I have been trading for a year plus now, and the journey has not been without lessons. I have learned a couple of things which if I told you, your learning curve in Forex trading would be shortened.
There is stuff in the journey of trading which are like a must-go-through for all traders.
Once you have resolved to begin trading Forex, Stocks, fixed time trades, or any other asset out there, then my guess is, you will go through the same hell most of us have endured. But, you can save yourself the hell ride if you read this post to the end.
Here are 11 simple lessons you will learn from this post.
- Nothing is easy. Train Hard, Fight Easy.
- Demo-Trade Your Way to Success.
- You Need a Trading Plan.
- Don’t Hop from Strategy to Strategy.
- Trading is not a Get-Rich-Quick Scheme.
- Risk Management is Your Arsenal.
- Always Keep a Trading Journal.
- 90% Psychology, 10% Trading.
- Overtrading will Wreck your Ship.
- Risk Only What You Can Afford to Lose.
- Pay More Attention to the Market than the Indicator.
Train Hard, Fight Easy.
Today I am not feeding you in jargon. We’ll talk trader to trader. Hehe.
So what exactly do I mean by training hard and fighting easy?
Asset trading is a wide field not only for making money but also a wide field of knowledge.
If you are determined to be a profitable trader, then you must do your due diligence and read.
Did I say read?
Yes, you read that right, because I meant exactly that – read.
And what do you read?
Hard Copybooks, E-books, Articles, PDFs, and what have you.
The internet is flooded with countless materials helpful to anyone who wants to read and master asset trading, so you can never claim you had no access to materials to read.
You must devote yourself to seeking knowledge on Forex, Stocks, ETFs, Indices, Cryptocurrency, Commodities, or any other asset of interest to you.
And that’s not all, there is more you need to know about brokers.
You must understand what brokers are and know how to choose the best ones for your trading. My personal favorite, Olymp Trade.
What else is there to know?
Do you know how prices move?
What about the various manners in which you can analyze the charts?
Are you conversant with these terms – price action, supply and demand, support and resistance, indicators, trading strategy?
Do you know what a trading strategy is?
What about how to formulate one?
How about how the various indicators can be combined to formulate a profitable trading strategy?
Have you heard of risk management?
What about trading psychology and how you should never succumb to it while trading?
Really thought-provoking questions right there, eh?
You can see how wide the field of trading is in terms of knowledge.
If you ever dare storm the field to begin trading without the knowledge of such areas pinpointed above and more, then you will be to blame for the danger you will face shortly after getting into the ‘trading journey’.
“I ever hit the markets with an intention to gamble with real money and as you would rightfully guess, I never made it to riches.
It was not until I talked to someone that it dawned on me that I needed knowledge before I could make a dime out of the markets.” Daniel Mutuku.
Demo-Trade Your Way to Success.
Did I know what a demo account is prior to talking to my mentor after losing terribly in my gambling spree?
Not at all.
Soberness struck after the loss and all my senses which I had hurled to the wind returned to my miserable self.
A demo account is an account provided by your broker containing free virtual funds with which you can practice trading.
The best thing about demo accounts is that the market conditions provided are real. So you get to experience the markets risk-free.
On a demo account, you can make all mistakes that you want to, because after all, there are no risks involved.
Remember, demo accounts are virtual and replenishable once depleted.
What a convenience!
So why do I keep insisting that you demo trade before you trade with real cash?
Because on a demo account you will learn, make mistakes, size your lots so imperfectly and do all sorts of drama, yet still go unpunished.
It is on this kind of account that you will develop a profitable trading strategy, learn how to manage risks, as well as learn how the market behaves under all conditions.
Tell me, if you were to use your own money to practice trading, how much would you need?
More than you have right now, right?
Yet here is free money, all for you to sharpen your skills on the markets.
If you are on a real account and still gambling without the knowledge of what exactly it is that you are doing, bro, slowly alight and open a demo account.
Demo-trade until you are confident and profitable.
That way, you can be sure things will work out well on the real account.
And just so you know, whatever works on a demo account will work on a real account – remember they are the same market conditions.
You need a Trading Plan.
I may not know so many things about you but I’ll gamble my wife on this. Haha…
Before you do anything, you always plan it way ahead and strategize to see its feasibility.
