You need to trade from strategies you can argue well
Most young traders like to start trading foreign exchange from technical indicators. They also trade positions with rather short objectives and tight stop losses. I did the same in my early years and I understand in many ways why. Technical analysis are mathematical and rather easy to understand as well as to construct trading ideas from.Due to the rather short profit objectives and tight stops normally set, you need a succession of successful setups to make money. My own experience was that this is not so easy over the long run. To be overall profitable – yes it worked. To make really attractive profits – no – in my case it did not work out so well.
As an economist I was “by nature” curious to learn and understand how economics influenced currencies and how currencies influenced economies. Through my banking years I was close enough to central banks to understand what their role were and what they actually were doing and why.
Add to this that I was for many years a market maker, enabling me to see what other banks were doing, their own position taking and those for their clients – not to forget the rather substantial portfolio we managed ourselves – and you get a sort of feeling for the importance of market sentiment, market psychology, how the big ones do it – when and where.
All of this was such a breach of what technical trading was about that I felt you could not really be in only one of the camps – you had to trade from both fundamentals, technical indicators and market sentiment.
I gradually moved into trading based on all these factors and my success as a trader is the consequence of doing so.
I would therefore only enter into positions for which I have a line of supporting arguments. They are normally set from a fundamental outlook – which might well have a short time frame – contrary to what many traders think and strongly influenced by market sentiment at the time. The exact entry and exit levels I very much set from technical indicators and very close to assumed strong support and resistance levels. By strong I mean in volume terms.
As I hardly leverage my positions, I am less fixated on stop losses to protect my accounts. I am old enough to admit when I am wrong and experienced enough to do something about it – meaning I stop myself out when one or more of the supporting arguments for the position setup is not there anymore. But until you get to that experience level, you set a stop loss to protect your account and you adhere to that principle. You shall not be vague in this respect.
Invest a bit in technology
The more hours you spend on computer per day, the more you need to invest in technology. Many retail traders trade from a laptop, a tablet or a mobile phone. Should you read reports and analysis extensively – as you should do – then you might need a second screen, which doesn’t cost that much. You might even go for a 2nd computer and more screens, which is strongly recommended today when one graphic card can serve several screens.Use spreadsheets to build your own database for recorded prices and economic data. Set up some simple models that can be used for simulating strategies or amendments to those.
Subscribe to websites from financial papers, magazines or regular reports. Many of them are free as are the data base for many of those doing economic research.
Be a social trader
Most retail FX traders live a pretty lonely life professionally. Join forums, take part in webinar sessions, ask questions and be active.Try to source whether there are other FX traders in your neighbourhood. Make contact with them, suggest to meet for a drink or lunch to discuss markets. Join FX Meetups and network as best as you can.
There are online trading rooms you can join. Find out about their profile and the strategies they discuss and join in should you like their concept.
By the time you start trading full time, look for whether there are offices you could share with other traders. Team efforts often give better results than facing them alone. You can share expenses, discuss lively and still trade your accounts individually.
Read, study and research extensively
The professionals in the market have their own analytical support. Most of the analysis they produce for themselves, some for their clients and others they share with the public. Source them, read them and over time you will find out who are doing well and who you can forget.The first step is to understand their analysis – why and how. The second step is to start being critical to their supporting arguments and possibly also the economic models used. The third step is when you start building your own – or at least you have your own ideas.
This is a lengthy process and one which last for your entire carrier as a trader. You never give up analysing and researching – it is an everlasting activity for a successful trader.
The big step
The big step you make when you decide that you are ready to leave your current professional activity and to go for trading FX full time.You would need a bit of capital by that time. You should not mortgage neither your property, your wife nor pets for the purpose of raising working capital. Nor should you trade the capital of others.
How much you need is depending on how much your normal living expenses are and what other financial commitments you have.
I normally would recommend this not to be at a period when your children are very small or you have recently bought a property with a substantial mortgage. In those circumstances you likely should have more of an ordinary job and more of a predictable income.
I took the step from employment to trading on my own when our children were small and that is a challenge – one which often ends with a conflict of interest. You have promised your son to see him playing football on the pitch with his friends just when the FOMC minutes are out. What do you do?
Calculate what yearly expenses your trading income should cover. Do not estimate that you will make more than 10% per annum as a return on your working capital over the first three years.
From those brief calculations you can assume what working capital is required for your full time trading. You might find a 10% return as a low return and for successful traders it is.
But you might get off to a difficult start – for whatever reasons – and you likely will be trading from a rather conservative risk profile, which you should.
Doing so will not double your money or even give you a 50% return the first year. These will be the return levels you will see when you are fully established with lots of experience. But it is normally not done in the first three years. You must have this in mind when you make the big step.
You might aim for more but you should not budget for more.
And to finish off
For almost any profession there is a formal education you can take and for most of them it is a lengthy one.To be successful in any profession you talk about years of building experience normally with an employer who is highly recognised in their field.
To become a successful retail FX trader you have normally none of these options available to you. For most of them it is a route of working on your own with the help of very few.
Common for all professionals though – including successful retail FX traders - is the time it takes to get there.
If you want to become successful, set your own plan for personal developments: what you need to learn, read, study and research, how you get to the working capital you need and whom you could seek professional help from as a coach or mentor. There are some of them around though I don’t know how good they are. Invest in your education and development. What is offered for free is normally not so valuable. What is for sale might not be so either. Be critical in this respect and source the background and relevant experience from those offering to help. Set a long time frame for your own development. Only the exceptionally talented ones will get to success in a short time.
See your won development a bit like those of an athlete. Very few makes it to stardom without hard work and training over many years. It might sound as a long way to go – and it is. I have just pointed out that to be successful as a retail FX trader it is not enough with a few days on a demo account, topped up with a couple of books and a few webinars and then you are ready for high leverage and high frequency trading which the industry very much encourage you to do. If you are up to the task – get on with it. If you take a structured, long term approach to your own development you might get there.
Good luck to you!
