Things I Wish I Knew Earlier
I have been involved in trading for just over 2 years now and I still remember the early days where stuff made no sense at all and there are some things that I wish I had done differently. In this article I am going to outline some of those things.
Risk management is most definitely one of the most important things to know when it comes to trading on the market. Most traders who just start out tend to not care about risk management, they want to go straight into making the money. When I was just starting out, I did not even know what risk management was. I would load my account with some money, put a position in and a few hours later I would have blown my account. This was really discouraging, and I couldn’t understand how other traders were making money while I was still struggling. Over the years my risk management started to become better and better. You must be able to make room for your losses, accept them and move on. Losing a trade can be difficult because of the immediate impact. Make sure to do your calculations before entering a trade: calculate how much you are willing to lose on the trade plus how much you will gain when it goes your way. Trading is way more than just hitting a buy or sell button.
Multiple Pair Trading:
Most people want to take a trade just because they do not want to miss out on anything. By looking at multiple pairs at once you start to confuse yourself and then you get frustrated because you are missing trades. I was trading more than 6 forex pairs in my first few months and I could not understand why I was failing. I then did some research on the best pairs to trade and I came across a remarkably interesting article from someone explaining why it is important to trade no more than 3 forex pairs. When focusing on less pairs, you remember more about what is happening on all of them. I started to trade XAUUSD, GBPUSD and EURUSD. I did my analysis on them, sure there were less triggers, but my trading improved so much I could not believe it. I suggest that every trader takes 1 pair and really study it, try to tell yourself exactly why you are trading this market.
FOMO (Fear Of Missing Out):
The internet is a place where people can be who and what they want to be. I saw how much money people were making from trading and I wanted to get into it as soon as possible. I quickly came to notice how difficult trading actually is and I didn’t know what to do. People showing off their cars, houses, vacations and so much more, I just couldn’t understand why I was failing with this. This was one of the most difficult things to overcome, I was eager to make loads of money and I completely forgot my fundamentals, I was losing way more than what I was making. Today I look back and smile because I do not care how long it takes, I love what I do, I love trading and it is something I want to do for the rest of my life. It is not the money that keeps me going, it’s the fact that I can work this job from anywhere in the world. You can be your own boss and skip the silly rat race. I recommend you put in the time to really understand every aspect of trading, see where you want to fit in and make sure to not be too hard on yourself. We are all still learning every day. Do not listen to the people on the internet because they are only rich from people like you buying their signals. You see them trading millions and you also want to be in that position. The only way you will succeed in this game is if you do it your own way. Do your research, study what you can and don’t be too hard on yourself, give yourself time because you are human and you are allowed to make mistakes.
These are the things I struggled with the most in my trading career. Trading is a game of patience. You must be able to have the same emotion when losing and winning. When losing a trade, you must take a step back and see where you were wrong. Sit back and re-analyze the market and this way you will never make the same mistake again. As long as you have good risk management you will have room for error, but you will still be profitable.
Trading is difficult – it was never meant to be easy. You have to put in the time and effort, you have to go through sleepless nights where you are constantly studying the market, even if you just sit in front of a clean chart I promise you will start to see something. Give yourself room for improvement and don’t jump the gun. Trading is a career and not a slot machine.
Understanding That High Probability Doesn’t Mean Certainty
Everyone one of us would love it if all of our trades were winning trades, but we know that won’t happen. We all think that if a trade has lost money, it was a bad trade. We try to find where we went wrong. I lost money therefore I did something wrong. Are all losing trades bad trades? No.
No matter how well you execute your trade, there will always be a losing trade because we are playing with probability. Trading is in part based off the probability. This means that sometimes we get what we want and sometimes we don’t.
The Certainty Trap
Ben Carlson wrote an article where he discussed the differences between probability and certainty.
“There are two arguments that I see on a regular basis that shows up as a result of data overload:
…….. because that’s never happened before it won’t happen ever
…….. because that’s what’s always happened before it will continue to do so
The problem with thinking like this is that it can lead you to fall into a certainty trap. Its an all or nothing kind of thinking that causes so many of us to constantly attach extremes to every single market move or data point we see. The assumption is that we are always either at a top or a bottom when most of the time the markets are probably somewhere in the middle.
The reason the investing certainty trap is so easy to fall for is because historical data can make you feel safe and reassuring. “Look here, my data says this has never/always happened in the past, surely this trend will continue so I will just sit here and wait for the profits to start rolling in.”
“Never” and “always” don’t have a place in the market because no one really knows what’s going to happen. “Most of the time” is a much more reasonable goal because nothing works forever, if it did then everyone would be using the exact same thing and making money off it.
To disregard the potential for the unexpected is the pinnacle of arrogance and is rarely rewarded long-term in the ever-changing markets. This doesn’t mean that you shouldn’t take on high probability trades based on the weight of historical evidence and your views. But probabilities consider the fact that there’s always a possibility that we might see the minority situation occur.
“It’s better to be roughly right than precisely wrong.”
It is very important to understand the difference between probability and certainty. Nothing is certain in trading. However, if something happened 80% of the time, there is a good chance it will happen again.