First off, let me state that I have a sincere desire to see people reach a level of success in their trading endeavors. For some, this will be to achieve the level of consistent trading performance that will allow them to transition into trading as a primary source of income. For some others, it will be reaching a point where their trading has the kind of returns that can provide them with additional income, while continuing to work in their current field. For still others, it will be achieving an understanding of the markets that will aid them in developing their long-term portfolio. And, for some, it will be in discovering that trading is not a suitable endeavor for them, and that to commit any significant amounts of capital or time, will only result in returns, and losses, that don’t meet their needs or expectations.
That is a simple reality. Trading is not a path that will meet everyone’s requirements for success in life. No one thing ever is. But, trading has the potential to help many people achieve their objectives if approached correctly, and with the dedication and effort needed for any significant path in life.
What is Trading?
What do I mean by trading? Well, let me first tell you what I believe that it is not:
1) It is not buying a ‘Magic System’ or ‘bot’ that will “let you make money while you sleep” or “take money out of the market at any time”. That is, at best, gambling. Or, at worst, self-delusion.
2) It is not a ‘Get rich quick’ formula. There have been people who have struck it ‘lucky’ in the markets. But, over time, most of those have given it all back, and more. As Seth Godin says, “it takes about six years of hard work to become an overnight success”. When the results of training and hard work kick in, it can produce a sudden, dramatic shift in a trader’s performance. The appearance of ‘Overnight’ success. But, that only comes after the long period of serious training.
3) It is not an ‘Easy’ way to make a living. While trading can develop into a simple and low-stress approach, it is no more ‘easy’ to arrive at that level of performance than it is to achieve proficiency in any other profitable skill or profession. Perseverance, dedication, and properly applied effort are key in any meaningful endeavor.
4) It is not an alternative to ‘working for a living’. Nope. Trading is business. It involves work. How much? That depends on the skills and abilities of the trader at that point in their path. For some, it is an 8-hour day, 5 days a week. For others, it can be 20 minutes a day. Like any business, it offers potential returns in line with the effort and effectiveness of the person managing that business. Trading doesn’t ‘give’ you anything. But, done well, it can help you to achieve many of the things that you want in life.
5) It is not an answer to the problems in your life. Ask any trader who has been in the business for any real amount of time, and they will tell you that the markets will always give you what you want. If what you have in your life is debt, overwork, unhappiness with your job, or a myriad of other issues, you will find that trading often produces those very same results in life after a time. Why? Because those issues are the ones that we bring with us to the business of trading. Trading doesn’t make them go away. If anything, it can amplify them. And, usually does. A good business doesn’t make a successful manager. But, a good manager can help to build a successful business.
6) It is not something that will reward a part-time dabbler with consistent success. Trading successfully, as a part-time business, is a very achievable goal. But, ‘part-time’ dedication to training results in ‘some-times’ performance. That doesn’t mean that you have to devote 8 hours a day to trading. But, it does mean that the more focused and consistent your efforts, the sooner you can achieve the kind of performance that will allow you to run a trading business for a second income. Be realistic. If you can only train for 2 hour a week, you are not going to be ready to trade with consistent success in 2 months. It’s possible, but I would likely fade that bet.
What I see as the basic elements of Trading as a business:
1) An understanding of yourself as a business owner. – What are your goals for the Business? – What assets do you bring to the endeavor? – What liabilities? – What is your true commitment level? What can you reasonably dedicate to the business without being detrimental to your current situation?
2) An understanding of the business – What is you business plan? 1 year, 2, 5 10? – What are your startup capital requirements? – What is your current level of expertise in this field? – What level of returns will meet your business plan?
3) An understanding of yourself as a trader – What is your current level of trading knowledge? Skill? – What is the style of trading at which you perform best? – What is the style of trading at which you perform worst? – What is the best risk model for your trading? – What is the current level of your market analysis skills? (Fundamental, Technical, Quantitative) – What are your weakest points as a Trader? Your strongest? – What are your weakest points as a market analyst? Your strongest?
4) An understanding of the tools of Trading – What order management platforms do you require? – What is your level of proficiency with those platforms? – What risk management tools do you use? – What is your level of proficiency in risk management? – What charting platforms do you require? – What is your level of proficiency with charting on those platforms? – What analysis tools do you require? (Fundamental, Technical, Quantitative) – What is your level of proficiency with those tools? – What style of trading (Trend following, Counter-trend, Scalping, Momentum, Breakout, etc.) is best suited to you? Least? – What time frames are best suited to you? Least? – What type of trade management is most comfortable for you? Least?
As you begin to build your trading business, the answers to these questions will help to shape the direction of your trading practices. It is just as deadly to your success to underestimate what you can reasonably commit to growing the business, as to overestimate the returns that your trading performance can produce in a consistent manner. Both will produce an exhaustion of capital, both financial and emotional, before reaching your goal.
Did you know that the Cheetah, the fastest land mammal clocked at 72 MPH, will sometimes wait for days stalking a herd of wildebeest, waiting for just the right prey? Do you know why?
