I’m not going to reveal such miraculous information for making you rich easily, in few days. I’m just trying to “log” few piece of good information, picking from my experience, so you can easily access it and hopefully use for your own personal growth as a trader. So let’s start with my first secret. Forex…
The qualities of a successful trader, not necessarily in order of importance, are being sufficiently capitalised, persistence, self discipline, emotional control, objectivity in trading, and the ability to take losses in a timely and prompt fashion. From our experience we have found that new traders often make the same basic mistakes. Often these mistakes are made from deviating from the trading plan.
No matter if you’re a newbie or a professional trader: live accounts are allowed only for tested strategies!
For your tests always use a demo account, even better if provided from your live account broker.
A lot of brokers offer you a demo account for testing their service and platform. Just choose one and subscribe for a (usually 30 days).
Would your business be profitable if you spent for your office rent more than you can earn selling your products or services?
– Increasing trade size with success
A pitfall known to trap many a new trader is the tendency to increase position size after making made a few successful trades. A trader filled with over confidence is like a drunk driver – confident but impaired. Having increased the size of their trading account, a trader may be tempted to take greater risks, breaking away from their original trading plan. And like the drunk driver – a bad accident is always imminent. To combat the complacency that can arise from success, you should ensure that the percentage commitment made on each trade is not altered by your account size. Other safeguards such, as stop loss orders should also be maintained.
Many people are surprised to learn that some of the most successful traders actually trade relatively infrequently. In some cases they may make less than a dozen trades a year. By contrast, new traders can often be ‘traderholics’. Instead of imposing a detached yet professional attitude to the work of trading, novice traders find themselves caught up in the excitement and thrill of the market and spend their day glued to their trading screens looking for an excuse to trade. How frequently a trader should be in the market would depend largely on individual trading style and risk tolerance. For example, a scalper will be in the market often, looking for small price moves. They tend to trade more frequently than a position trader by virtue of their lower profit objectives and risk tolerances. What is important as a new trader, however, is to take the time to determine your objectives and risk tolerances before you begin trading. And once these goals are established, ensure you adhere to your trading objectives and are not distracted by the need or excitement of having a position. Remember, if you are seeking excitement then take up sky diving – it’s a lot less risky and will cost you significantly less.
– Averaging a loss
One of the most common traits of the inexperienced trader is the tendency to average losses. Averaging a loss occurs when a trader increases their market exposure following an adverse move in the market. For instance, a trader who originally bought two SPI contracts decides to buy more after the price falls because they feel that they are now even ‘cheaper’ (ie the potential upside is now greater). A trader who adds to a losing position is deliberately ignoring signals from the market. Rather than accepting their loss and learning from it, traders who average their losses magnify their risk and trade against the trend. While on rare occasions this might work, more often than not it will cause a break from the pre-established trading plan, leading to large and unnecessary losses.
– Picking highs and lows
Picking highs and lows is almost impossible and instead it is better to ride the trend or movement for as long as you can and look to exit when it shows signs of losing momentum.
– Trying to pick market tops and bottoms
One of the reasons managed funds are popular is because typically, individual traders have poor market timing. Consider the number of times that private share traders buy at the top of overheated markets or sell at the bottom in bear markets. If experienced institutional investors do not attempt to pick market tops and bottoms then why should you? Through coincidence or just plain luck you may have the good fortune to pick a market top or bottom. Unfortunately, though, the probability of achieving this with consistency is remote at best, no matter who you are or the system you use. Therefore, it is better to instead focus on capturing longer-term market trends. Traders who take advantage of an already established trend may not get the kudos of picking a market top or bottom but they will often make money.
– Taking small profits and letting losses run
An old adage says that you can never go broke taking a profit. Unfortunately, in the context of foreign exchange markets this statement does not necessarily hold true. This is due to the fact that the majority of trades a trader makes will end up being losing trades. As such, traders need to ensure that the profit from their winning trades is sufficient to cover these losses and provide some additional return. Cutting winning trades too early is easy to do and is particularly tempting during lean periods. Once again, the way to avoid this mistake is to stick to your trading plan, using the defined profit targets you placed before the order is placed. Alternatively, the use of trailing stops may also be advantageous to limit risk and to allow for further upside. Let profits run until you are given a reason to cash in – whether that be a trading system signal, a fundamental factor or your initial objective.
– Put your focus on your losses, before you worry about your profits.
Consider losses as ordinary expenses. You need it to implement your strategy, but they have to be less than earnings in the medium term strategy or your business is likely to fail. It may seems obvious, but non-professional traders always tell you about winning trades, while REAL profits always consider losing trades, the cost of trading activity. The right way to avoid losing your money is to adopt good money management strategy. A good trader always calculate the risk before making a trade, making sure to lose at most a small percentage of his capital (usually 2-5%).
So never enter the market without calculating and setting your Stop Loss price!
– Watch carefully for market divergence
Professional traders are always on the lookout for market divergence. If the market sentiment is bearish but then breaks through resistance levels, it can often be a good indicator to buy.
– Trade with definite goals in mind
Profits belong to those who make decisions and act – not those that react. Your trading plan should not only focus on the best time to get in to the market but also when to get out. This involves setting a view for profit taking or loss minimisation. It is better to set a stop for a loss amount and stick to it. If in profit, it is a good strategy to set a stop enabling you to take a minimum profit whilst still allowing the trade potential for further profit.
Some of the best trades are the ones executed on over-reactions (for example, if the AUD / USD is down 150 – 200 points). In the majority of situations this will be the low, or close to the low of the day, and a profitable buying opportunity can be the result. If the market presents an opportunity like this – be quick and decisive.
– Walk before you can run
Learned knowledge and practical experience in the markets are the best teachers in the longer term. It is best to start with small contact volume, less volatile markets and build from this point.
Successful trading requires hard work, discipline and the ability to keep check on your emotions. A myriad of books is available on trading and trading. At the end of the day, however, no matter how much you read or how much you try to learn success in the market starts and stops with each individual trader.