As we mentioned in Part 2 of our interview with Thomas Fischer, a veteran of inter-bank foreign exchange trading, the most important aspect of trading the highly leveraged Forex markets is discipline – emotional and numerical.

One deals with how much of your cash you put at risk on any trade, and the other with psychology – how you handle that fear and greed with your money on the line.

Thomas has granted us a rare glimpse into the mysterious world of Forex trading he prospered in for 22 years.

Today we are talking about the discipline it takes to become highly profitable.

Onward we go…

Foreign Exchange Trading & Technical Analysis

Dr. Brown: In the first part of this forex trading interview you mentioned that, “When you have a winning trade take profits and try to ride the movement/wave for as long as possible locking in profits as it moves in your direction.” Could you elaborate on what you mean by movement/wave?

Thomas Fischer: “I was educated as a trader in the good old days without technical analysis. We had voice brokers and could get the feel for the market listening to the screaming and shouting. I do realize however, that today all traders use technical analysis and it does give you an indication where a certain currency pair is moving.

I guess the charts become self-fulfilling because everybody is watching the same charts. It is, however, important that you pick your own instrument/chart and get to know the background. I.e. Candlesticks, Elliot Wave, head and shoulders formation, Fibonacci etcetera and use that for your Forex trades.

You should not jump around and use different charts haphazardly that will only lead to a lot of trades – and mainly losing trades. We actually use all the different styles and tools. We use Fundamental analysis for picking the currency plays and technical analysis for actually pinpointing the entry/exit points.

We use tight stop losses and defined exit prices for the more speculative trades and mental stop losses for longer fundamental currency investments. I did not refer to a chart but the movement of the currency pair and by wave I meant it metaphorically i.e. that you like a surfer staying on the wave for as long as possible.”

The Discipline of Foreign Exchange Trading

Dr. Brown: For the benefit of our readers, can you elaborate on your prior statement, “You can never just log on to the computer and make a profit for a new suit or an expensive dinner with your wife – the market doesn’t work that way.” Is that true? If not, what results can people expect who remain disciplined and stick to a good strategy?

Thomas Fischer: “You can make a living, and a very comfortable living as well, by trading currencies. What I meant was you cannot simply say ‘oh I am going to make some money today for a new suit or dinner’ and then make a profitable trade. You have to stay disciplined and execute trades according to your strategy and charts which are not dictated by a desire for a suit or gourmet dinner.”

Dr. Brown: You made the bizarre statement in Part 1 that, “The worst case scenario is that the first trade you make is a winner.” What do you mean by that?!

Thomas Fischer: “I know it seems like a strange comment but I have seen it happen so many times to beginners. The first trade is a bull’s eye and then you think ‘oh this is easy’ but it is very difficult to keep hitting bull’s eyes. There is some truth in the statement that you learn from your mistakes. If you start with a loser you will probably think ‘what did I do wrong’ and begin to trade more disciplined. When I joined the trading room back in 1978 my manager said to me, ‘I expect you to lose a million in the first year but learn from your mistakes and become a profitable trader.’ I am not saying you should expect to lose a million but a couple of losers may be the best education you can get.”

—End of Interview—

There you have it, thoughts on Forex market trading from one of the masters of the craft. But our conversation doesn’t end here. In the coming months we’ll be addressing Forex, along with a number of other investing concepts for readers.

For some takeaways today, a couple more points that Thomas gives us that can be applied to any investment, be it foreign currency or stocks.

• Use as many data points and as much information as possible when making investment decisions. But more importantly, understand them and be comfortable with them.
• Stick with a strategy, use trailing stops and stay disciplined.

Dr. Scott Brown
Investment U