If you’re not a planner, keep this quote in mind for when you lose your first dollar.
If you fail to plan, you plan to fail.
Most traders want to just enter the markets and make quick money by gambling around.
What they do not know is that they will soon be dishing out the same money they won to other traders and the broker if their gambling proves fruitless the subsequent times they come back.
Did I already mention what happened to me when I decided that mine was gonna be a gambling spree and had no use for the tedious acquisition of knowledge that trading entails?
I had no plan nor any intention to formulate one, and what was my reward?
Clearly, a deafening fall.
For newbies who’re somewhat getting lost in this,
A trading plan is a clear dictation of what your trading will look like at any particular time.
It specifies your entries, exits, money management, starting and ending time of your trading, and any other conditions that must be met during your trading session.
It is one thing to have a trading plan and totally another to adhere to it.
I am always dumbfounded by traders having so perfect trading plans yet they will obey none of it.
What shall it profit a trader to have a perfect trading plan and still open their trading accounts to gamble?
Whereas I emphasize having a trading plan, It would make more sense if you adhered to it rather than just had it.
Don’t Hop from Strategy to Strategy.
Logically, what you would be inclined towards, is dashing away from a strategy that initially was working but has stopped to.
Well, do not be shocked if I tell you that you would do better to stick to that one strategy and have it perfected.
I am telling you to stop hopping because I understand the dangers of doing so.
If you keep hopping from one trading strategy to another, you will fil. And later realize that no strategy is 100% effective – not even the so-called Holly Grail. But then, it will already be late.
If you have a trading strategy that has been making you money and fails at some point, it is not time to dump it.
Rather, it is time to breathe and re-evaluate such a strategy.
Remember, it has been working, so you need to scrutinize it to see why it stopped working.
Maybe you disobeyed the conditions stipulated in the strategy and that is why it failed, or maybe there is something else you missed in the strategy.
Correct the loophole and continue making money with your strategy.
Trading is not a Get-Rich-Quick Scheme.
My story when I began ‘trading’ will remain relevant for the better part of this post.
I confused trading for gambling.
The results? I lost so much money trading.
My intention was to make some good money gambling and not trading.
At some point, you might relate to my story.
If you are a newbie at trading and that was your intention too, you would rather stop at this point because a major disappointment is coming your way.
Listen to the market, and to other established traders.
When I began trading, what I would hear experienced traders talk about was consistent profits, not huge impulsive ones.
Then I was shocked why no one was talking about big money until it dawned on me that trading was not a get-rich-quick scheme.
If you need quick cash, try something else. Something like becoming the head of states in an African state.
Risk Management is Your Arsenal.
Arsenal fans Ohye! Hehe.
We are talking about risk management here. You must always take risk management as the weapon, on which you will rely, no matter the turbulence of the market.
But what is risk management?
Risk management is a set of rules concerning your trade size, lot size, and how much of your account you risk in one trade.
Such rules are aimed at reducing the risk exposure of your account, with a goal to grow your account maximally if your trade wins, while protecting it from depletion in case your trade loses.
Risk management comes in various forms.
Those who trade fixed time trades in Olymp Trade know about martingale money management strategy, parley and fixed trade size among others.
Those that trade Forex know about position sizing, Stop Loss, and Take Profit levels among others.
Always ensure you use a form of risk management because you are never sure if the market will favor you.
If you don’t do so, a losing trade may wipe out all your gains and even all of your capital!
Always Keep a Trading Journal.
A trading journal is anywhere that you write down your trading-related stuff.
You can always jot down why you are taking such and such trade and the outcome of it.
You can also write down your experiences while trading, as well as anything else that happens to you and your trades during your trading.
But why do you need to do all these?
Well, trading journals are the substance behind the formulation of new strategies and the improvement of existing ones.
Use your notes for guidance.
If later you sit down to check what you have been doing on the market, you will have a picture of how your whole trading week has been, in terms of what worked, what didn’t, and what happened when and where.
That’s how important a trading journal is.
90% Psychology, 10% Trading.
You must have heard this ‘cliché’ somewhere, right?
Disclaimer, this statement is not a cliché.
It is a fact.
Ask me why the Forex market moves and I will give you a one-word answer – psychology.
It is the psychology of traders in a particular market that moves such a market.
