I have been looking at a selected journal postings and other comments by mostly newer traders. sometimes I just shake my head. Now keep in mind I myself have made most of the mistakes as well, so my headshaking is at myself as well. But having come somewhat to clarity over forex trading, I see things a lot clearer now - and lets hope it stays that way.
There is one chap who is posting so many posts to try and get new traders to follow him and calls himself a mentor. Oh my goodness. Firstly i cant believe anyone actually responds to that. Newby traders really need to learn the difference between actual good advice and ridiculous advice. This site is full of really helpful people - but - they dont go out with a dragnet to catch a hundred followers. They simply answer when asked.
I also shake me head over and over at newby traders (and I still feel somewhat newby myself, but im not that newby anymore) who start a journal wanting to turn $100 into $1000 or $1000 into $1000000. Now of course everyone would like to do that, but dont start off with that as a goal. In fact one of the worst things that can happen is to have initial success, like doubling your account balance 2 months in a row. Thats great if you are doing so while executing a great risk management - but I highly doubt that is the case.
The difference between being a successful trader and an unsuccessful trader is actually very simple, though some may argue. If all newby traders took the time to read these things and absorb them - then many more of them would succeed. I myself read all of the good advice and knew in my head what i should be doing - but only after failing a hundred times does it sink in that you MUST do the following things if you want to be a successful trader.
These are not necessarily in order.
- Preserve your capital - do everything in your power to trade in such a way that your capital remains safe.
- only enter a small percentage of your capital in any 1 trade (1 - 5%). This is debatable - according to your risk appetite and accuracy of entries, but in principle the smaller the % the better your risk management.
- Only enter another trade once the first trade has its stop loss shifted such that if you hit that stop loss, then you either loose nothing (breakeven) or make a small profit). Now I know SL are not guaranteed but they work 99.9% of the time)
- when trades start giving you a gain - then dont just take profit - move your SL so that you protect your gain. This of course depends on a lot of things. But the value of having a larger open position protected by Stop losses is commonly worth more than just ending the trade and having to start a new trade - once again debatable depending on circumstances.
Thats it - simple as that.
Now a lot of folks will want to throw in all sorts of other issues here but this is the essence.
Here are the things to do if you want to fail … no-one wants to fail!! but if you do things you will fail - just a matter of time, and by fail I mean you make large losses over and over and over. around 2/3 of your account wiped out time after time.
- Enter trades without a SL
- Enter more trades when the previous trades are in the negative - in other words you are continually building a larger loosing position. You don’t want to end trades because you dont want to loose. So instead you carry on setting yourself up to loose big time
3.Enter trades which are 20%, 40% 60% or more of you capital.
- close winning trades as soon as you make some minor amount - yes you have made a small profit - but the point is that you are continually ensuring that all your active trades are negative ones and none of them has SL.
and that’s what most newby traders do - and especially if they actually make some good gains initially - that just enforces them to continue doing it wrong till eventually they loose.
Now if you were observant - you will notice that not a single statement above discussed how to correctly enter a trade based on technicals, fundementals or sentiment and that’s because all none if it matters as far as getting those basics right - the basics of risk management.
Everyone is going to get trades wrong - and when you do get trades wrong - then your risk management must control your loss.
If your risk managment plan is very good, then it should protect your capital as mush as possible even if you got many trades wrong in succession.
Once again - this is debatable and my intention is not to look at the area of making correct trade entries.
Most newby traders do NOT fail because they made wrong trade entries, they fail because they had no risk management - or totally inadequate risk management.
All of the above is not to be taken as gospel, it is there to bring some understanding to determining how you are going to start out as a trader - with or without risk management.
There is only 1 way to succeed without risk management, and that’s to get it right 100 or 500 or 1000 times in a row. some really awesome newby traders maybe get 10 successes in a row, maybe a hundred - but eventually when you do fail - it will be bigtime.
The school of pipsychology is the best resource around - use it. do the entire school and all the quizzes, then do it again after a month or 6, then again.
Risk management is covered in great detail and should be regarded as crucial.
If you want to succeed as a trader - start off not by saying you want to turn $100 into $1000, but rather say that you want to have traded in such a way that your $100 would always be as safe as possible, and of course adjust this as you grow, so once you have $110, then your $110 must be as safe as possible. You will make gains - but when you do - then still stick to your risk control measures.
I can elaborate more on issues as required but I think this carries the essential message