Wayne McDonell went from the venture capital world to the forex trading world because he thought it made good business sense.
“As a venture capitalist, I looked at business plans for market opportunities. A multi-million dollar market would be worth investing into. One day, I was reading something that said forex was worth $1 trillion a day. I couldn’t believe [it]. I started looking into it and sure enough it’s true. As an investor, you have to go where the money is and forex [was] something that I want[ed] to get into,” he says.
He taught himself how to trade and began trading forex in 2001. “There was very little educational material back then that was worth the price of paper it was printed on,” he says. But he caught on to trading quickly and developed his own online trading community four and a half years ago when isolation became a risk to his trading success. “I started trading forex out of my home office from 10 at night to 10 in the morning. It was cold, dark and lonely and I had no one to high five and no one to kick me in the butt when I did bad. When I was [trading] in isolation, I started to make mistakes and [traded] out of boredom,” he says.
He follows a methodology where each trade he places has a minimal acceptable performance (MAP). He looks for trade setups when he’s spot trading that are likely to yield 30-45 pips.
“MAP means that once you can safely lock in 15 pips, you’ve guaranteed yourself a small profit but you can then switch gears and go from a conservative trader to an aggressive trader and then go after more pips. It’s a way of saying every time you’re successful you should lock in a small amount of profit,” he says.
McDonell recommends planning your trading career for three years in advance using MAP as a guide.
He says traders should learn capital preservation and should never trade out of boredom. “The number one [goal] is to do whatever it takes to survive,” he says.
The second goal to his trading plan is capital acquisition, locking in your good trades when you get them.
The third goal is capital appreciation. “You go from a conservative trader to an aggressive trader and you get as many pips as you possibly can but not until you move your stop-loss to protect those 15 pips. Traders can learn from that positive reinforcement of protecting profit and not just going for the million dollars on every trade,” he says.
McDonell watches the futures market because of the correlation between commodities and currencies. “A lot of futures traders would do very well if they decided to put forex in their portfolio,” he says. “Currencies change value when money crosses borders. Clearly, there’s a relationship. When oil goes up, Canada benefits from the high oil profits, and therefore the Canadian dollar gains value.”
He says fundamental analysis is another key to long-term success. “Technical analysis is where most new traders start. [It] puts you in or takes you out of a trade but it doesn’t create the trade, [so] all new traders [should] get a sound understanding of fundamentals. The fundamentals are what drive the direction of currency,” he says.
He recommends that new traders study economic reports from around the world and how they affect the market and also understand how inflation and central banking affect currencies. “If interest rates are rising, that currency’s going to gain value,” he says, while acknowledging there are exceptions like recently when the U.S. dollar’s status as reserve currency of the world allowed it to rally despite lower interest rates.
For McDonell, the most exciting thing about forex is that it’s intellectually stimulating. “There are some days when the markets don’t move that well, but it’s a fabulously interesting job that’s rarely boring. It’s emotionally challenging and once you find success, it pays well,” he says.
Wayne McDonell gave a presentation on forex trading at Futures I-Trade show in December. Visit www.futuresmag.com to see our free on-demand presentation.
