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11-12-03, 06:26 AM
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| Advice for Novice Traders courtesy of fx-pro.com I came across this article and thought it was worth posting here.... Please note: I have no connection with fx-pro and therefore cannot vouch for their reliability as a broker -------------------------------------------------------------------------------- Advice for Novice Traders 1. In order to become a successful trader, you must have sufficient risk capital, the loss of which (or parts of) will not completely destroy your morale - you must be able to handle this ordeal calmly and this should not effect your lifestyle in any way. Your mind should be on the market, not on your finances. You must concentrate on the task of trading, and must remain calm, in order to make the proper trading decisions. You should never use the last remains of your finances for trading - the responsibility and the pressure would be too great, and your mind would stray towards your finances, and not towards the market situation, thus greatly increasing the possibility of mistakes. 2. Don't rush to open a real account after only a few days of practice. Practice for as much time as necessary for you to feel confident on your own. Do not compare yourself to other traders - just because it took them a certain amount of time, doesn't mean you don't need more. Your primary goal in this practice is to develop an individual trading style or technique such that, at the very least, your next week's trade earnings are not less than this one's, and your monthly earnings should increase every following month. Only after achieving this result, should you open a real account. 3. When the amount of winning trades surpasses the amount of losing trades, and your account balance is increasing, you have achieved a positive result in trading. However, if you have 5 losing trades for $2000 total, and 1 winning trade for $3000, that is nothing to brag about since you probably made it through only by luck, or by the fact that you took an insane risk to use the maximum number of lots for your trade. You should never depend on luck . Not on the market - eventually your luck will come to an end. 4. Its not enough to achieve the above results on your demo account. It is equally as important to understand why it happened, and to develop your profit-making individual trading style. Intuition is very important, but basing your trading decisions solely on intuition is unacceptable. 5. Set up strict limits for your losing trades, so that you don't lose more than you can handle. These limits should be within 3-10% of the total sum of your account, depending on its size. If the market starts going in the wrong direction, don't try to think of excuses why you shouldn't close that position - as soon as the losses reach your set limit, immediately close the position. Even if the market starts going in the right direction 5 minutes later, you have eliminated the risk of it not turning around. You will make such trading rules, so that you could trade by them, not try to go around them - you would only be hurting yourself if you did. Remember that if your account contains less than $3000, you should not trade using more than one lot. If $3000-$5000 - never more than two lots, but only trade two lots only if it is looks safely in the current market situation. If you have $10,000 on your account you may trade two lots, but never more than three. If you follow these rules, you will considerably limit the risk factor. Trading too many lots at once would be dangerous and unwise. 6. One of the most deadly mistakes a trader may commit, one which shall destroy everything, is when the trader (after already losing $200 on a position) begins to think of excuses not to close this position - perhaps the market will suddenly turn around and move in a favorable direction? The trader keeps thinking of this, and doesn't have the heart to close the falling position, waiting until this happens. The market does not do any favors for anyone. Eventually the trader will be forced to close the position, with losses of $1000, or even greater. Not only will the trader lose money, they will lose morale too. They will lose confidence in themselves and their decisions. The reason for committing this mistake is simple - greed. Losing $200 doesn't hurt your opportunity to not only make up your losses, but also make additional profit. Losing $2000-3000 in 1 or 2 trades, you completely destroy your opportunity to earn further money! In order to avoid this trouble you must follow a simple rule - never go over the risk limits you set for yourself. Close your positions immediately when your losses reach these limits! 7. The less money your account holds, the less money you can lose in a trade, the greater that trade's value is to you. Because of this, you should avoid opening a real account with $1000 - its just not enough, because just like a "spy" you can't afford to make a mistake, you don't have the right to make a mistake, and a mistake is fatal. On any market, there is no such trader, even the most experienced, which hasn't ever made a mistake. 8. Mistakes and losses are an unavoidable part of any trade on any market. The sooner you learn to accept losses in such a way, the sooner you will begin to earn. You should not blame yourself, others, or the market for your losses. Your losses are in no way related to your reasoning abilities. Your task is to calmly analyze your mistakes and to not repeat them in future trades. You should not jump from joy after winning $800, nor beat your head on the wall after losing $200. The less you let emotion get a hold of you during trading, the better your ability to see the true market situation and to make the right decision. It is vital to develop a cold-hearted lack of emotion, and to treat winnings and losses as just numbers - not money. Understand that traders don't learn from their winnings - they learn from their losses. When every loss is perceived as one step towards your next winning trade - you are on the right track. 