Forex Pip Auction Game Problem

Here are 4 fail-proof ways to solve the Pip Auction Game problem, and to guarantee that you’re not going to play it again. You have heard this before, and it’s true, but until now you still have not lived by this rule. You should never risk more for pips than they are worth. You should cut your losses short.

If your trade does not produce a profit for you, then you should close it. Practically, here is what you do. These are not hard and fast rules, but you will be able to mold them to your use easily enough.

1. If your trade does not work out within X minutes, then close the trade. X minutes is the number of minutes during which your trade just sits and does not move very much. You’re at a loss, but not a large loss.
2. If your trade immediately starts to move against you, ask yourself: did you make the right decision? If you did, then stay in until your stop loss is hit. If not, exit NOW, regardless of your stop loss being further away. More on this later — but a few words now:

How do you know that you did not enter the trade for the right reason? If you traded on emotion, if you entered the trade within 5 minutes of sitting down at your computer, if you did not follow your trading plan (later chapter), if you have a feeling deep inside that you made a mistake — all of these are good signs that you have made a trade for the wrong reasons.

Here’s the next way to avoid the Pip Auction Game:

You can’t lose what you don’t risk. Of course, if you have any desire to be rich at all, you’re thinking that this is the dumbest advice you’ve ever received.

1. If you have lost more than 9% of your account value, within ANY period of time, stop trading live NOW. No exceptions.
2. Trade on a demo account for 1 week for every 2% of your account that was lost (and maybe even more). If this seems like too much of a burden, ask yourself: “How much of a burden would it be to lose my entire account?”

This can be really hard to do. For instance, if you are trying to pay your bills and live off your trading account, and you are asked to stop trading live, you are going to wonder where you’re going to get the money to live from. The simple answer is that you have started trading live too early, and it is better to have $2,000 (or any amount) that you cannot trade live, than it is to have nothing left at all.

I once worked with a trader that refused to stop trading live and move to a demo account because “demo trading will take away the excitement. I’m not sure I could stay interested in trading if I’m only trading a demo account.” He lost everything. Twice.

1. Every week, print your account history from your trading platform, and spend 2 hours away from your computer (preferably outside your house, in the library, or a restaurant, or someplace that you can think away from your trading area) looking over the report.
2. Look for your mistakes. They should be easy to identify. They are the trades that were losers.
3. Realize that every losing trade is a mistake. If you believe otherwise (the old, “Well, it’s good because I’ve learned my lesson”), then you are going to at least enjoy losing your entire account. Get with the program, man! Would you be happy to have set your hair on fire, because now you can say, “Well, I’ll never do that again!”?
4. Get someone you trust to look over your statement for you. Ask them to be brutally honest with you. If this person says, “You are going to lose everything,” believe them. Just go ahead and believe them. So many times, traders who have lost 50% of their account feel that “I’ve finally turned the corner, and this is it. I’m not going to lose anymore.” They don’t switch to demo trading, and they lose everything. Don’t do this. It feels awful.

The last point here. I recently worked with a wise trader in Fiji, who realized that he wasn’t following a system with proven results — that although he had intermittent (large) wins, he also was having occasional losses that left him feeling uneasy about trading. So you know what he did? He stopped trading.

Wisely, he kept his account balance intact while he worked out the details. How long did it take him? It does not matter. My friend was willing to trade on a demo for as long as it took him to get back to trading a proven system that he could trade with confidence.