Are you feeling mixed up?
Let me explain.
If the market has been falling, most traders will act out of greed and buy that asset.
This will bring the price of such assets shooting high and rising.
At another glance, the traders who had acted out of greed will begin thinking that the market has been rising for a long time and might be reversing soon.
Out of fear of loss, they will exit the market and begin selling.
This massive action of sellers brings the price of such assets crumbling down like no man’s business. See how psychology moves the markets?
Now put yourself in the shoes of a trader and answer these simple questions.
How does fear affect you while trading?
What about greed?
Do you ever get possessed by the spirit of revenge, sometimes? Hehe, most times actually, right?
A trader who acts out of emotions and not actually what is happening in the market is bound to fail.
If you have been winning a couple of times, you tend to gain some overconfidence that you must have mastered the markets and will always win.
The next thing that happens is that you begin losing and before you realize it, you are on a losing streak.
The next thing you resort to is to punish the broker for having taken your money (Revenge and greed).
Note the fact that at this time, you have stopped obeying your trading plan and strategy and all you want is your money back.
You begin taking irrational trades and investing unreasonable amounts for each trade in a bid to ‘get back your money.
You’ll continue losing and if you are not careful, the next thing you will note is a decrease in your trading balance.
One more loss and you will go back to the exact same spot you were at before you began trading.
Out of fear of losing everything or greed for doubling the balance, you will invest all of the remaining capital and sadly your trade goes south.
Behold, you will have blown your damn trading account.
See what overconfidence, revenge, greed, fear, and everything psychological has done to your trading journey?
That’s how easy it is to crack to emotions.
Overtrading will Wreck your Ship.
We mentioned that you need a trading plan for success in trading.
One of the things a trading plan helps you to beat is overtrading.
That is because it stipulates when to start and when to stop trading.
Of course, considering your optimal concentration span and optimal market volatility-cum-profitability as you have established.
If you have no trading plan to inform how long you should trade, or even decide to disobey it by trading beyond the span you can pay attention for, then just know that the results will be devastating.
You are not.
While the best thing is to trade for yourself and not let anyone else or a machine do so for you, you shouldn’t overdo it.
You realize that you get tired of thinking while analyzing and staring at the screen.
Once you begin getting tired, just call it quit.
Wait for that time when you are rejuvenated and re-energized to continue.
Risk only what you Can Afford to Lose.
Another ‘cliché’, right?
Again, this one right here is not a cliché but the whole truth.
You worked hard to earn that money which you have just deposited in your trading account, didn’t you?
Then why would you want to lose it?
But if you must lose, why not choose a comfortable amount to lose?
I guess what I am trying to say is that you should only risk a small portion of your trading account and not the better part of it.
If you risk a large part of or all of your account and then the trade goes south, then you will have failed as a trader.
Those trading fixed-time trades know what I mean.
If what you can afford to lose is $1 out of the $100 in your trading account, then let it be so and don’t go past that.
Those trading Forex know what a lot size is, as well as what a stop loss is.
Adjust that lot size to the minimum that your account can bear without devastating effects.
Also, set a stop loss at a level risking only up to 5% or less of your trading account.
Else, you will blow your accounts, and guess what? It can be very difficult to recover.
Pay More Attention to the Market than the Indicator.
While technical indicators are a core part of most trading strategies, they are not all that there is to trading.
There is a king in the market and we call him price action.
Price action refers to the behavior of the price of an asset which can clearly be seen on the charts.
A market that makes higher highs and higher lows will most likely be on an uptrend.
However, market-making lower lows and lower highs will most assuredly be a downtrend.
You will be best suited to be in long positions if the market proves to be an uptrend by price action.
On the contrary, you would be best suited to be in short positions if the market’s price action hints at a downtrend.
Indicators are not the price.
And just so you know, most of these tolls lag and show what happened whiles ago, making them unreliable if you bring price action to the picture.
If given to choose between indicators and price action, then go for price action and don’t look back.
Listen to what the market is saying more than what indicators, which might be lagging, are saying
You have heard it from me.
These are the lessons I have learned for the 1 year plus, that I have been trading.
You will do better to learn from them because if you don’t, then your reward is waiting. Hehe.
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Very good and encouraging post.
Nice please do you have for novice or beginners.