Forex Trading - Getting Organised
I'm sure that many of you have heard how 97% of traders fail, lose all their money and vanish into the bottomless pit of failed traders. However what about the 3%, what are they doing that is so magical?
In my years of trading the foreign exchange market I have seen many people jump into trading without the correct preparation and organisation. They then enter the frenzy of I must be rich by the morning otherwise I am not a successful trader, enter every trade they see and burn their account. There are a rare few however that see trading success as a long term goal, sit down, analyse the journey ahead of them and make a plan. Get organised with your trading by following these six simple steps and see what a difference it makes to your results. Remember though that you need to do all of them not just a few for a couple of days.
Step One: What Type of Trader Are You?
There are so many different ways of trading out there and plenty of people ready to teach you another one. Therefore you need to work out what style of trading suits you. Do you work long hours, or late shifts, are you retired, at university or have limited funds? None of these will stop you trading however you do need to enter the journey prepared. You need to create a trading plan, which states how much you need to make, how you are going to do it and realistically takes into consideration the time and budget you have to work with.
Step Two: Which Broker Suits You
There are so many brokers out there I can understand why it can sometimes become confusing and difficult to select the right one. Firstly make sure you only work with affiliated brokers, this would be the FSA for the UK based companies and then either the NFA or CFTC for American brokers. Do you understand the difference between dealing desks and non-dealing desks? What are the charges, how tight are the spreads, are you charged a commission and do you pay per round turn lot or on the way in and out? Also often under considered by incredibly important, how good are the customer services and support which you get? Set up a demo account and test both the customer services and platform. All of this can make a massive difference between a successful trader and a losing one. For more in-depth information about brokers see our previous blog 'How To Choose a FX Broker'.
Step Three: The Bull, The Bear and The Crocodile.
Step Four: Back Test, Back Test and Back Test Some More.
Once you have learnt or created a strategy, back test it! Make sure that it isn't just a fluke. Although back testing is time consuming it is definitely worth it, plus you will have time to do it as it as your only trading a couple of strategies.
Step Five: Get Your Psychology Right!
Trading is a job, and should be taken professionally. Get up in time, get dressed and go to work. There is nothing worse for your trading results than turning up at your desk at home with a cereal bowl and in your dressing gown. Trade with others, get an office, join a retail trading floor, there are plenty of options, just get out of your house and your pyjamas!
Step Six: Keep a Record... of Everything!
Make sure you have a record of every trade that you do. This should include the reasons why you traded, trade results, were your emotions involved, did you panic and pull out early and what was your risk management. Note everything in this record, only when you eliminate any sign of emotion from your trading can you focus entirely on your strategy and not your habits.
There are so many different strategies flying around that it isn't surprising that many trader's burn through their accounts so quickly. However most traders I know start trading with a huge amount of strategies, wake up at 6am, trade till 2am the next morning and drink a lot of coffee. It's time to think like a crocodile, plan your attacks and execute them with provision and expertise. There is no point trading every little set up which you think 'looks ok', only enter the ones with high probability and build your account rather than burn it. You may trade a lot less but the trades you do will be far more fruitful, after all the crocodile did out live the dinosaurs.
The bottom line, you need to take trading seriously. Plan your journey and just what you want to get out of it. There needs to be structure to your approach and in return you will develop into a more refined and successful trader.