In a recent interview with our Snr. Markets Analyst at Axis Financial Source, Ltd., I asked him a simple question. What made a successful trader in the Forex market? He told me that it could be summed up in three basic rules:
Rule #1 Make a trading plan
Rule #2 Execute the plan
Rule #3 Under no circumstances change the plan midstream
Our Snr. Markets Analyst holds an MBA in International Finance, is a member of the The Professional Risk Managers’ International Association (PRMIA) and has traded and analyzed the financial markets for over 15 years.
He went on to say that you always hear the “experts” talking about the trillions of dollars being traded in the Forex market. What they don’t tell you is that 90% of all traders loose their money. It’s a zero sum game. For every winner, there’s a lot more people losing their money and the market is unforgiving. He told me that from his experience, the primary reason most traders loose their funds is uncertainty about what they’re doing. So, you’re going to need to be better organized and better prepared than the other guy. Do your due diligence and put together a trading strategy that you feel comfortable with and set it in stone. You must approach your trading like a business, not a hobby.
Once your trading plan is established, it’s vital that you know your system like the back of your hand. You obtain this discipline by demo trading. Demo trade your system until it becomes so second nature, you can do it in your sleep. Then do it again and again. The added experience and knowledge will give you the certainty to perform your trading system by the numbers no matter what the market throws at you. Don’t be in such a hurry to loose your money. Then, when you pull the trigger, let the trade either hit your stop loss, target or break even point. In our experience, this allows your overall trading model the room to breath, as we say. The percentages involved with your strategy need time to pan out and it’s the long haul you should be concerned about anyway.
Above all, “Do not over leverage”. Using proper money management is at least, if not more important than your trading system. Never risk more than 3% of your account on any one trade. This way you can loose 6 out of 10 trades and still make money. Remember, this is a numbers game. So, if you’re trading a $10,000 account and are confident with your system you can loose 60% of the time and still be in profit. It’s not uncommon to encounter a four trade losing streak. Experienced traders have similar or even longer losing streaks. The reason they’re successful is because they use low leverage.
Our “Managed Signal Account” generally only risks 2% of the account per trade and we will only approach 3% if we are nicely in profit for the month. Please note that it gets exponentially more difficult to recuperate your account as losses mount and raising your leverage when you’re negative is the fast track to major losses that are unrecoverable. This is where your trading discipline comes into play that was forged from sufficient demo trading. Strict adherence to prudent risk management will keep you in the game.
Our Snr. Markets Analyst could not overstress that you need to have realistic expectations about your trading. Think of it as the difference between risk capital and gambling money. It’s not like going to a Vegas casino and if you view your trading in any way like you’re gambling, the odds are great that you too will be flying home broke.
Which brings us to the matter of the use of robots. In our opinion, they don’t work. If they did, no one would be trading live and we’d all be living large. Remember, it’s a zero sum game, so, why would anyone sell you their money making machine for $100 when they could be using it themselves to get rich?
Finally, our Snr. Markets Analyst feels that unless your using a news-type trading strategy, specifically designed to trade during financial news, that it’s wise to stay out of the market during these times. It’s been his experience that trading during days with major financial news holds more danger than benefit.