My name is Misheal. I started trading the Foreign exchange market 2 years ago. I must say it was really hard time for me. But it was then when I really rushed into Forex. With no sufficient knowledge I started gambling my hard earned money and that cost me a lot. This confirms the popular saying in Forex that 90% of traders who ever trade lose their account and that 10% go bankrupt. Scary, isn’t it?
Over my few years of experience I’ve realized why such a large number of traders failed. It is not because they are stupid: in fact most traders have an above-average IQ. So, they question is “why do they fail”?
LACK OF SUFFICIENT TRADING EDUCATION
From my experience, I rushed into Forex without proper education. Some of us just want to rush into Forex and make money just like that. Remember, a city is not built within a day. My way of thinking was similar to that of other newbies at that time:
-They think they can turn $1000 into $100,000 within a week
-They think they can make profit consistently without studying
-They think they can predict the turning points in the markets at any time
-They think it is all about intelligence. Intelligence without hard work cannot yield high results
-They think after-all “if I cannot trade myself I will buy a system that is 100% accurate.”
-They think they will quit their jobs and make millions in a few months.
I am sorry to disappoint you, but without a sufficient trading education it will be hard to achieve this goal and you might go bankrupt.
When I am talking about education, I do not mean learning in terms of the indicators like MACD, CCI, STOCH, Moving Average… or studying someone else’s trading system. I mean an all-round self-education.
1. Educating should cover a correct psychology approach to the market.
2. Educating in using perfect risk management techniques in relation to your account size.
3. Educating in choosing the right entry and exit method that suits your personality.
Though I am not the best trader, but, in my own way, I will try to point out some things that I think may be useful.
Forex trading is all about probability, it is never exact. It is not like mathematics where you add 2+2 which gives you 4. To me it is the art of effectively applying a set of carefully planned rules and effectively allocating the probability of that rule to the result of successful trading.
*Your approach to the market psychologically determines the extent at which you will be successful.
*Your risk management is very essential. Always calculate your risk margin. I will advise to use only 30% of your capital in trading. Meaning if you are having a capital of $100 you can only enter 1 trade at a time with 0.03 lot size.
*I have written this, but I will repeat it again, Your trading method must be the one for you. It must suit your personality. When you are able to achieve this, you feel relaxed while trading and the level of your confidence is going to be high.
*I will recommend funding your account with a reasonable amount of capital. But remember not to put the capital you cannot avoid to lose so it will not demoralize you. This reminds me of a friend that borrowed a huge sum of money to trade Forex while he was still a newbie, crazy right? He landed in the hospital after 2 weeks of trading because he had lost everything. Please always put the money you can avoid losing but be reasonable enough.
*Forex is like warfare. Your infantry is your confidence, knowledge and the constant belief in yourself that you can make it.
THE EFFECT OF EMOTIONS
We are all humans. It makes it natural for us to be influenced by our surroundings and everything we take part in. This has a great effect on us personally. This is where I will say maturity comes in.
As traders we have to have it at the back of our mind that we have no control over the Market. For God's sake, Forex is all about more than one country's trade. If you can have this in your mind, then you will totally believe me that we cannot influence the direction of the market. So, learn to accept your losses and take your profits at the right time.
RIGHT ENTRY AND EXIT
This reminds me of a comedy movie "MR BONES"…lol he always loves to say something, "the bones never lie" in other words, the bones are an oracle. What is the oracle in Forex? The Forex bones that never lie is the candlesticks pattern. I will advise to put the candlesticks into play while trading Forex in your entry level and exit level. Over my few years’ experience I have noticed that we, Forex traders, fall into two categories, i.e. we are either traders that love trading breakouts or trader that love to join the trend once established. I can also say that some traders are congestion traders, reversal traders and mechanical traders. The ability to enter the trade and exit at the right time makes a good trader.
MANAGING YOUR RISK
As we all know, there is no business in the world that does not have its own risk. In Forex, I will say, managing your risk, you need to apply the right Stop loss parameter and to minimize your maximum drawdown. Our common problem is in accepting our risk. You can be 100% right in every trade. Remember we are humans and we have no control over the market. To make it real in Forex you need to answer the following questions personally:
- What is my trading strategy like?
- Is my Stop loss set correctly?
- What is the Maximum pips I have ever made against me before making profit = Maximum Draw down?
- How much money can I avoid losing?
- How much equity do I need to start with?
- How far should I risk?
- Do I have the right capital?
Thanks for taking your time to read through my article. I think I have been able to educate you in my own humble way. I wish success to every trader. Know who you are and stick to what works with your personality. Thanks.
The article is written by Misheal Ojediran and is participating in the Forex Article Contest. Good luck!