Are you thinking about trying your hand at forex? Think you might have what it takes to be successful? Don’t fall in the same traps that so many before you have fallen into. Taken from successful and yet-to-be successful traders from all over the world, and some from my own book of forex blunders, here are 10 things most wish they’d known before they started to trade foreign exchange. And if I may be so bold, print this out and hang it right beside your computer monitor!
- Make Money with a Practice Account First. Don’t trade a single penny of your own money until you’ve had ample experience with a practice account. I first started trading forex in college and thought I was smarter than the hundreds of people who had failed before me. I did open a practice account, but apparently thought I was ready to trade for real after a short three days. I’ve come along way since then, but that mistake cost me a small fortune to a college student. It translated into many missed nights out with my friends as I slowly tried to recoup what I had lost. Had I known what I do now I would have used a practice account for a month or more, gotten confident with my strategy, and wouldn’t have lost track of orders that should have been cancelled because they were no longer valid. You won’t make money during that time, but you won’t lose money either, and that is half the battle. You’ll find that out soon enough the hard way if you don’t heed this important advice.
- Trading With Real Money is Different. As much as opening a practice account is good, trading with real money on the line is different. Try as you might to trade the same way with real money as you did with pretend money, the reality is that it just isn’t the same when you’ve actually got something at stake. Seeing your account increase or decrease with each pip can be taken in stride when playing for fun, but can be excruciating when it’s your money on the table. One way that helped me get over this was to think of each trade as the cost of doing business. For example, a business might spend money on an ad which is either going to make them money or it’s not. Either way, the money spent on the ad is gone, so you should have done your research before spending the money to determine whether or not it was a good idea. It’s much the same with forex. When you place a trade with a stoploss, consider the money at risk the cost of doing business. If you are not prepared to lose it, then you need to think twice about taking the trade in the first place.
- Forex is a Mental Game. There is a psychology to trading. There are mental and emotional states that can help your trading, and ones that can be extremely detrimental. You don’t trade if you have been put-off by a loss and are looking for vindication, nor do you trade when you’ve come off a win and you think you are invisible. You don’t trade when you are bored and you’ve got an itchy trigger finger, nor when you are tired, having a bad day, and especially not when you are thinking about how much you need the money. Trading with dollar signs in you eyes will result in taking trades that you shouldn’t. Mindsets like these are a recipe for disaster. I thought I was a pretty even keel, more pragmatic than most, and level-headed. I didn’t think I was going to be vulnerable to the emotional side of the game. Here’s what I wish someone had told me: Expect to be emotional, but know that not keeping your emotions in check will be your demise.
- Don’t Lament the One that Got Away. Don’t sit on the sidelines watching some grand move in the market wishing you were in the trade. Chances are you’ll convince yourself to get in and you will get burned. It’s like trying to catch a falling knife; let it fall. Watching a pair make a big move that you missed is hard. Expect it to be. It sucks. But watching the pair go and thinking about getting in is like trying to cross a one-way street by looking the wrong way. Watching cars go by and seeing big gaps in traffic where you could have crossed provides no insight as to when you can cross. Just because you are looking at a painful gap in traffic that was definitely would have given you ample time, doesn’t mean there’s not a transport isn’t yards away. Train yourself to look the other way. Look at what’s coming, the set ups that are developing, not the ones that already developed. Begin to recognize when you are looking the wrong way down the Forex street, and force yourself to think differently.
- Plan the Trade, Trade the Plan. Have a trading plan before you press that buy or sell button. Know at what price you’d like to get in at, how much you are willing to risk, and where you’d like to see the price go. Know why you are taking a trade, and understand why your stoploss and target price are where they are. If you don’t know why you are taking a trade, or don’t know ho wot plan a trade, then you’ve got more learning to do. Take a free course at a site like http://www.babypips.com/. Just be sure to have a really clear understanding of your trading strategy before you begin.
