When you first start to trade Forex, it’s like trying to cross a minefield with a map you found on the internet.
Unless you have been lucky enough to work on a bank desk (a path not available since 2008) or you have a trusted mentor, it will only take so long before “ka-boom”!
That is why I spent (maybe 1000?) hours putting together The Advanced Forex Course for Smart Traders, which I give away for free.
But not everybody wants to wade through 60,000 words and all that course work before they start trading. Nor should they – getting your feet wet, even if only a little bit, will provide you with a lot more context when you develop your plan.
So here are some pointers that I wish I had known when I first started trading.
You need to understand “common wisdom” on a deep level
Too often the most important things become cliché, so we tend to ignore them – or possibly worse – think that we already understand them.
Think “risk management”.
It’s a term that is bandied about with abandon, yet most traders think that if they do a few basic things like set a stop-loss, then they have mastered it.
Far from it. A concept like risk management has so much more to it. There is a reason all the Market Wizards focus on risk management first.
Get hungry, and dig deep – don’t presume that you know because you have read about it on that beginner’s blog.
Seek to understand common wisdom in depth. Don’t take the surface value for the full value.
Don’t put your stop so goddam tight!
There is an unhealthy pre-occupation with risk/reward ratios that encourages new traders to have a tight stop-loss so their profits on winning trades can be much bigger than the losses on their losing trades.
Sure it makes sense on the surface, but putting your stop too close to the low of the entry candle is a recipe for getting chopped to pieces.
A tight stop relies on you being very good at picking entries, which you are probably not very good at as a new trader. (When you are experienced, you realize it’s not so important anyway.)
So for the love of god, start trading with a wide stop-loss, well away from your entry. And don’t worry about sacrificing the risk/reward ratio – there are other ways you can improve it.
Wondering why I have so much feeling about this topic? It’s because it’s the number one area that people decide they know better, and then months later come back and say:
“You know Sam, I was reviewing my trades, and if I had just had my stop-loss further away all these losing trades would have been winners”.
So please avoid that pain and start off with a stop-loss that is twice as big as what the textbook tells you.
Avoid demo accounts like the plague
One of the best ways to waste time is to “practice trade”.
Now I am sure many people will disagree with me, but demo trading is so different from live trading that it is not only irrelevant, but it is counterproductive.
Think of it like this:
Imagine you have placed 100 trades in a demo account. Next, imagine you have placed 100 trades in a live account.
Which do you think will have taken you further along in your trading journey? Which set of trades will you be more psychologically invested in, and better able to learn from?
(Hopefully the answer is obvious to you!)
So why waste your time in a demo account?
Worried about the losses you will surely take? If you are afraid to risk money to learn, then perhaps trading is not for you. And if you follow the correct system development process, you will keep your losses small. By the time you get to 100 trades, you will be so much further along it won’t be funny.
In saying that, there is a role for practice accounts. You need to learn how to click the buttons and about lot-sizes etc. Use your practice account to get a handle on that – just don’t use it to practice your trading.
To be continued in part 2
About the Author
Sam Eder is a currency trader and author of the Definitive Guide to Developing a Winning Forex Trading System and the Advanced Forex Course for Smart Traders. He is a part owner of Forex Signal Provider fxrenew.com (You can get a free trial). If you like Sam’s writing you can subscribe to his newsletter for free.
The post What I Wish I Knew When I First Started Trading Forex – Part 1 appeared first on www.forextell.com.