9. The trader's greatest enemy is not the market, putting the blame on which is the same as blaming nature. The trader's greatest enemy - greed, impatience, lack of control over emotions, insecurity in oneself, and a self-centered nature of the trader. You must never open a position simply because you get bored and want to do something, because you haven't opened a position in a while. There is no norm as to how many positions you should open in a given period of time. Even if you only open one position on 2-3 days, but that trade earns you $600-800 - you are on the right track. 10. Keep a diary, where you will describe the conditions that led you to make the trading decisions that you did. Write about the market events which influenced your decisions to open or close a position. After every trade, analyze it and write down the result in your diary. If you made a profit, it is important that you understand and remember your flow of thinking, which led you to the right decision - market events happen often and new news may replace old news, so you will eventually forget what happened unless you keep track of it yourself. It is even more important to understand why you lost. There are really not that many mistakes that amateur traders commit, and if you can understand them all, you can learn not to repeat them. 11. Reading the opinions of others, base your trading decisions on your own analysis of the market, and your feel for the market, which you will eventually acquire. If your prediction matches someone else's, good. If not, that’s not a problem either. However, if upon seeing such a disparity, you start doubting your analysis, it is best not to make the trade on your real account - only on demo. If you are confident in your decision, go ahead and do it - one of the predictions will be correct. If your prediction is not the correct one, find the fault in your analysis. 12. Always follow the ancient and universal rule of the market: cut your losses as soon as possible, and hold your winning positions open as long as possible. There is more to add: never, under any circumstances, allow loss to occur in a position which has been making profit. It is better to close it all together without profit if the market suddenly turned in the opposite direction, rather than allowing a profit to turn into loss. That would be just stupid. 13. If you suffer a loss, don't try to immediately open a new position to "get revenge" on the market - you are only making your situation worse. Only if you see that the direction you have chosen for that position was totally incorrect, then it would make sense to quickly close that losing position, and immediately open a new position in the opposite direction. Don't play guessing games with the market. It is better to lose opportunities, than to lose money. 14. You can try to win $1000 in the paid demo competition, but you should only attempt this after developing a working individual trading technique, which has been consistently bringing you profit on the demo account. Learning to trade in the paid competition is pointless. In your attempt to win more money than everyone else, you will cross all limits of risk, and even if you win, you will not be able to trade so confidently with your real money. Such a risky technique will only bring losses on the real account, and you will not have a cautious, safe technique available. 15. Try to think of your demo account as your real account. The sooner you are able to convince yourself that the demo is trading the same real money that you would trade on your real account, the sooner you will begin to develop the proper technique of trading which you will eventually use on your real account. You must act the same way when demo trading, as you will when trading for real, because the technique you develop determines your success in trading. 16. No one knows better than you how much money you should put on your real account later on. In order to trade in the demo, it is recommended to lose money until your demo balance reaches the sum you plan to use on your real account. This is a unique opportunity to develop your necessary technique, in the conditions of your real account. 17. Try to begin trading at the same time of day, each time - the behaviors of the currencies at different times of the day differ, and by concentrating on a certain time of day to trade, you will be able to understand the characteristic behaviors of currencies at this time. Begin your day by researching events which occurred on the market while you were away from trading. For this purpose, our site has a great feature which will help: "Market News". After getting familiar with the market events, look at the graphs for the movement of the currencies, starting from "tick" charts and ending with daily, and select a tactic which you will use for this particular day. 18. Concentrate on 1-2 currency pairs, not more. Research their behavior thoroughly. Do not trade different currency pairs, but observe and analyze the behavior of all currencies - they are all dependent on each other. Understand that cross rates have the greatest influence over the behavior of the currency pairs, including the dollar. Good luck! |
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11-12-03, 08:38 AM
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| Thanks Pete, excellent advice. My only comment comes from my personal experience regarding letting a winning position become a losing position. I have had several instances where I was up and then closed the posistion because it turned around. I closed the positions based on fear of losing instead of following my plan which would have allowed the positions to go negative. If I had followed my plan then I would have rode the positions through the negative period and into a substantial profit. My question is, when should a trader follow his/her plan even if it means letting a winner become a loser for a period of time? Thanks           |
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11-12-03, 09:21 AM
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| Quote:
