. Nevertheless, I really think that most of all it is a matter of organising the forum in a way that it’s easy to handle. It just grew too fast.
    I too once was at the point to decide whether to add a forum to my website or not, and I refrained from it as I imagined that it would take too much energy to keep everything under control … Even if your three moderators are doing their best to keep it clean and tidy, only you could decide how much ignorance you are willing to accept in your forum. For the sake of your peace of mind you could decide that the forum is a playground for the community where in the end all will understand that you have more to teach than just trading, and leave the rest to the moderators. Or you could shrink it down drastically and just keep the parts which are essential and conducive to your vision. I really hope that you won’t allow that “it all falls apart”, but rather trim the different channels to reduce any source of stress – and therefore any potential for conflict – in order that we can concentrate on what we really love to do: teach and learn.
    Hope to see you tomorrow, all bright-eyed and bushy-tailed! 😉
    Isabella

  4. Hi Mohammed
    I respect your descision and understand your reasons. I have no clever advice, I agree with Julien, Haidaroov and holicode above. It makes me sorry and it is a pity that you are forced to stop your presence at the forum and stop your lessons. I understand that this was something you enjoyed very much and found as a productive way of spending your time. I am impressed by your passion for helping people defend themselves from the vultures in this business. Being a beginner in trading I had a close contact with a couple of them myself.. I publicly questioned their intentions by writing on their walls. To my great satisfaction I saw that at least one of them lost a bunch of copiers during the next days. Anyway, That act was inspired by you and your lessons. You have opend many eyes of beginners like me. We have grown from “sitting ducks” to being at least a “moving target” not easy for a vulture to catch. Thank you for that and be sure that we are a bunch of grown up people who support you and want to help you and the community with the Troll issue. Please dont let the Trolls make you quiet, Exclude them or expose them.
    I hope to see you back soon Champ!

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