If you are looking for a few positive and inspiring tips to get started in what can be a very difficult, risky, and unforgiving business, then we hope you will find this post helpful. Be aware that some of these tips that may go down like a dose of bitter medicine.
The Problem:
In the retail trading business, you have the world of possibilities that many trading education vendors try to sell you. This world can be filled with encouraging prospects: there are promises that losses will “eventually” be overcome by big wins.
Then there is the reality of trading. Many traders shoot for a cumulative positive return, perhaps for years, but each year just accumulate more net losses, and never find trading success.
Try This Solution:
So what might you do? Get rid of some key bad assumptions and habits before you begin. You might be doing yourself a favor by looking at trading for what it really is: a harsh domain in which you might lack the necessary financial acumen and resources to survive, let alone thrive.
Once you realize this, then you might begin to question everything. Everything from the trading advice you’ve heard to the books you’ve read to the trading courses you’ve taken. Questioning everything can be very beneficial: it can help you separate the BS from ideas that might have real value. By questioning everything, you acknowledge to yourself that you’re entirely on your own (no longer part of the herd). And maybe…just maybe…that’s the best place to start.
Because in the end, your profits and losses, your skills and deficiencies, your successes and your failures can only be attributable to one person: and that’s you. So let’s get started.
Tip 1: What you don’t measure or monitor can seriously hurt you.
To monitor your risk well, you at least need to set your loss levels per trade. How much you decided to risk or lose is up to you. Your loss levels might also be influenced by the average number of trades you place per day, per week, or per month. For instance, if you plan on trading a system that generates 10 to 20 trades per day (50 to 100 per week, and 200 to 400 per month), then you will need to calculate your position size based on your account size and risk capital.
The main point is this: if you don’t actively monitor and calculate your profits and losses, your profit factor, your drawdowns, and their effect on your trading account (which should all be “risk capital” BTW), then you are trading blind.
Tip 2: Trading anxiety can indicate that something is amiss.
Have you ever heard the expression that “trading should be boring”? Well, there might be some truth to this. Chances are that if you are feeling overly anxious about a trade, it can mean that something is wrong:
- You may be taking too large of a position (hence, you’re nervous…and why not?)
- You may be trading with money that isn’t “risk capital” (in which case you shouldn’t be trading)
- You may be not be confident about your research or setup (so did you “jump the gun”?)
I think you get the point. Anxiety cane be an important indicator. It cannot tell you about the markets, but it may be an indicator of what you should or shouldn’t be doing.
Tip 3: If you think you are practicing the live markets through demo trading, think again.
Trading demos are “platform” demos NOT market demos. Demos are there to help you learn how to use a platform, not to practice a given market. Demos don’t fill your orders in the same way that a live market might (or might not). Demos don’t give you slippage. And the more frequently your method trades, the further your demo account gets from simulating a live market.
What it comes down to is this: many traders spend months or years perfecting a trading system that may generate consistent profits in a simulated environment. Once they begin trading in a live market, they may realize how different the live markets are from simulation. What may have been high profits in a demo might translate into severe losses in a live market.
In short, demo platforms make for poor market simulations. But they’re a great tool for learning how to use a platform. Remember…they’re “product demos” not market demos.
Tip 4: Losing money is not paying “tuition.”
Here’s one thing to bear in mind: trading is about making money. Regardless of how expansive or sophisticated your market knowledge, if you can’t turn a profit, then what use is it? Many trading books or trading “gurus” (so-called gurus) will say that your losses are like paying “tuition.” Remember that losses are losses, period.
Tuition is what you pay to learn a skill in an educational institution; skills that have some form of relatively proven applicability in your field of work. It doesn’t quite work the same way in the markets, as there’s enough randomness in markets to “disprove” almost any technique.
This is not to say that you can’t learn how to trade profitably, but there are no guarantees. Just think of all those traders out there who have been “paying tuition” for years and have accumulated immense knowledge only to find themselves unable to turn a profit. No. Losses are not tuition; they are hard-earned funds that you have lost.
Tip 5: When a trading educator attributes your loss to bad “trading psychology,” this can be a red alert for a possible scam.
Trading educators are like many self-help gurus: if their technique doesn’t work out for you, they attribute it to bad luck, or they blame you for not doing something correctly. Never would they blame their own advice or methodology. After all, they are the “guru” and you have accepted that.
Sure, trading psychology and cognitive biases are an important part of trading. For instance, if you are unaware of the tendency for investors to inflate losses over positive returns (a variation of “loss aversion”) then you might not be aware of how you might be responding to your own trading situation.
But as we mentioned earlier, there’s a point where you have to take a more objective approach and measure your performance against your anticipated statistics. In other words, look at the facts that are present. Don’t psychologize your losses. You may decide, after considering your performance very carefully, that psychological factors do contribute to your performance (positive or negative). But don’t be so quick in explaining away your trading problems with a trading psychology narrative.
And if your trading “guru” tells you that your trading psychology needs some work, it might not hurt for you to be just a little suspicious. You might want to ask yourself whether you’ve fully evaluated your instructor’s method, or whether you’ve just accepted it uncritically. Either way, remember that whether you make or lose money in the markets, your instructor makes a profit. You take all of the risk.
Obviously, this post doesn’t cover everything to watch out for. But hopefully it’s enough to get started. Good luck!
Please be aware that the content of this blog is based upon the opinions and research of GFF Brokers and its staff and should not be treated as trade recommendations. There is a substantial risk of loss in trading futures, options and forex. Past performance is not necessarily indicative of future results.
Please be aware that there are instances in which stop losses may not trigger. In cases where the market is illiquid–either no buyers or no sellers–or in cases of electronic disruptions, stop losses can fail. And although stop losses can be considered a risk management (loss management) strategy, their function can never be completely guaranteed.