Suggesting Forex trading advice on how you approach the trading experience is tricky. It might be useful and might not. This is because every individual has different personality traits. Some might be risk-takers, while others are conservative. Some could have strong mental stress absorption, while some may be more susceptible.
Having said that, the suggestions I present below are not meant to limit your thinking about the trading process, if it suits your personal traits take it, if not find your own conclusions.
1. Trading is a normal investment that gets traders a return on capital
Have you ever met a trader making a double-digit percent return per month in a consistent manner? Trading is not a get-rich-quick scheme.
Trading professionally with proper money management would likely get you a return of a few percent a month. From my personal experience, a 3-5 percent return on capital per month is a very realistic number.
So if you’re that kind of person who wants to “make a killing” trading, please reconsider your expectations. (It might happen once or twice that you win big by risking big, but it is not sustainable you will loos’em all eventually).
2. You should be well-capitalized. Small accounts will probably burn you
This point is correlated to the first one. let me illustrate with an example:
Suppose that you have a $30,000 trading account. According to the 3-5 percent return per month rule, that would give you 1000-$1500 return per month, which is a very good number, relatively speaking.
Now let’s assume that you have a $5,000 account, according to the 3-5 percent rule, that would return 150-$250 per month.
In the second example(smaller equity), the return would likely be unsatisfying for someone looking to trade for a living. Would it be for you? Wouldn’t you break your money management rules and take more risks to increase that return?
3. Technical Analysis doesn’t work all the time, money management works
Assumptions we make will always have a percentage of failure. The main goal is to keep your risk limited, your targets bigger than your risk, looking for consistent profit over the long run.
This is simple math, for example, let’s play a coin-tossing game. If you toss a coin and forecast the toss outcome correctly you will receive two dollars, and even if your guess was false you will lose one dollar.
Tossing a coin in probability is 50-50 in the long run(the more we toss the more we are closer to 50%).
Also in terms of probability, it is a random mutually exclusive event, what that means in simple terms is that every toss outcome has no impact on the next toss outcome.
Therefore, if you toss the coin 1,000 times, and get a successful guess near 50%, then you would have gained 500 times 2 dollars, which equals 1,000. And lost 500 times 1 dollar, which equals 500 dollars. Resulting in a net profit of 500 although everything is random!
4. No Trading Strategy?: Do not waste your money and time
Even having a trading strategy is not enough! what if not have one. What do you expect?.
Trading requires confidence and confidence happens ONLY after educating yourself about it. And building your personal strategy one step at A time, testing it, and improving.
Some might think of using other guru trader strategies instead of going through all this. While this might work for a bit, it will shortly fail. The moment the strategy starts to lose, the trader will get shaken.
I get amazed when newcomers ask me if they can learn trading in six months. My short answer is no. However, there is no typical answer to this question. As people are different. Some traders might start to be profitable in a relatively short period of time(a year or two), while others may spend a decade without getting anywhere.
Trading is a very difficult endeavor. Not only because of how educated you must be, it’s more of how emotionally and psychologically intelligent you are. It is emotionally derailing and stressful by nature. If some guru tells you the opposite, believe him just in one case, if he doesn’t sell premium membership and courses.
If you want to be a trader, you need to know what you are expecting. If you are not up to the challenge you better not even start.
5. Trading is not about forecasting the market
Do not try to forecast where markets are headed all the time. The majority of the time you won’t be able to.
What a successful trader does is wait for the market to GIVE him certain conditions that validate a trade setup that he tested before. (Don’t trade under the market rules, trade under your rules.)
Do you feel sometimes that you’re lost and don’t know what to do? it’s probably because of this.
6. Limit your risk
If you did use stop loss on your trades within the past year, but you didn’t and took an excessive risk only on one trade, this single trade might wipe out all of the profits you gained through the year.
How many times did you ignore your stop-loss convincing yourself that you will close at a better price? It may have worked sometimes, but what if the price goes against you more and more? Are you mentally strong enough and able to close at a bigger loss? You probably won’t, until forced to close on a margin call.
7. Don’t overanalyze
Over-analysis and complicating your tools will lead to confusion and is not necessarily efficient. Over-analysis is probably a sign of the lack of a clear trading strategy. Good traders have a constant tool-set and trade setups they utilize repeatedly.
8. Ignore your bias
Initiating a trade requires technical evidence, three, four, or five conditions that occur concurrently. If you do not have a trading strategy all that is left is an unconfirmed bias that leads to the dark abyss.
We will always have this inner forcing feeling that pushes us towards a certain direction, whether buy or sell. This feeling the vast majority of the time is incorrect.
A written trading strategy with clear objective steps should help eliminate this bias.
9. Always use a top-down analysis approach
Start from the higher time frame to the lower time frame. The higher the time frame the more strong and invulnerable the trend is, and the more strong and invulnerable the support and resistance levels are.
10. Trend trading increases your chances of success
Trading setups that occur within the context of the trend tend to have a higher success rate than those against it. This is a proven fact, why we love to forget it!
11. Don’t give up when you encounter a losing streak
Statistically and by probabilities, even if you have a 60% percent success rate, losing streaks are inevitable. It can go up to 10 losing trades. Don’t worry, it’s normal in trading.
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