Day trading sounds pretty exciting for a beginner.
Wake up, place a few trades, earn some moneyand go about the rest of your day doing what you want to be doing.
Well, trading offers the possibility of financialfreedom and an amazing lifestyle.
But it also comes with a lot of risk.
That’s why today we’ll talk about thetruth about day trading and I’ll try to reveal to you the correct image of forex trading.
The first truth is that forex trading is nota get rich quick scheme One thing that is definitely common to alltraders who are losing money in the markets is that they have unrealistic expectations.
If you have $500 to trade with, there is noway on earth you are going to be able to live off your trading.
When you first heard about trading i bet youwere promised very high returns on very small investment amounts.
You were told that you need some small capitalto make a lot of money.
Fund your account with 500 dollars and you’llbe able to gain 2-3 thousand dollars per week.
Is this possible? Well.
The only way that is possible while day tradingthe forex market is to trade on small margins taking on high leverage, be correct in allyour price movement predictions, trade constantly, and put back your profits into trades.
This is an ideal situation that is not likelyto happen.
You cannot simply join the forex market today, put in a small investment, put in very little effort, and expect high profit levels.
You have to take into consideration what youcan realistically expect to make each month or week, given the amount of money you haveto trade with.
Advertising has rapidly expanded the retailmarket in forex.
This has brought many people into the gamewho are on a quest to get rich quick (or with little effort).
This unfortunately is very rare indeed.
Trading takes patience and requires consistency, and not a gambling mentality.
Anyone who approaches the trading world assome get rich quick scheme is very likely to fail and loose a significant portion oftheir capital within a very short period of time.
Any real successful forex day trader willtell you that trading is one of the most difficult things they have ever done.
Forex trading is simple, but it will neverbe easy.
If it was possible to turn $200 into $1 millionin three months everybody would be doing it! When you are a beginner in trading you willlose at first.
We all did.
Consider this as an investment in yourself, the cost of training for your new business.
Realizing that forex trading will not makeyou a millionaire overnight is the first step.
Statistics say 90% of all forex beginnerslose approximately 90% of their capital within 90 days of trading.
If you do not want to be part of that statisticyou will need to have realistic expectations.
The second truth: experience countsExperience is one of the most important factors behind successful traders, and experienceis purely an outcome of time.
What happens over this period that is so critical? • well, learning from mistakes is one thing• improved knowledge, skills and understanding could be another• improved knowledge of your own strengths/weaknesses is another thing• pattern recognition • experience in different market conditions• conditioning of behaviors and responses…these are gained with time.
For every trader, getting to the stage whereyou have acquired sufficient market time and gained the required level of competence isa primary goal.
How long is this period? It will be different for different people.
We are all unique, with our own particularset of circumstances.
We are, however, talking years here – andnot days.
This is a serious endeavor, as all truly profitablegoals must be.
One of the most important strategies a tradercan adopt is to do everything possible to make sure that they stay in the game longenough to get good at it.
This comes hand in hand with the first truth.
We talked before about get rich quick schemes.
One common feature of get rich quick schemesis that they will be marketed as investment opportunities that require no special skillsand no formal education and still make you millions of money.
No, it doesn’t work this way, sorry.
You will need to learn how to accurately readprice charts, how to read, translate, and generate trade signals, how to analyze themarkets, and how to accurately spot price trends in order to be successful.
So, there are no shortcuts to forex trading.
It takes lots and lots of practice and experienceto master.
There is no substitute for hard work, deliberatepractice, and diligence.
The third truth: without solid money management, you won’t achieve consistency Most people who approach trading discard moneymanagement because it is less attractive than indicators, systems, and practical tradingstrategies.
Nevertheless, this is the core foundationof trading success.
Without solid money management even the besttrading system will cause losses.
Money management is probably the most importantand most overlooked part of building a successful career in trading.
The fact that most traders lose money in themarkets is not really surprising if you consider that most traders also have no money managementplans.
The basics of money management are derivedfrom another simple trading truth: the outcome of any single trade is unknown.
Each outcome – profit or loss – has acertain probability for occurring.
The conclusion from this truth is that streaksof losing trades will occur, even if your trading system is profitable.
The purpose of money management is to makeyou survive the losing streaks and able to recover quickly.
Money management is a crucial element of tradingthe financial markets especially in times of volatility.
It is a defensive concept that protects yourfunds so you can trade another day and underpins profitable performance.
Anything can happen at any time in the marketsand using a sensible money management technique ensures that the trader will be able to tradeagain no matter what happens.
A major reason why traders will fail evenwhen using a profitable trading system is because the money management they are usingsimply does not give their system an edge long enough to play out over time.
What sets successful traders apart from thosewho fail over the long term is their money management skills.
The basic aim is to manage risk by limitingmarket exposure, at any given time, to acceptable levels.
The 4th truth: your success or failure is100% your responsibility Day traders tend to take the credit and giveblame for success or failure.
When you earn money it was because of yourhard work and brilliance.
When you lost money it was because of a badfill, a slow computer, an unexpected news story, bad quotes or a slow market.
If you want trading to be your career, yourbusiness, you need the truth.
Your success or failure is 100% your responsibility.
Think back to a time when you had a losingtrade, or made an error with your trade execution, or had a bad trading day.
Who or what was responsible for the resultthat you got? The market? The trading platform you were using? The weather? One of the most important factors in becominga high-performing trader and achieving and sustaining trading success is that you areresponsible for your trading results.
The results that you get in your trading arecreated by you.
Understanding that the level of your tradingsuccess and the results you get is absolutely under your control, is fundamental to becominga high-performance trader, and achieving high levels of consistent success.
It is easy to find other cause for your poorperformance; to create stories that shift the focus away from yourself and onto externalfactors.
If you’re doing this, you practically takeyourself out of the learning and development loop.
By not taking responsibility for your actionsyou don’t enable yourself to reflect on what you did and what you could do differentlynext time.
If you take responsibility then you will learnfrom your mistakes and eventually eradicate them.
If you blame anything outside of yourselfthen you give your power away to that thing and you will repeat your mistakes.
Losses are inevitable.
Learn and move on to the next trade.
Number 5: trading is a game of uncertaintyand adversity Trading the markets is full of uncertainty.
The market conditions can change from dayto day, and trading strategies that have worked so well for so long can suddenly appear tostop working.
Trading is a game that is won by those whocan best deal with frustration, disappointment, and adversity.
Since trading has harsh realities full oflosses, missed opportunities, drawdowns, and unforeseen events, those who can deal withthese things will perform the best.
Trading will always have ups and downs.
The reality is that unless you can see intothe future, you won’t be able to predict every market move.
You will have losing trades and, if you can’taccept that no matter what you do, you’ll never know everything that’s around thecorner, then you’ll be unable to adapt to the ever changing conditions of the forexmarket.
If you want to reduce the risk of the unknownyou have to be prepared.
Serious business requires serious planning.
Taking the time to study and control whatyou can reduces a big part of the uncertainty, because you have identified and planned forthe “worst case” scenario.
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Until next time.