In this new trader guide, I'm going to prepare you for what it takes to be profitable. It is a broad outline and basis for topics to be discussed more in-depth later, but its advice is solid advice nonetheless
Followed correctly it steer you away from many of the mistakes beginners make.
It's a three-part series.
This first part focuses on how to structure your own trading development and the mindset needed to succeed.
The second part is about some of the choices you have to make about analysis, systems, and markets and timeframes
And the final part will offer some basic ideas on money management and trading psychology.
This series is specifically or retail traders of Forex and CFDs as those are the trading vehicles I am most familiar with.
Not a get rich quick guide
If you're looking for a way to get rich quick, this guide isn't it. There are no short cuts to trading success.
Becoming a trader is a career choice, and like all careers, you don't get to the pinnacle overnight.
If you're planning on some auto-trading bot doing all the work again, you won't find such advice here.
Ditto copy trading. I have nothing against this, but following the trades of other better traders is not my idea of self-development, regardless of whether it bags me a million or more.
And that's what learning to trade is a course in self-development.
Trading is a life skill, and one well worth the time studying.
What black box systems or copy trading do is take away responsibility from the individual and hand it over to someone else.
Who the hell would want to do that? Stop being so god damn lazy already!!
Trading Tip: Take complete responsibility for your own trading development
Why am I qualified to teach this?
I have traded since 2003.
I could tell you of the great trades; bull markets, easy money, the ten-baggers, the women, fast cars, (I'm kidding with the last two).
But I won't.
Because we rarely learn from success - it's mistakes that are always our greatest teachers.
Here is a quick list of some of my own:
- quit my day job for full-time trading after only 3 months (no kidding)
- experienced at least 50 losing trades back to back (I gave up counting after that)
- spent years in a demonic search for the Holy Grail (the worst days of my life)
- made over 700% profit in one year; started taking on 'clients' and gave it all back in a month (took me a year to get over the pain)
- boom and busted my accounts multiple times (heh I am The Comeback Kid)
- only kept a journal when I was doing well, ignored it when I wasn't (the height of laziness)
Believe me, I know how it feels to be a complete loser at this game. I lived it for many years.
Which is why I am totally qualified to teach you.
Trading Tip: It's less expensive to learn from someone else's mistakes than your own.
When did it all change?
Honestly, I've no idea; maybe when I got bored of it all.
Bored with placing trades and see them reverse.
Bored of eagerly waiting for Monday morning and see positions gap against me.
I simply gave up on the very idea of being successful.
I literally made every mistake in the book and invented a few of my own.
I think I just ran out of mistakes to make in the end.
Trading Tip: Successful trading should be boring.
Trading is simple
Yes, that's a fact. Not a typo.
Don't let anyone tell you trading has to be complicated.
The body of knowledge needed is tiny compared to many professions. There's a good chance your current job is more complex.
Sure, if you wish to be a market wizard, then maybe you'd better analyse crop reports, interest rate differentials, money flows, sentiment indicators, or PE ratios.
If that's what floats your boat then great. That will certainly add to your bottom line.
But, at it's simplest, you don't need any of that.
To make money in trading you only have to do a few things well.
But, tennis is simple, you just hit the ball.
Or quitting cigarettes is simple, you just quit.
Technical trading is like that, you just place your orders, manage your trades and money starts rolling in.
The problem is; so much happens between placing the order and taking the profits you'll let money just slip through your fingers.
Trading is simple, but not easy.
Trading Tip: Use simple analysis so you concentrate your energies on mastering yourself.
Trial and error
As a newbie, you come to the market with all sorts of high hopes.
You're confident you can make a success of it.
Like when learning to walk as a baby. You'd stand up, fall over, bump into things all encouraged by your parents.
Eventually, through trial and error, you master walking.
We need this confidence. It's how we survived as a species.
And this is how many of us approach trading, through trial and error.
But, this is totally the wrong approach to take. It is because of this that all your future trading problems begin.
All the errors you make as you go through the trial and error process eventually start to weigh on you.
Every trade made is viewed through the lens of past mishaps.
At first, you aren't too concerned, you're still learning. But as time goes on, at some point, you start to panic at all the money you've lost.
And most of the time you are not even aware of it. You honestly think you're analysing the market when really all you are doing is trying to avoid further pain.
This is all very subtle.
Trial and error may work in some careers but not this one.
You have to approach the business of trading in a business-like manner.
If you want to open a business but don't have the skillset you learn the business skills.
Try asking for a business loan, without some level of accounting or marketing experience and see where you get.
And yet many of us think that in trading as soon as the account is open we can start making money consistently.
Trading Tip: Don't think you can learn as you go - the chances are you won't last
Pay attention or don't - up to you
True wisdom exists in knowing you know nothing
If I'd personally had this Forex beginners guide to read years ago, I'd not have taken a blind bit of notice.
I'd be too busy researching a strategy that never lost- as if one exists!
I'd think I could learn money management only after I became profitable.
