This is the best trading advice to know before you start trading.
There are many great pieces of advice to know before you start that you could well get overwhelmed however, I have refined it down to the 6 very best ones.
Rule 1.You need to “forget about the money”.
Start small, be sensible. Take it very steady and stay small until you can prove that you can trade properly first before starting to put in large money. Most people ignore this piece of advice. This is the kind of thing that you really need to take to heart. You must tell yourself “I will still be trading 5 years from now. I’m not looking to make one trade then that’s me done.” You are not playing a lottery ticket.
If you want to trade and make money at this for the long term or for the rest of your life
as a living but having the skills to analyze a trade, take a trade when the opportunity comes you need to start off small. There are two reasons for this
1) It reduces the pressure of the money on you.
If you’re starting with a big account relative to your net worth all those kind of things you are going to feel the pressure when a trade is going your way and think all this is a lot of money and you will take the quick profit
And vice versa you are going to feel the pressure when it goes against you and you might panic and pull out at even the smallest set back or you may just wait to see if it comes back.
2) You need to gain experience. You need to be from refining your craft and your skill rather than looking at it from a profit or loss perspective so starting small. It has been said that to be a good trader, you need to have made 1000 thought through trades. If you trade small you can reach that milestone before you’ve burnt out your account. Most beginner traders don’t get that far because they have gone big before they were ready and blown all their account.
The question comes up with when should I start ramping it up you’ll know you’ll know when you’ve made the good progress when you’ve gained consistency. The losses are coming as well but you’re stopping them off early and you are letting those winners run. You’re picking the right trades to be in and you’re not over trading all those hundreds of other things that go into your trading decisions. You won’t do now but you’ll know when it’s time to ramp it up and then start to make some money. So starting small and developing a different perspective on trading you will know. You will think I’m actually improving a skill here not just looking to make money.
Rule 2 Is the focus on risk and forgetting about the size of the account.
Just focusing on the per trade or per group of trades this is the biggest thing except maybe psychology. But if we’re looking from just an operations perspective then risk management is a major factor
You could have the best trading system in the world but if your risk management is bad then your account is going to blow up. Unless you’ve got a system that wins 100% of the time, then one big losing trade could blow out your whole account. Just imagine if you had the best tradin system in the world (most experts win at 55-65%) that won 90% of the time and you bet everything on each trade. What would happen? You would win and win and win, until about the 10th time you traded you would lose everything. In other words if you have only a 10% chance of losing if you keep betting your whole account on each trade you are guaranteed to lose everything. This is essentially the way most starting traders begin. Their odds might be 55% win rate and betting 30% of their stake at a time. The results will be the same. 4 losses in a row will wipe them out. 4 losses in a row happens 1 in 16 times. So on average such a trader will lose everything in about 16 trades.
if you don’t manage to focusing on the risk, what’s the worst case scenario.
To calculate this calculate your max loss per trade based on your stop loss calculations. Then calculate how many trades you will make per week. Then a good time frame is to look at the 90 day point, which is 13 weeks. You multiply your max loss per week by 13 and then you can see how much capital you will have left at the end 90 days. If this is less than 50% then you need to make adjustments to your risk strategy. A common max loss per trade should be less than 2% of your total capital.
Rule 3 Don’t to too many sources of information and ideas.
News such as following a break in negotations with the Chinese the dollar fell to weekly lows. Just because something follows something else it doesn’t logically mean it caused it. You need to look at predictions and check the results. You will see a pattern of 50:50. With most predictions. You will often see contradictory predictions. Experienced financial news people also indulge in doublespeak. They predict a stock will go up for reason x unless it goes down for reason y.
You must filter out this noise. Anyone who really knows something is not going to let the world and his dog know about it. Instead they quietly make their trade and wait for the news to hit at which point it is too late to follow.
Most TV trading advice is useless. Some newsletter, youtube channels or magazines can be good. But here be selective and chose only those that give general advice on techniques rather than specific trades to make.
Who ever you follow be sceptical. Back test his ideas. Slowly develop your own ideas. Check to see if his methods work.
Rule 4 Stick to your trading method. Specialise.
Stick to a one or two currency pairs expecially as a beginner. That will allow you to get a deep understand and feel for how thes currency pairs fluctuate. You can be a scalper, day trader or a swing trader. Stick to one or the other method. But worse than that is change your rules after you have made a trade. That stops you learning weather your rule is good or bad. You need to measure the number of times it wins versus how many times it loses. You must stick to your trading method for a long time to learn the ins and outs of it and become an expert
Rule 5 start small.
the biggest mistake in trading is not to start small. You must start small and keep small until you have gotten past all your mistakes.
Fund managers first job is protecting capital. They are experts at risk management. The secondary goal is to increase that capital by small safe amounts. And only after that do they consider making speculate larger gains on the odd occasion that the opportunity presents itslef. Be like fund managers.
Remember forex trading is not a get rich quick scheme. It is a long term trade. A good idea is to practice it as a hobby while carrying on your day job. Some traders risk too much because they want to make a living at it, turning it into a job. That almost certainly will lose you all your capital.
Rule 6 – Keep a journal
Keep a record of all your trades. Write down why you made the trade. How much you put down. What you expect to happen. Write down your stop loss. Write down your target and when you will start a trailing stop loss. Write down what happened. And note if you stuck to your plan or not.
Over time you will get to see a pattern in your trading methods and learn what works for you and what doesn’t