Ethical Banker

Trading financial markets is a profession very similar to other professions such as engineering, architecture, and medicine. In each of these professions, the journey begins with education. Education is then followed by practice, and practice culminates in entrance to the field as a working professional. Each stage generally spans several years and the journey from newbie to professional takes years. Trading is very similar. Be realistic in your expectations.

Learn Price Action

There are basically two categories of indicators in technical analysis: lagging indicators and leading indicators. Lagging indicators lag price. Leading indicators lead price. The problem is that basically every indicator that exists—MACD, Stochastics, RSI, etc—is a lagging indicator. The ultimate leading indicator is price itself.

A solid understanding of price movement is essential to long-standing success in the foreign-exchange market. The challenge for a new trader is that there is no simple way to gain an understanding of price action. The best forex software programs can’t teach it to you. It must be learned through experience. Of course, you can get your hands on great resources that will teach the basic principles of price action including support/resistance, trendlines, etc, but the only way to truly build a strong foundational understanding of price action is to stare at charts and watch price.

Survive the Learning Curve

The most important part of the trading journey at the beginning is survival. Industry legend says that 90%+ of new traders will blow up their accounts and quit trading. In order to avoid becoming a statistical victim of the markets, it is essential to trade conservatively at the beginning of your journey. Trading is difficult at first, and the easiest way to survive the initial learning curve is to make sure you always keep your risk parameters at very conservative levels in order to keep you in the game long enough to survive the initial stages.

It is recommended that new traders never risk more than .25% of account equity on a single trade. Thus, even with 8 consecutive losing trades, a trader would only be down 2%. However, if excessive risk is taken, then irreversible damage may be done to the trading account. If a trader is risking 5% per trade and has 8 consecutive losing trades, he is now down 40%, which is a very debilitating blow and very difficult to return from.

Find A Mentor

In every other professional field mentors are an indispensable part of the journey. Trading should be no different. Searching out and finding a mentor who is willing to coach you through the beginning stages and challenges of being a new trader is absolutely essential. Today, there are countless gurus and mentors online offering trading educational services, but be careful. Make sure you do your due diligence and find a mentor who is truly a successful trader. Many mentors and educators are failed traders. If they could not make it themselves, they probably won’t have the best advice for new traders, so be careful and make sure your choice is a wise one.

Experiment With Different Strategies

One of the greatest keys to being a successful trader is finding a trading methodology that connects perfectly with your unique psychological make-up. The best way to do this is to experiment with several types of trading strategies in an online forex demo account. Eventually, you will begin to notice that some strategies are more directed toward your personal preferences. Are you a swing trader or a day trader? Do you like shorter time frames or longer time frames? The answer to these questions can only be discovered through trial and error. Thus, experiment broadly, but when you finally find a strategy that clicks, stick with it.