Come to think of it, that is exactly how I did think!
I don't know you from Adam, but I'm sure you aren't that different than me back then.
You're thinking all you need is a great strategy which rarely if ever loses.
You don't consider deliberate practice, going slowly, trading a virtual account as important, or listening to wiser more experienced traders.
You will pay them lip service of course, but deep down you think you're the exception to the rule.
If you're thinking like this, then you're already on a slippery slope.
I was able to survive, due to a combination of deep pockets, and a saint-like ability to suffer emotional pain. Most aren't so blessed, however.
So, if you want to make it as a trader, then it's wise you pay attention both to this guide, and my blog in general.
But ultimately it's down to you.
Trading Tip: Don't assume you can skip the steep learning curve
Your biggest weakness as a beginner
Many come to trading totally clueless.
There is nothing wrong with this. My own ignorance was colossal.
The problem is not that you don't know, it's that you don't know you don't know.
You read a few great books, go on a few courses and think you're prepared.
Really you're unconsciously incompetent.
Like the gladiator who steps into the arena for the first time.
If you make it through the first combat, you're lucky. Make it through ten, you have the chance of becoming a great warrior.
The early days of trading, I imagine, are like the early days of gladiating - you're at your most vulnerable.
In fact, gladiating was probably much easier - you haven't got all the gurus, teachers, system vendors, courses, technical indicators, and brokers competing for attention.
Because you're so inept as a beginner you have blind faith in every method or guru selling their wares.
Choose the wrong one though at this stage and it can be game over real soon.
Even if you do survive your earliest trades, many of you will then spend years in trading purgatory.
This is a lonely place where you spend years looking for Holy Grail indicators, and where so-called 'experienced traders' haven't yet experienced consistent profitability.
Trading Tip: Realise that as a beginner you are at your most vulnerable.
The advice of other traders
I've lots of respect to the community at Babypips.
The generosity in terms of the advice offered from the more experienced members to the beginners there is commendable.
But, experienced traders will always be attached to their own method of trading (I'm no different).
Be it scalping, short-term swing trading or long-term trend trading, wherever they cut their teeth, is where they feel all newbs should be focusing.
When you've got a group of traders all discussing their own unique war stories it can be off-putting for the beginner.
Trading systems are a personal thing, what works for one might not work for another.
As a beginner, never take it as gospel what an experienced trader says about the market or a system.
There is only one way to know the validity of a strategy and that's to backtest it and see the results for yourself.
Trading Tip: Learn to think like a systems engineer with a healthy scepticism of what you are told.
It’s fair to say that we're all in a rush to make money.
If you can learn a few techniques, leverage it up, then you can pay for that car, holiday, second wife, whatever.
Learning techniques, systems and methods though is the easy part.
Implementing them on a consistent basis is not.
Trading is not logical.
It should be easy to follow a system.
But humans have things called emotions that hijack the brain at the worst possible time.
There are reams of scientific evidence to prove this.
And even a field of study called Behavioural Finance devoted to it.
It's fascinating reading as to why we can't be rational when it comes to money.
Unfortunately, it's short on answers on how to deal with it.
Even the best traders suffer the same cognitive biases you do, they've just learned to cope better.
The only people who don't have these problems are those who've had portions of their brain removed. No, really, I'm deadly serious!
Because any 'inner game' work takes time, don't be in a rush to make money.
There are ways to speed up your learning curve, but nothing comes overnight.
If you follow the suggestions I make, you'll develop the synaptic connections needed to fight off your inner caveman.
Trading Tip: Stop thinking of the money you'll make, start thinking of how well you are going to execute your system instead.
You need to think like a top trader before you are one.
I know that sounds all very New Age.
But no doubt about it winners have learned to think differently.
What can a losing trader do to transform himself into a winning trader? - Jack Schwagger
A losing trader can do little to transform himself into a winning trader. A losing trader is not going to want to transform himself. That's the kind of thing winning traders do - Ed Seykota
So, how does a winning trader think?
By accepting losses.
I'm not just talking about, a theoretical 'yeah yeah I'll accept losses when I'm rich', type of thinking.
I'm talking about fully embracing them in the here and now.
That's easier said than done. But it can be done.
Trading Tip: The paradox of trading is you have to experience what it's like to be a successful trader before you can be one.
The belief system of a successful trader
The first belief is there are no certainties in trading, even a great system has the chance of losing.
The second belief is losses are a business expense.
Every business has them, trading is no different so why do us traders find handling losses so hard?
The third belief is trading is a numbers game.
If you've backtested your system thoroughly, you'll know sometimes it goes on cold streaks.
But if you've adopted the mindset of a system engineer you'll know the chances of that happening. You won't act so irrational next time you get three losses in a row.
The fourth belief is seeing a loss as just one in a long line of trade outcomes.
You're in it for the long haul so why bother being upset over one trade?
Successful traders have learned mental frameworks that make handling losses easier.
Trading Tip: Get to know how your system performed in the past, both in good and bad times. It will help you when you experience a string of losers.
