By Andrey Dirgin, Head of Research at Forex Club
Trading can be one of the most challenging and liberating occupations. There are ups and downsbut you arein control – not your employer, partner, friend or colleague. The benefits of trading are rooted in total freedom and, of course, money. The key to understanding how you can become a successful trader is simple: Understand and appreciate the pitfalls.
There are those who take an interest in financial markets and trading because of widespread stereotypes and flawed assumptions loosely based around the accessibility and ease oftrading. Hollywood films such as Wall Street, Trading Places and Rogue Trader, among others,while entertaining, have unfortunately helped to paint an over the top picture as to how trading works, while glorifying Gordon Gekko-type traders in the process.
Most people aren’t content with their current financial situation and see foreign exchange trading as a way to make a fast buck. The future can be blurred by a quick profit and what it can buy.Indeed,many people like to see themselves in an altogether different light – almost an out of body experience. Usually, trading starts after the potential trader hears about the experiences of a friend or family member – all the added perks are highlighted, such as independent working hours, no deadlines, no boss and working from home. After all, who could balk at the vastly better tax regime when trading for yourself? These may all be true to a degree, but they only become perks after the hard work. The graft is what most people fail to contemplate when they begin trading.
In reality, trading can only generate riches and provide perks if the trader undertakes an all-encompassing mental shift. It is a psychological transformation whereby instead of focusing on the outcome of a trade or a series of trades, the trader focuses only on the process of making each trade based on a set strategy.
Put another way, a trader becomes successful by becoming something akin to an athlete. The dedicated trader needs to study a lot of factors. For instance what level of performance will be satisfactory, who is the competition and what equipment is needed to compete? Then there is the need for rigorous training in order to achieve a particular state of readiness. And even then, will a disciplined routine – that nurtures instinct rather than conscious thought – produce an athlete-like trader?In the real world, then, profits are actually a by-product of hard work, dedication and disciplined actions: just in the same way that Olympic medals are the result of years of training, self-analysis and discipline.
In other words, trading effectively necessitates a commitment to work hard and develop knowledge and practical insights about the world of trading. It’s better you consider trading for profit as something that requires a real lifestyle change, rather than treat it as a pastime or hobby that can be taken up on a whim in order to make money. However, despite this reality, most people have or will open a trading account with the strong belief that they will double their money within days or weeks.
The statistics don’t lie and the statistics indicate that between 80% and 90% of ALL novice traders will lose 90% of their capital within the first two months of opening their trading account– a similar level to the closure rate of new business start-ups in their first year. That shouldn’t be surprising because, in any competitive environment potentially lucrative, there are likely to be challenges and challengers: After all, what in life is free?
In order to avoid failure and join the successful 10%, you need dedication, self-awareness and discipline. Dedication to researching and understand all the necessary factors that will be important. This includes what market(s) you are going to trade, how you’re going to trade them, at what time, how much risk you’re prepared to take (never risk more than you are prepared to lose and that does not expose yourself to financial risk in another area of your life!). And for what kind of reward?And what about the behavioural, psychological factors? Keeping calm, focused, clear-minded when you trade, preparing to trade, are important: You don’t want to be screaming at your computer screen on trading on your smartphone, yelling at the top of your voice “BUY! SELL! Oh my God!” etc. Such self-awareness is important, as your emotional self during trading can determine the quality of your trades. So, for example, by pre-planning and visualising certain scenarios before they happen,traders can react rapidly and suppress the likelihood of panic.
Most important of all,traders will need iron-clad discipline to carry out their plans – regardless of how their emotions take hold. In trading circles it is said that fear and greed are a trader’s worst enemies. As opposed to, for example, a rival trader or big “bad” bank or broker. In any trading session, your worst enemy is yourself which is why self-discipline and knowledge is so vital. Trading is what the individual makes:To excel, then, one has to be realistic in the goals you set for yourself and ensure enough time to dedicate yourself to trading with insight, a strategy and an understanding of the risks as well as the opportunities available to you.But one thing is certain: Trading will and can teach you a whole lot about yourself…and fast.