I'll list some common newbie questions I often get, or questions I remember asking myself many years ago when I started. Of course these are just my opinions, I could totally be off the mark and sometimes what you choose is just a preference, most of these are mine.
How much money can I make in this business?
- After all, no matter what anyone tells you, that's usually the objective. Short answer is, when you're starting out, you'll more than likely have a rough go at it. The beauty of the markets is it's the ultimate equalizer. The markets will treat someone who has a PhD in economics, the same as a kid who just dropped out of high school and decided he/she will just become a trader. I've rarely run across anyone in their first year(except Hillary Clinton with commodities) hit it big as a trader and beat the market.
- The Forex market in particular can even be more challenging. Being a market that's so leveraged, you could lose a good sum of money in a shorter amount of time if you don't manage your risk accordingly.
- On a positive note: the longer you stick around this game, the more you'll make, and you'll probably make back everything you lost in the first few years. That's the case with me. At some point I finally matured, took my lumps, educated myself, put in the time and the hard work, put my ego and greed aside, humbled myself and things fell into place.
- 2% risk is what you'll almost always read about in books as proper management. So most times if you're risking 2% many times your objective is 4%, 6% or more for any trade, this can be on a daily basis, so based on your account and tollerance, you can figure things out.
- What I've found is most times if you're undercapitalized, your risk increases. I've damaged small accounts trying for too lofty goals, and mishandling the leverage. Many times traders who don't have enough capital don't start with a good sum of money because they don't have the experience(naturally) and the confidence in a system. Being hesitant and 2nd guessing yourself when you have to pull the trigger on a trade could really lead to losses very quickly, if you're underfunded, you're out of the game, so again, know how much you can afford to lose, and if you are going to start small, stick to the micro accounts.
How much should I fund my account?
- For someone new, everyone will always tell you to paper trade or demo trade in the beginning. This is good advice, and going beyond that, I'd say open an account with a broker that offers a "Micro Account". These accounts let you risk contracts/lots that are a fractional amount the size of a Mini Account. In a nutshell, with a Micro Account, you could trade risking pennies, instead of dollars. Since the account is live and uses real funds(unlike the demo), you'll get a feel of what it's like to really trade, the winning, the losing, the stress, only it won't wreck your account while you're still new and getting your feet wet.
- Often times when you just paper trade or demo, you'll be bold, you'll trade in a way that you'd never trade if your hard earned money was on the line.
- So to answer the question, fund how much you can afford, but more importantly, do not use money you can't afford to lose, don't whip out your credit card with a high credit line, your kids college fund, your 401k(that's probably melted away with our economy).
What system should I use, should I pay for one, are there free ones?
- I would say this is what may takes some time for some people to figure out. There a zillions of forums where you can get free sytems, you can buy black boxes on infomercials, read books, the bottom line is at some point you'll have to determine what type of trader you're going to be, this often times will be based on your risk tollerance, your patience and personality. ie. Many traders like to gamble, take chances, trade big in a small amount of time in fast time frames like a 1min and 5 min chart, others will wait days maybe even weeks until a trade opportunity is relatively low risk. Basically the system you buy, or choose should be able to be traded in the timeframe that suits you as a trader. Some like myself, took a few years before I decided on what type of trader I was comfortable with. I personally don't like to day trade, I hate fast charts, high stress in short time frames, I suppose because I just failed miserably at those time frames, so for me I'd fit the style of what's called a Swing trader, hold the trade a few hours, many hours, maybe a few days, I'll trade the trend, and see where it goes, I'll follow it, when it's over, I'm out.
- You can also look at learning to trade as an education, an investment in yourself. You probably dished out a good deal of money to go to college, unless you were a real deadbeat and defaulted on your student loan(just kidding), but seriously, you paid to learn, and in this business you never stop learning, even many years into your trading, you won't know it all, a good mentor will probably save you money that you would just lose trying to teach yourself.
- Even if you buy a system, it's like giving 2 different people a tool, the person that knows how to use the tool will be profitable, the other will not, even though it's the same tool.
- Listening to the right advice will save you the most money. Like many things out there, there'a lot of junk and misinformation, listening to the wrong person, and it'll cost you. That goes for self proclaimed Guru's. I've seen them come and go, vanish like a fart in the wind as they say, I've seen systems sold that did phenomenal when the markets were trending, and then when the volitility reared its ugly head, the Guru ran for the hills, changed his/her identity and went down with the titanic. So filter out the bad information, do your homework and due diligence.
Whats the most important thing I should learn when I start?
Even It's corny, overstated in books, infomercials, seminars, forums and blogs, but whatever system you end up trading: learn how to gauge a trend, learn how to follow it, trade it, and don't be a hero and trade against it. I managed a drawdown on 1 trade for an entire year because I traded against the trend. You should be able to look at a chart(long time frames in particular) and know(with relative certainty) what the current trend of the currency is. Bullish, bearish, consolidating, strong trend, weak trend. My trading profitablity did a complete 180 when I started to get the feel for strengths of a trend. I started to manage my risks better because I took less risk when the trend was weak and when the momentum of moves started to fizzle.
Does this mean I know what a currency will do, where it will turn, where it will be months from now? Of course not, I can speculate, listen to what others on the tube think. I really could care less where it will be, what's important is when the trend reveals where it's going to go, I follow. I'm just a small fish, I follow and gobble pips along the way, that's the objective, not to be an analyst on Tv that always gets featured to do predictions even though I don't trade and am almost always wrong.
Swimming against a strong trend is the biggest mistake a newbie can make, you'll be wrong in a bigger way, and right in a smaller way. Your trading account will reflect this, you'll realize , "hey i'm not losing big money, I'm just not making money". Understand and identify a trend(again it's experience, you'll have to put in the time) and you'll see consistancy, small loses, big wins.