Because so many approach Forex with the mindset of looking for easy money, they aren't willing to do the hard work needed to succeed.
No, the hard work doesn't mean sitting at your PC all day scalping. Or reading every bit of market-related news.
It means, taking your trading development seriously.
The idea of just finding a trading system and following it is admirable but unfortunately misses the point.
You aren't ever going to follow the rules of the system unless you first start thinking like a successful trader.
Trading systems are just a small part of a broader system of trader self-development that is needed. This isn't so hard to understand if you think about it.
Many of you'll have graduated from university.
Or, worked as apprentices.
Gone to law school perhaps?
Become accomplished pilots, doctors, brain surgeons, accountants, chefs, athletes, ships captains, musicians, dancers, maybe even astronauts.
So, you already have a great basis on how to structure the learning process.
There is likely at least one skill that you do very well in your life, where you know you just can't get good at it overnight.
The idea seems laughable to you that you could just read a few books or watch a few free YouTube videos and become an expert.
Well, trading isn't any different, so respect the learning curve.
Develop core competencies, practice, develop muscle memory, keep practising until you can execute to perfection each time.
Trading Tip: Take an interest in peak performance. How do the top coaches bring out the best in their charges?
One of the best ways to develop core competencies is to start trading on a virtual account.
When you begin you'll be all fingers and thumbs, two left feet or some other analogy describing overall incompetence.
The first level of skill is being able to place orders, stops, reading charts, recognising patterns, you get the idea.
This is basic stuff and it's a no brainer that we'd use virtual money for this. You need to be performing these basic functions in your sleep.
Well at least no longer thinking about them on a conscious level.
Trading Tip: Don't play at trading. Virtual accounts are the best way to structure deliberate practice in the markets.
How long should you trade on a demo?
First off if you aren't making money on a demo, then you need to think seriously if you're ready for the real thing.
IMO newbies should spend a year at least on demo.
I know you're itching to quit your day job or pay off that mortgage.
Which is the very reason why I suggest it.
You need to kill as much of that impatience as possible.
If your planning for trading to be the escape mechanism for some fun-filled life of adventure or upgrade to your social status then you're already on shaky ground.
You are not going to be a patient trader.
And it's patience that's one of the most important traits you need.
The very act of trading with pretend dosh for so long will temper your desires and increase patience.
And you'll become a competent trader, even though its on demo only.
You won't be a total newb for when you start with the real thing.
You'll recognise setups, uptrends, downtrends, sideways markets etc
Implicitly you'll have a feel for the market, and will have developed many of the traits of a successful trader.
When you eventually trade with real money, when you do suffer setbacks you'll have a mental database of options on how to handle the situation.
This will set you apart from other newbies, who just jumped straight into things with no thought.
Trading Tip: The only way to develop the successful trader mindset safely is from a demo account
Speeding up the learning process
Not all beginners aspire to become day traders. And believe me, that's a good thing.
But for more long-term orientated traders out there, if you really want to put your learning curve on steroids then day trade on your demo.
You'll cram so much into your year it's insane.
Your brain will become hypersensitive to the market and trading.
A year day trading on demo will be like five years of market knowledge.
I am not advocating day trading, only suggesting it on demo.
Then, when you are finally ready for real money, go back to higher timeframes, like 8 hours, daily and weeklies.
You will have accomplished one very important thing by all
You'll have made trading boring. The longer timeframes will just feel like watching paint dry.
Which is exactly what you want.
Trading Tip: Build up a mental database of market experiences fast by trading the lower timeframes on demo.
When you finally put money on the line, the game changes.
With your hard-earned cash at stake, once again you'll be all fingers and thumbs.
You'll panic as soon as your trade goes negative. You'll become like a deer in headlights.
So in order to avoid becoming complete cannon fodder for the markets, the next step should be micro-lots.
If you are going to be messing up, might as well do it small.
Micro lots are the smallest contract sizes tradeable. They are one-tenth the size of mini lots, which in turn are much smaller than full lots.
Micro lots are the next logical progression, it's real money, but small enough that you don't do any damage while you are transitioning.
Don't worry though, the year you spent on demo will be time well spent.
You won't be the incompetent fool you could have been if you just took the plunge with real money.
Trading Tip: Your patience will pay off much quicker than those who jumped in with two feet? The hare and the tortoise comes to mind.
Be smart when you start
Most beginners never have the intention of doing what it takes to succeed.
That is why they never turn pro.
They play around on demo thinking its all pretty pointless.
And so aren't prepared when it comes to the real thing.
They have no confidence in their system, their own ability and have not developed the successful traders mindset.
Is it any wonder they fail?
It is your job as a beginner to get exposure to the market whilst picking up as few bad habits as possible.
To do that you must start correctly.
If there is one take away from this first part of this forex beginners guide, it is that.
It will put you in a very good position for future success.
Trading Tip: If you jump in with two feet, you'll pay dearly for the privilege.