Having discussed why most traders failed, I will now discuss how you can avoid being part of the infamous 95% failed traders. statistics of
From personal experience and studying the experience of others, I have come to realize that what is required to be successful traders are quite simple rules captured in the statement “Acquire as much knowledge as you can about forex trading, have a detailed plan in place on how to achieve your desired objective and imbibe the self-discipline to abide by your strategy. I will now attempt to address the pre-requisite for successful trading:
1) Acquire adequate knowledge about the forex market: It is essential to acquire enough knowledge on how the forex market operates. You should have understanding of the basic components of the market such as:
a. What is forex?
b. The global nature of forex market
c. The role of the brokers in having access to the market
d. Forex Market Hours and their impact on your trading
e. "Bid" vs. "Ask"
f. Things that influences Price
g. Profit Potential in Both Rising and Falling Markets
h. Currency pairs – the majors and the minors
i. The impact of margin on your trading in terms of profit and losses
j. Contract size and margin call
k. Percentage in Points (Pips)
l. Fundamental and Technical analysis
m. Demo trading
2) Do not see forex trading as an avenue to get-rich quickly: Forex trading is not a get rich scheme. You should aim at realistic returns on your investments, and you will increase your returns over time as you acquire knowledge, experience and expertise.
3) Adequate capitalisation: Forex is a business and should be treated as such. To have a chance of survival you need a minimum of $1,000 and your target should be to increase it over time to between $10,000 - $20,000 before you can begin to expect appreciable returns on your investment
4) Trading Strategy and Plan: You should have a trading plan/strategy in place to guide your trading. Put differently, plan your trade to the last detail before you enter any trade. Such plan should include, entry point, expected profit and exit point and retreat strategy (stop loss) if things go against you. Stick to this plan because it is your only chance of survival in this high risk endeavour.
5) No trade is compulsory Do not enter a trade simply because you want to trade or the opportunity is too tempting to loose. No trade opportunity is compulsory as there are many more trade opportunities by the corner.
6) Be very sure of the direction of the market before you enter a trade: Never trade in anticipation of the direction of the market. Let the market shows you its direction and follow the trend. Trading against the trend should be avoided at all cost because it has led to the downfall of many. For example in case of moving averages, look for sharp angles and an obvious degree of separation between the two lines to determine upward and downward trend. Once this separation is obvious and a few candles have opened higher than the previous (lower than the previous in the case of a downwards trend) the market has shown its true colors. A candle is not a candle until it is fully formed. You need two or three candles to confirm the direction of the market.
7) Your main objective should be fund preservation: Your first priority should be fund preservation. You are not in trading to throw away your hard-earned money foolishly. It is better not to make any profit in your account in a whole month than lose all trying to chase unrealizable profit. The key to preserving your fund is money management. Do not expose more that 1% of your account per each trade and your total exposure at any point time should not be more than 10% of your account. In case of major disaster, you will still have between 99% and 90% of your capital to fall back on.
8) Set realistic target of profit for yourself and take whatever the market gives you: Set realistic target of profit for yourself and stop trading if you achieve your target. If you are able to achieve a return of between 2-5% on a monthly basis, you would have outperformed most blue chips investment outfits in the world. As a new trader, fund preservation should be your number first priority and profit distance second. Once you acquire experience, making profit will come naturally.
9) Cut your losses and live to fight another day: Trading without stop losses is a perfect recipe for disaster. Set your stop loss target before your enter any trade. This will put in control of your loss. Allowing the market to control your loss is a sure way to quick annihilation, because the market could be ruthless.
10) Trade higher time frames: As a new trader, avoid short time frames and only trade higher time frames to guarantee your success. Trade only 1 hour, 4 hour and daily time frames only as a beginner, anything lower would end up in disappointment and heartache.
11) Be a mechanical trader As a new trader, you are psychologically equipped to handle live trading on your. Make your trading as mechanical as possible. What this means is that you do your analysis, know the direct of the market, set up your trade with stop loss, take profit target ensuring this are within your money management zone and leave the market to do the rest. Leave the trade, close your laptop or computer if you can and go out and do other things. Check back later and if your analysis is right, your profit will be waiting in your account. Where you are wrong your loss will be very insignificant. ‘Baby-sitting’ your trade will definitely shorten your life-span. Live trading is high pressure game and is not meant for the inexperience and faint-hearted.
12) The first 3-6 months is crucial to your trading life: The first three to six months is crucial to your trading. If you are able to make profit consistently no matter how small over the first 3-6 months of your trading life, you will be on auto-pilot if you stick to the same strategy, improve on its flaw and maintain the same discipline.
I believe we have enough discuss enough theory for now. Beginning from my next post, we shall begin to discuss practical trading that will guarantee you success.
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