Commander in Pips: We are getting closer and closer to the trading process directly, so, I think that now is a suitable moment to shed some light on a number of very important points. They are not linked with trading mechanically, but psychologically and are extremely important. If you will be able to accept them, this will help you much on trading's dangerous and thorny way.
Pipruit: Don’t talk with riddles, Commander, let’s start.
Commander in Pips: So, here they are:
1. There is no absolutely perfect trader, who never loses money on the market. Everybody loses money, but in different ways – good traders make losing trades, but these losses are repaid manyfold with profitable trades. This allows them to generate net profits. Most others generate net loss due to some lack in their trading process – insufficient planning, knowledge, poor strategy, money management and discipline.
2. The share of people, who sooner or later lose all their money is about 92-95%. So, as you can see the successful traders are only about 5-8%. And this is absolutely logical, since the market has a fixed amount of money. If somebody stably makes profit – someone should loss the equal amount. The value of the profits of some Forex participants is huge – just imagine JP Morgan Chase for example. That’s why the amount of unsuccessful traders should be bigger, because there should be enough of money to feed these big sharks. Our major task is to join the sharks and not become their food.
3. If it is psychologically hard to you to lose money in trades or you too ambitious, then it can take a lot of time to accommodate to loss trades and treat them as a part of the trade work and experience.
4. You should not turn to trading due to despair that you have no money even for feeding yourself. In fact, trading is a toughest kind of business, and you do not know how much time and money you will need to succeed there. As with any type of business, trading demands time and assets for developing. Treat it as initial or start-up capital. You should not have any pressure on you from the point that if you will not make a profit today – you will have nothing to eat or pay for your bills. That’s forbidden. You should have freedom, both psychological and financial, to develop your trading skills and finally become a good trader.
If you can hardly make ends meet on your salary, or are even unemployed, stuck in overdue credit cards and even have no money to pay for water, phone and cable TV, I do not want even talk about food – then it is better stay aside for awhile. Trading is not for you yet.
5. You should stand on sure financial ground, have some “free” money that you may lose and it will not be crucial for you. So, as to be absolutely calm and ready for potential loss of some thousands dollars, and this loss should not lead you to suicide. In fact, you should have at least 5000$ (better 10K$) as a start-up capital.
6. A very important problem is that many traders have phantom hope to make billions from a few hundred bucks as quickly as possible. But to conceive the art of trading you need patience and discipline, besides the other stuff that we’ve already talked about. The absence of these leads to deep disappointment and the loss of all of your money. How you can become successful, if you even can’t force yourself always come in time or regularly visit your grandma?
7. The lower time frame that you intend to trade the more difficult it will be. I give you a simple example. The trading week includes five days, so trading on daily basis you should think 5 times faster than on weekly basis. Day, in turn, includes 24 trading hours, so you should think and make decisions 24 times faster than on daily basis. Now, imagine, what will happen if we turn to 5 minute trading. Should I continue?The conclusion is obvious – the short-term i.e. intraday trading is not for beginners.
8. Trying to get unreasonable gains leads to taking extreme risks. If you ever read Markowitz work, concerning equity portfolio management and structuring, you should know the simple rule – the greater the risk - the greater the potential yield. So, if you would like to get crazy profits, it means that you’re simultaneously taking massive, unreasonable risks. This definitely will lead you to awful trading performance and financial ruin – it’s just a question of time. If you feel an adrenaline buzz when you toss’ n’ turn millions of dollars with a trading account just around $10,000 and 500:1 fully used margin, may be you better visit Vegas. The odds off success will be better.If you treat trading as gambling – just don’t trade at all.This simple rule allows you to save a lot of money.
9. FOREX demands time, and sometimes a lot of time to reach a success.Forex is not an “easy bucks” adventure - its skills demand time to learn. Professional traders do make money on Forex, but it’s not a “piece a cake” as we’ve said in our Introduction chapter. Do not listen anybody, even they want to assure you in opposite thought. As you understand that if it would become really truth - everybody would be a millionaire now. There is a lot of time from newbie at least to profitable trader, and even more to real professional. Even experts sometimes meet a long period of losses.
10. Prepare to work hard. You can’t to exclude hard work, practice, discipline and diligence by any means. There is no shortcut or back door to success. Trade on demo, until you will find or create a strategy that you know as well as the back of your hand. In fact the trading strategy is a very personal thing. Find or create something, that will work for you and that you will feel yourself comfortable with and will be able execute it properly.