Do you remember the aphorism of Seneca (the eldest) «Errare humanum est» or «To err is human»? In fact, this is only a part of the famous phrase − the most convenient one for the psychological justification of your own mistakes. In its complete form, the aphorism sounds like this: «Errare humanum est, stultum est in errore perseverare» − «To err is human, but it's foolish to persist in your mistakes».
Without errors, there is no progress and professional growth. Those who know how to draw the right conclusions from their failures, as well as to organize their actions correctly and monitor them, will always be successful. We hope that our tips for a Beginner Trader will at least help you to save your capital, if not to get drowned in the gold coins.
We recommend everyone interested in the financial market to read this article regardless of the level of knowledge, trading experience, and the size of the deposit.
Even if you:
- read carefully and then do not say that you were not warned (check here Top 10 Tips for Beginner Traders).
Let's start with simple rules − you may have heard them many times, but did not pay enough attention.
… of course, if you are not one of those who, in fact, create this market (for example, George Soros, Morgan Stanley, Berkshire Hathaway, or FRS). The common phrase «Trend is your friend» has put millions of newcomers out of business because they initially misunderstood the concept of «probability», and then this «strange» word was completely forgotten.
What’s the catch?
You cannot work against the market, but not against the trend, as it is usually «said» in the training courses and is written in the popular textbooks. To keep the position at least in the mid-term trend, you need a sufficient supply of money, time, and experience – just the things a beginner does not have.
Most often, the beginner does not know how to determine the phase of a trend correctly and opens a position when the trend is «visible».
But from the point of the fundamental analysis, it means that this direction has been existing for a long time, all the large volumes are already in the market, and it is time to prepare for a reversal. So it turns out that the beginner enters the market in the final phase of the trend and after a turn, gets a loss quickly.
The beginning of the trend creates a strong impulse due to the players who open orders; that is, any volume indicator should show the corresponding reaction earlier than the price will show the direction confidently.
You can keep the positions on the trend, while the momentum value works in your favor. If the volume indicator shows that the impulse is weakening, meaning the market is slowing down on this trend, then it is too late to enter, and you should close the open positions or fix the result at least partially.
Tip for a Beginner Trader: Be sure to analyze the trading volumes and the market momentum value.
Does it sound familiar? And how often do you violate this rule?
At each moment, you need to understand clearly what is going on in the market (trend, flat, speculation) and who you are in this market (bull, bear or just an observer), and for each situation, you need some clear rules:
Tip for a Beginner Trader: If you do not have an effective strategy, losses are guaranteed to you, and do not even try to check it on a real deposit.
Violation of this simple principle remains the main reason for business failures of the newcomers in the Forex market. Do not chase after speculators, and do not try to make money on everything that moves.
«If you understand the universe, you control it, in a way.»
You shouldn’t open a deal if you:
Tip for a Beginner Trader: Do not consider yourself as Caesar, limit and filter the information you get do not read a lot of things, read useful ones. Do not rush to open positions without full analysis: the market existed yesterday and will exist tomorrow, and it may wait until your trading solution becomes reasonably profitable.
If you are basically not ready for losses − leave the market right now and forever.
It means that:
It is the money the market will punish you with, and moreover, it will continue doing this until the moment you lose everything. You can count on a reasonable and calm trade only if you risk the amount you are ready to lose without serious damage to yourself.
Your unreasonable behaviour amplifies the risk of losses: due to the orders without Stop Loss, an increase in the volume of the losing position, and other management mistakes.
Tip for a Beginner Trader: Determine your comfortable level of risk, account type, and leverage (the less value it has, the more reliable your trading is). And do not forget that an informed decision «out of the market» is also a variant of a trading position. Closing your positions in time and with a reasonable loss will help to save you capital for further actions.
Of course, the list of what you «shouldn’t do» is much larger, but experience shows that the violation of these rules is the most destructive for a deposit. Let's note some more conditions which should be carried out for neutralization of this negative. So, you need ...
A fraudster or just an unreliable broker can destroy any profit, but even if the broker is certified and seems reliable enough, the level of competence and trading objectives of the trader must meet the conditions of the broker.
The level of spreads/commissions, a set of trading assets, the speed of trading orders processing, the reliability of the input/output of money, the quality of technical support − you have to get answers to these and many other questions before opening the first transaction on a real deposit.
Only 20-25% of the Forex «victims» actually made trading mistakes. And the rest? Yes, they were right (from the perspective of the market), but they did not cope with the nerves.
Depression from the losses and euphoria from the profits are equally harmful to your income. Give up the idea that you can earn in a financial market quickly and easily, even if your broker, friends, or advertising are trying to make you think so.
Tip for a Beginner Trader: It is necessary to get rid of all distracting factors (human, everyday, technical, informational). Don’t try to remove stress by using rigid methods (alcohol, tobacco, food, antidepressants, fight, etc.) There are only two in the prize ring: a market with its huge money and you − with good judgment and great preparation.
Do you know what is needed for successful shooting? Correctly: optimal adjustment of the sight. An effective trading plan is an indispensable element of successful trading.
The plan is reasonably corrected in accordance with the market, and its implementation will bring you not only material benefits and confidence in your actions but also moral pleasure from personal victory over the market.
Tip for a Beginner Trader: Proper trading goals will turn your success into a stable result, and not an accident. Precise entries and correct money management will save you from disappointments and losses.
A serious percentage of losers is presented by those traders who create for themselves a rigid scheme of an ideal transaction, strategy, or forecast, and therefore are in a constant search for such opportunities in the market.
This burning desire for unattainable internal standards, in psychologists’ opinion, is called perfectionism.
«A pessimist is a man who thinks everybody is as nasty as himself, and hates them for it.»
Such traders do not recognize other opinions and trading options, do not adapt themselves to the volatile market, are intolerant not only to their own but also to other people's mistakes. They experience a strong fear of loss and often lose good entry points in search of an «ideal».
Personal preferences for a constant profit quickly lead such trader to physical exhaustion, and a deposit − to the margin call state (check Mark Douglas − MIND OVER MARKET).
Do not engage in self-abasement. You shouldn’t perceive a financial market as a battlefield and loss as a defeat.
Each of us is a unique and worthy person, regardless of the amount of money and success in the market, and unsuccessful deals are just another reason to work on yourself.
You will have to accept, as an axiom, the fact that success in the financial market is the result of market and probabilities analysis. You will have to learn to think productively under conditions of uncertainty; otherwise, it will immediately affect the balance of your account.
«The greatest lesson in life is to know that even fools are right sometimes.»
There is no such a «wonderful» trading method that will always be profitable. You have to work according to a strategy that allows losses on separate transactions at the level which is comfortable just for you, while the number of profitable trades should be much larger.
Somebody else's opinion can (and should!) be analyzed and taken into account, but every transaction has to be your own decision. After all – it is your money!
It is necessary to focus not on the amount of profit, but the quality of market analysis and the increase of the profitable trades percentage: a stable growth of profit in points means that the trader is growing as a professional.
And remember: the financial market is just a way to generate income; it should not ruin your life.
Trading psychology is one of the essential pillars of the Forex success, so even if you are an experienced trader, you shouldn’t dismiss a trading psychology advice.
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Grow your patience, boost your trading skills, learn to avoid psychological traps without drawing your live account.
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