Want to Become a Winning Trader? Avoid Doing This...

Denial is an insidious and serious human condition that can be extremely dangerous to traders. I think out of all the human conditions, denial is one of the most harmful.

Denial keeps us stuck in doing a negative event over and over again regardless of the outcome. Have you ever heard the saying that madness is doing exactly the same thing over and over again and expecting a different result? Denial is usually why people do this!

Are you a losing trader who is trading the same way over and over again expecting different results? If so, you could be in denial. Look at the list below and see which of these apply to you:

1. Poor or no record keeping
2. Consistently losing month after month
3. Not profitable
4. Feeling helpless
5. Frustrated and stuck
6. Lying about your trading results to others
7. Creating diversions to distract you from reality
8. Needing to appear successful to feel successful
9. Spending out of control
10. Drinking or wild behavior
11. Anxious when alone, can't sit still

If you can identify with two on the above list then you may have a denial issue. If you identify with three or more you have a denial issue. There are different degrees of denial and the idea is that to be a successful trader you must objectively look at yourself and your trading. If you are in denial, or flirting with denial, you are not being objective and are stacking the odds against you that you will be a successful trader.

Denial is insidious, meaning that it begins without you really being aware that has begun. Be on guard for denial. To catch denial before it get out of control, look for the occasional twisting of the truth about your trading results or being lazy about keeping good trading records all indicate that you may not want to face the truth about your trading.

Denial is a disease in that it rarely gets better on its own. Denial rarely just goes away without being proactive and taking conscious action to intervene. Always seek the truth in yourself, your trading and in life and you will be less likely to have a denial problem. Seeking the truth usually takes energy and at times is the harder path to follow and accept, but this is the path you must always follow to avoid denial. As a trader you will not be successful living in denial. Do whatever it takes so that you do not live in denial. If you cannot fix it on your own, get help. You must learn to deal with reality and get a better result!

Bennett A. McDowell, founder of www.TradersCoach.com, began his financial career on Wall Street in 1984, and later became a Registered Securities Broker and Financial Advisor for Prudential Securities and Morgan Stanley. Bennett is considered an expert in technical analysis; he frequently lectures and recently authored the bestselling book The ART of Trading.)

Tip of the Day.

Foreign Exchange Intervention Focus: 

Foreign Exchange intervention is defined as FX transactions conducted by monetary authorities with the intention of influencing exchange rates. With the demise of Japan's economy, the Bank of Japan has frequently intervened in the open market to maintain a weak yen policy against the USD. They do this because a weak yen against the dollar will increase the American demand for Japanese goods. It has been reported that the BOJ stepped in with over $50 billion in currency interventions in 2003. It has also been reported that they are getting the most bang for their buck, by leveraging their trades.

The Ministry of Finance is responsible for all of the details of the intervention, including the amount, currency pair to trade, and the method of intervention. The Foreign Exchange Special Account provides the funds. The Bank of Japan conducts the foreign exchange operations as an agent for the Ministry of Finance.

How can this be used?

The Bank of Japan, like any other government or institution, cannot control the price of a currency in the long run. What they must do is choose significant levels and times to intervene, and hope that they will cause a snowballing effect of yen selling. This incorporates technical analysis with fundamental strategy. What a trader must do is anticipate when and at what price levels they will come into the market, as this can lead to profitable opportunities in the short run.

This graph shows a three-year chart of USD/JPY. You will clearly see a head and shoulders formation, with 115 being a long-term neckline. This was a very important technical level, as a break of this level brought many sellers into the market. The natural inclination of the market for the past few years has been USD selling, which would make one think that the market should have driven USD/JPY down. However, BOJ intervention has actively kept the level from dropping below that rate. In fact, on May 19, 2003, the price reached a low of 115.07 (its lowest level since February of 2001) before shooting up almost 200 pips in a few hours, and reaching an intra-day high of 117.50.

Although it has been rumored that BOJ has increased the level at which they will support the pair's price, the steady increase recently does not give us a great trading opportunity.

However, if price does drop in the near future, you may expect to see sharp and quick increases, mainly due to the BOJ.

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