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 conservative. Some could have strong mental stress absorption, while some may be more susceptible.
Having said that, the suggestions I present below is not meant to limit your thinking about the trading process, if it suits your personal traits take it, if not find your own conclusions.
- If you are new to trading forex check out our forex trading tutorial for beginners.
- If you have some experience, you can review our technical analysis basics tutorial.
- If you have good experience, check out our forex trading tutorials section.
Forex Trading Advice
1. Trading is not a get rich quick scheme. It is a normal investment that gets traders return on capital.
Have you ever met a trader making double-digit percent return per month on a consistent manner?
Trading professionally with proper money management would likely get you a return of few percents 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 risk 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, lets play a coin tossing game. If you toss a coin and forecast the toss outcome correctly you will receive two dollar, and even your guess was false you will lose one dollar.
Tossing a coin in probability is 50-50 on 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 have 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 dollar, which equals 1,000. And lost 500 times 1 dollar, which equals to 500 dollar. Resulting in a net profit of 500 although everything is random!
4. No Trading Strategy?: Do not waste your time and time.
Even having a trading strategy is not enough! what if not having 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 for 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 endeavour. Not only because of how much 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, mmmmm… (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 upto 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. In the majority of 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 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 over analyze.
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 what left is an unfirmed 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 in the vast majority of time is incorrect. Click To Tweet
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. Forex 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 trade. Don’t worry, it’s normal in trading.