Trading education is an integral part of stable profits in financial markets. However, it needs to be done in a consistent and targeted manner so that you don’t end up being a lifelong student who does not achieve solid gains in forex despite their wealth of knowledge.
So, how to make your trading training productive? For starters, you need to figure out what you already know and what knowledge you need to acquire. It is a well-known fact that the strength of the chain depends on the weakest link. So, today’s article is designed to help you self-diagnose, identify your strong and weak links, and learn how to remove them.
1. Learning to Trade: Identifying Knowledge Gaps
2. Three Reasons for Trading Losses
3. Removing Gaps in the Trading Plan
4. Removing Shortcomings of the Money Management System
5. Dealing with Psychological Aspect: How to Make Money with Forex by Changing Your Mindset
6. Let’s Sum It Up
If you are a novice trader who is already somewhat familiar with the topic of financial markets, it is likely that you already have some basic knowledge. If not, you will have to remedy this situation. By default, we shall assume that you know:
In order to learn how to trade quickly, you need to open a brand-new new demo account and proceed to trading. In the course of a week or two, you will have to trade as you normally do. If you are doing this for the first time, do it the best you can. Be sure to enter all of your trades in the Trader’s Diary so that you can analyze them later on.
1. Lack of trading plan (i.e. algorithm).
2. Violation of risk and money management rules.
3. Inability to handle emotions.
Typically, trading education covers the topics included in one of the three sections mentioned above. You may already have developed some of the necessary skills; however, the lack of knowledge included in one of these vital areas cancels out your advantages.
Below, we are going to examine common mistakes when it comes to the aforementioned areas and will establish what skills you need to work on.
Okay, so, you have been trading with your demo account for two weeks now and thus have accumulated some statistical data. Also, you may have faced certain problems or have a question or two that needs clarification.
1. I don’t understand how to open trades.
2. As soon as I enter the market, the price reverses against me.
3. My stop losses get hit all the time.
4. I have no idea when to close the trade. I either exit before the price reverses or wait for movement continuation longer than necessary, thus losing the profit.
5. The price hits my stop-loss order and then moves in my direction. Because of this, I’ve stopped placing stop-loss orders altogether since I get stuck in drawdowns.
There is one common reason that explains why you encounter all of the said problems - you do not have a clear and straightforward trading plan. Forex trading doesn’t depend on dumb luck but rather the use of a profitable trading system.
1. Trade entry criteria.
For instance, if the price bounced upwards from the support level, I need to go long. If it bounced downwards from the resistance level, I should go short. If there is a level breakout followed by confirmation, I open the trade. When the price is in the middle of the trading range, I don’t do anything but wait.
2. Trade entry criteria: manually, according to stop loss or take profit.
All of this is outlined in the rules of the trading strategies. Exit positions only when there is the right market environment for it.
These criteria depend on your trading strategies. They will differ quite dramatically if you trade levels, indicators, or news, so you should keep that in mind.
1. You are losing most of the money in your trading account after one or two trades.
2. You are stuck in drawdowns for a long time.
3. You have lost not just a demo but live account money.
4. Your trading account is finished before you know it.
If the above scenarios ring a bell, capital management is evidently your weak spot.
1. How to calculate trade entry volume?
2. What should the risk per trade be based on the expected value of your trading strategy?
3. How to place stop-loss orders correctly?
4. What should stop loss/take profit ratio be given your trading system and entry point determination methods?
Thing is, even if you have a perfect trading strategy and a solid risk and money management system, you can still lose money. It’s just a part of it. As odd as it may sound, but everything mentioned above constitutes only 20% of your trading success. The remaining 80% depend on trading psychology.
A ton of articles and webinars are dedicated to this topic, explaining how to control your emotions in the course of trading and what trading psychology is all about. But how do you actually understand that you have a problem, to begin with?
1. You exit trades too early and then see the price reaching the level where you have previously placed your take profit.
2. You tend to get greedy when placing stop loss. As a result, the stop-loss kicks you out, and then the price reverses and moves in your direction.
3. You don’t place stop-loss orders and seem to be stuck in drawdowns most of the time, waiting and hoping that the market will finally reverse and head in your desired direction.
4. After several losing trades, you experience mental torpor and let a worthy trade go. According to the law of Sod, it turns out to be a potentially profitable signal, while the next one that comes right after it gives you losses again.
5. After an unsuccessful outcome, you want to bounce back which leads to a series of impulsive losing trades.
6. Having closed the trade in the black, out of sheer joy you rush to open another one which ends up being unprofitable.
The list of reasons goes on. All of the mentioned culprits are just the tip of an iceberg which means that you don’t really know how to manage your emotions or aren’t even aware that you should and can do it.
1. Explore what trading psychology is. Check out relevant articles and webinars or work with a psychologist or a coach with the respective area of expertise.
2. Identify your dominating emotion (fear, greed, etc.) and work on it.
3. Outline rules that cancel out the negative impact of that dominating emotion (also, be sure to add those rules to the checklist of your trading strategy). E.g. “I always place stop-loss orders according to the rules of my strategy”, “I perform the market analysis before entering the trade and then do not change anything once I open a position and place my stop-loss and take profit.”
4. Remove the human factor by installing the Risk Manager.
1. The problems described above are just the symptoms telling you that you are experiencing difficulties with certain areas of knowledge. Do not try to just get rid of them. Get to the bottom of the problem and identify the actual reasons behind it so that you can remedy it.
2. Do an in-depth work on your technical and psychological approach to trading. A perfect way to do that would be to tackle every block and issue with the help of both a trader and a psychologist who will get straight to the point and examine stop-loss orders, risks, psychology, motivation, fears under the microscope.
Gerchik & Co customers are particularly lucky since for them we have created FX Intensive for Super Traders video lessons hosted by Viktor Makeeu and Nataliya Podolskaya. What makes this training course so great is that it allows addressing the most common pain points of the traders. The coaches are a professional trader who knows market traps like the back of his hand and a psychologist who has already helped hundreds of traders to get rid of the mental blocks that didn’t let them make money.
Trading education is a fascinating process. Too fascinating to just drop it halfway without actually getting the taste of real money earned thanks to your newly acquired knowledge and skills. Have a smooth training and may your trades be profitable!
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