My take on it is most trades are in the negative at some time during the trade (well mine usually are anyway!), we all know prices seldom go in a straight line. I stay in a losing trade until either my stop is hit or TA tells me I was wrong, until then I hold. I think the author of that article really meant a winning trade with a good profit turning into a losing trade, probably meaning it's best to use trailing stops or stop at break even. Just my opinion Pete |
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11-12-03, 03:08 PM
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| hi,my name is tomislav,i'm from croatia and i have a question wheather someone know company with MetaTrader platform and also in the same time being a member of NFA? If so please reply to my email on: tgrgic2003@yahoo.com, thanks!!!!!!!!!!!! |
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11-12-03, 05:30 PM
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| Crotrader, there are some companies listed on the MetaQuotes Website Cheers Cambista, you're very welcome. If you're anything like me when I started I read everything I could find...I still do! Pete |
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11-12-03, 07:22 PM
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| How long to wait for market?? Hi peteuk, Well, I am new to forex and still working with demo. But after reading I have a question. 1) How long you will you wait if your trade is going against you? Few days back I have opened short position in USD-CAD as it was going down. After my trader, market started to go up, so I waited waited and waited till -250 pips. I thought it will come back but it didn't and I lost patience, so I closed my position and took loss. Then I opened reverse position, to recover losses. Now USD-CAD again started to work against me and again I lost 300 pips. Well still waiting and observing. So how much loss is reasonable and when do you think position should be closed even if you believe market may turn around in you favor? Thanks. |
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11-12-03, 07:58 PM
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| cut your losses short.. Quote:
I know it is tempting to sit and wait.. "knowing" one has figured out the general weekly-monthly trend. And justifying large losses by the reasoning, "it will come back" .. Often it will, thats right. I have tried this, and indeed by this method you can make profit. But.. when major reversals like we are seeing now happens, this method is painful unless leverage is very low, and some hedging stragedy is applied. But why!? We say to ourselfes, it will come back, and probably it will eventually. While the marked is moving against us we are losing, no matter how we see it, closing the position is just moving numbers within our account. Lets assume we are taking positon on the EUR-USD, counting on the great move down, and we are not considering trading reversals. I am sitting on small position sell @ 1.1495.. it is currently negative 145 pips @ 1.1641 . Why!? cause I didnt belive the marked would go this high. Now I have to wish it will go back to break even (it will one day). Instead of use stopper ~30-50 pips or whatever and get the chance of getting much better position for my short @ 1660 . I call this losing market positioning... This is the main drawback IMO. I am not going to mention the obvious my stopper is now a little above 1660 where I will close... Therefore, the stopper is the smart thing to protect us from big losses out of sight, but also a good tool to take better positions on the market, if we are aiming for longer term trades. Using trailing stops following to closely will of course kick us out frequently. But then again we should just check the situation and use the chance to get better positions.. Hope you understand my rambling, I am to sleepy to write I guess  ps read rules 12 & 13 in first post carefully  best, E. Last edited by Eriksson; 11-12-03 at 08:33 PM. |
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11-12-03, 08:10 PM
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| Possible solution for Burtakus Burtakus, I too do not like a to watch a profitable trade turn inot a losing trade. My main style of consistent trading is off daily charts, and what I normally do is lock in profits. My personal preference is 50pts. Just a nice round number for me. Using an example, yesterday I was short CAD, it then went 84pts in my favour so I placed a stop at the 50pt mark when it started to pullback. This stop was activated, where I took 50pts profit, and the market kept going against me. I was fairly confident that my initial analysis was right so I then go to the 15 min charts and monitor. A short time later the market turned back down and when I was comfortable that it would continue this way, I jumped back in. I then had to go to bed, so I set a limit of 50pts and woke up this morning to find that this had worked well, and again the market had since pulled back to my 2nd entry point. So all in all, 100pts gained just by locking in profits. Mind you I probably missed a few points by jumping in and out, but I am not greedy, only taking my fair share. You could also look at getting your stop to break even as soon as reasonable, and again look for re-entry around the same price if the market comes back in your favour. Another method possibly, at say the 50pt mark take some profit (multiple mini/lots), and move the remainder to either the entry point to guarantee some profit, or at a point above/below the entry point that would put you in an overall break even position. There are probably several methods you could use here, but you just have to find what's comfortable for you. I find re-entry a good way to relieve the stress and lock in the profits. It takes a bit of practice and patience but if it allows you to relax more, then it certainly worth the effort. This would obviously be a lot harder on smaller time frames. Remember you don't need to get every point out of a move. Don't be greedy as there is another move just around the corner. |
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