- Have Respect for the Profession. Professional traders spend years in school, have mentors and work with other professionals in the field, and have the most advance tools and software at their finger tips to help them perfect the skill of trading foreign exchange. Don’t expect after a month or two of trading that you know even a fraction of what these guys know. If you think you’ve got it all figured out how you can make a million dollars in the next three months on forex, think again. Trading forex takes some humility. You are a tiny fish in a big pond. Did you know that professional traders have a track record that usually just above 50 percent? That means they make winning trades approximately (on average) between 5 or 6 times for every 10 trades they make. That is because of what is called trade management. Stoplosses and targets are intelligently placed so that while they may lose 50 pips on a losing trade, they make 150 on a winning one. If you can do that 50% of the time you are making money. Don’t waltz into the forex world thinking you can change the game, or be that one in a million that can make a few uninformed choices and you get lucky. Don’t think you’ve got it all figured out or have an edge on the guys who make a career out of doing this. It’s that slow and steady that wins the race.
- It’s All About the Trades You Don’t Make. Be a trading snob. Once you understand the basics of any given trading strategy (there are many), be a picky trader. Trade only when all your criterion for taking a trade are met. A big part of trading forex successfully is knowing when not to trade. I can’t emphasize this point enough. To be successful at forex you have to first not lose your money, and that means staying out of losing trades. Make staying out of losing trades a priority, this goes back again to being a picky trader.
- Don’t Be a Maverick, Be a Follower. To make money in forex you need to be doing what everybody else is doing, when they are doing it. It’s not the time to re-invent the wheel, or get ahead of the curve. That will only result in lost pips. It doesn’t matter what you know about currency, or the state of a country’s economy. What matters is what the market is actually doing, not what it should be doing. Trying to find the bottom or top of a huge move or a trend is more like gambling than trading. If you are tempted to trade like this, do yourself a favour and go to Vegas where at least you can enjoy free drinks and catch a few shows while you lose your money. It’s not a good sign if you are trying to time the markets. If you are, you are in need of an intervention. Don’t bother placing the trade; take out the middle man and just send a big fat cheque directly to your online broker. The goal is not to get in when the market has bottomed. The goal is to get in when there is solid evidence that the market is going to go in a particular direction. That is rarely 10, or even 100 pips from the low. The key is to get in when there are indicators that it will go, not when you think its’ the bottom.
- You’re Going to Be Glued to Your Computer. At least chances are you will be. And I am not saying that’s a good thing. Just know that this is a real possibility as you try to make money. It’s easy to become obsessed with watching the markets, looking for opportunities, and making trades, smart ones and stupid ones. While it is important to put in face time, watch the markets and do analysis, if you are making smart trades you should essentially be able to make a trade and walk away and be OK with whatever happens. Be aware that it’s easy to become a slave to forex. Take measures against becoming one by educating yourself on a trading style and strategy that you are comfortable with so that you don’t fall that trap.
- Don’t Just Learn, Get Help. It’s just not enough to read about trading forex or to take a course, free or otherwise. If you want to implement a strategy effectively, it’s simple: Get help. Learning and knowing what to do is not enough. You need the help and experience of a forex expert. There are some decent seminars and coaching programs that are available for free, but a good coach is money well spent. It’s as close to getting your hand held as it gets. Quality membership sites and coaching programs can cost as little as $50 a month, to well over $200.
There are a number of excellent services out there. If you need some help deciding what type of service might be the best match for your goals and financial situation, visit http://fxexperiment.blogspot.com/p/trading-help-and-support.html.
There are some forex robots that can work reasonably well, but be wary, some are completely ineffective in the long-run and shouldn’t be used unless you have good understanding and can look for further evidence that the trades are good ones. As a general rule, be wary of any system that leaves you to your own devices to implement.
Remember that there have been hundreds of forex traders before you that have had their accounts wiped out making rookie mistakes. Don’t be one of them. If you take all the things that traders wish they knew before they started trading, then it not only save you a lot of money, it can make you a lot of money while you learn too. Keep this in a handy place, and read it often.
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