10 Things I Wish I Had Known Before I Started Trading Forex
Are you thinking about trying your hand at forex? Think you might have what it takes to be successful? Don’t fall in the same traps that so many before you have fallen into. Taken from successful and yet-to-be successful traders from all over the world, and some from my own book of forex blunders, here are 10 things most wish they’d known before they started to trade foreign exchange. And if I may be so bold, print this out and hang it right beside your computer monitor!
- Make Money with a Practice Account First. Don’t trade a single penny of your own money until you’ve had ample experience with a practice account. I first started trading forex in college and thought I was smarter than the hundreds of people who had failed before me. I did open a practice account, but apparently thought I was ready to trade for real after a short three days. Things I wish i knew I’ve come along way since then, but that mistake cost me a small fortune to a college student. It translated into many missed nights out with my friends as I slowly tried to recoup what I had lost. Had I known what I do now I would have used a practice account for a month or more, gotten confident with my strategy, and wouldn’t have lost track of orders that should have been cancelled because they were no longer valid. You won’t make money during that time, but you won’t lose money either, and that is half the battle. You’ll find that out soon enough the hard way if you don’t heed this important advice.
- Trading With Real Money is Different. As much as opening a practice account is good, trading with real money on the line is different. Try as you might to trade the same way with real money as you did with pretend money, the reality is that it just isn’t the same when you’ve actually got something at stake. Seeing your account increase or decrease with each pip can be taken in stride when playing for fun, but can be excruciating when it’s your money on the table. One way that helped me get over this was to think of each trade as the cost of doing business. For example, a business might spend money on an ad which is either going to make them money or it’s not. Either way, the money spent on the ad is gone, so you should have done your research before spending the money to determine whether or not it was a good idea. It’s much the same with forex. When you place a trade with a stoploss, consider the money at risk the cost of doing business. If you are not prepared to lose it, then you need to think twice about taking the trade in the first place.
- Forex is a Mental Game. There is a psychology to trading. There are mental and emotional states that can help your trading, and ones that can be extremely detrimental. You don’t trade if you have been put-off by a loss and are looking for vindication, nor do you trade when you’ve come off a win and you think you are invisible. You don’t trade when you are bored and you’ve got an itchy trigger finger, nor when you are tired, having a bad day, and especially not when you are thinking about how much you need the money. Trading with dollar signs in you eyes will result in taking trades that you shouldn’t. Mindsets like these are a recipe for disaster. I thought I was a pretty even keel, more pragmatic than most, and level-headed. I didn’t think I was going to be vulnerable to the emotional side of the game. Here’s what I wish someone had told me: Expect to be emotional, but know that not keeping your emotions in check will be your demise.
- Don’t Lament the One that Got Away. Don’t sit on the sidelines watching some grand move in the market wishing you were in the trade. Chances are you’ll convince yourself to get in and you will get burned. It’s like trying to catch a falling knife; let it fall. Watching a pair make a big move that you missed is hard. Expect it to be. It sucks. But watching the pair go and thinking about getting in is like trying to cross a one-way street by looking the wrong way. Watching cars go by and seeing big gaps in traffic where you could have crossed provides no insight as to when you can cross. Just because you are looking at a painful gap in traffic that was definitely would have given you ample time, doesn’t mean there’s not a transport isn’t yards away. Train yourself to look the other way. Look at what’s coming, the set ups that are developing, not the ones that already developed. Begin to recognize when you are looking the wrong way down the Forex street, and force yourself to think differently.