Because the cheetah’s respiratory rate climbs from 60 to 150 breaths per minute during a high-speed chase and it can run only 400 to 600 yards before it is exhausted (low margin); at this time it is extremely vulnerable to other predators, which may not only steal its prey (run its’ stops), but attack it as well (reverse the short-term order flow). And, if it springs too often without making a kill (string of losses) it will die from starvation(loss of capital) because of how much energy it burns (dollar loss) each time. So, the cheetah waits, quietly conserving its’ energy, for the best opportunities, with the highest probability of success. Sometimes for days at a stretch.
So, consider that what has been successful for thousands of years, in one of the most efficient of the predatory mammals that nature has designed, might just be beneficial to a trader in the forex jungle where ‘other predators’ would be all too happy to take your money at the slightest opportunity.
Many people talk about the wonders of trading and how it can be best approached, but knowing how to establish and identify your entry signals can mean a lot to setting the right path to trading, therefore, a basic introduction to trading must be in order.
The primary goal to trading is for profit, since the penultimate goal for it is to sell for a profit. But do take note that trading is like gambling, where one cannot determine or tell what exact market forces are at play and what it can ultimately do to spell your trading choices.
Self determination is another key to your trading success. No one will tell you what to do next, you have to plan for yourself, expecially since there are no hard and fast rules for this career.
Other people may tell you what to do, and they could be right for a time, but do try to consider that the point is that the market fluctuates, and trading is about watching the market, analyzing it, and acting on your own.
Understand and manager your opportunities and risks.
All those people grabbing opportunities mean that the really good ones go away.
The random opportunity that most likely pops up in a trader’s life is a crisis in supply. Something has interrupted the normal flow of supply and demand, dramatically raising the price and this is a temporary chance.
Others will also be jumping on opportunities the same as you do. These may be the regular suppliers, those with surplus stock or another trader with a source elsewhere.
Wisely judge the risk and make your move.
Scamming is a career for some, so always be wary of people offering cutthroat deals or tempting offers. Thoroughly read the conditions of a contract, count zeros, and just be aware of every possible fine print on documents before signing.
Gambling to win means not letting the house make the rules. The difference between luck and success lies in the amount of risk managed. Sometimes you could get lucky and at other times not, so risk analysis and management lie at the heart of any method that can be termed reliable.
Setbacks happen and this is a risk in trading, where there are casualties and losses. Play at the stakes and risk levels you can afford, don’t lay down all your cards and have nothing left to pick up on. Make every effort to know the market. This will help a lot in determining how you could establish the ins and outs of the market you are in.
Every trader needs to know his territory,and those item markets he is interested in
Trading is a world of compound interest, challenges and opportunities. One can invest in buying and selling more items in a single item market, you can pick up when you fell there is a slack on one item or you can diversify into other types of items.
The nature of the market is purposeful chaos. This is so because the market is the aggregate actions of thousands of people, therefore it cannot be trusted. It will change on you at the flick of a finger, void plans, erase profits, render prior knowledge obsolete or even render you penniless if you don’t play your cards right.Patterns change, so don’t just rely on it totally. As what the previous point indicates, one day it could be favorable for you, but that can change the next day, even the next hour or so. So this is a basic introduction to a trading mindset and this can help you be on your way to more profitable gains and calculated risks.
It has been said by many experienced traders that Forex is a more volatile market than any of the available options. The theory goes that it is difficult enough to judge a single company’s value at a given time and in the future, just imagine how hard it is to do the same thing with a whole country. This philosophy takes the point of view that analyzing the Forex market relies on careful reading over a period of time. Some knowledge of world affairs is also advantageous, as it allows you to be aware in advance of the timing of important announcements which can cause market volatility.
Others will treat the Forex market exactly like they would treat any other stock market, and take a more technical approach to analyzing their next step. This is not as simple a process in Forex as it is in the stock market, as the Forex is a 24-hour market, and the data-gathering systems require some modification to work effectively on Forex. Nonetheless, where these methods of technical analysis have been correctly applied, they have proved to be an effective way of making a profit on the Forex market just as their original forms proved on other markets.
While the first method is more of a global, evidence-based approach and the second tends towards techniques and patterns, both have been proven to be successful if correctly applied. It is highly advisable, though, to recognise which one to apply at a given time, as confusion can easily arise around what exactly the data tells you. Pick the method that you require and use the other to supplement it. That is the only way you can confidently operate in the long term.
To really understand the behavior of a currency on the Forex market it is important to see how it has behaved over a period of time. Taken over the course of a very short space of time, it is possible to make data mean just about anything. This, in turn, means that the data will be almost worthless. Over a longer period of time, however, patterns always seem to assert themselves, and establish a firm basis for predicting the future behavior of a currency price. Among the most important figures that appear in a pattern are the support and resistance points.
The point of “support” for any currency is the price level beneath which a currency never trades – effectively its market “bottom”. Whenever the price reaches this level, it almost always bounces back upwards, and for this reason many people will invest when a currency hits that point. Conversely, the “resistance” point is the traditional high point of a currency price, above which it never trades. If you are looking to cash out, this is a good reference point.
Of course, the old saying “there’s a first time for everything” exists for a reason. There will come a time when a currency breaks its support or resistance levels, and this is seen as hugely important. When a currency does this it will be expected to continue this trend, possibly for an extended period of time. It is therefore a good time to get “in” if it is rising or “out” if it is falling.