Through the past few months I have been thinking if there is a straight “A to B” way in which new traders can achieve profitability, a set of defined and clear steps that will allow people to become profitable traders even if there is a total absence of another profitable trader’s personal experience and advice. To solve this conundrum I have come up with what I consider the 5 main steps that a new trader needs to carry out to become a successful trader. Reflecting upon my experience as well as that of other people I know who went from inexperienced to profitable I can tell you that – even though the advice may sound too general – it does constitute a genuine and clear route towards success in the forex market.
1. Learn and understand all the basic information. It is absolutely important in order to succeed for traders to understand what in the world they are doing and what everything in the world of forex means. I cannot tell you how many times I have come up with people who have been involved with forex for even a year without knowing what a contract size represents, what “trading a lot” means or how you can calculate the amount of money to risk for a given stop loss size. The firs thing you need to do to become successful is to learn and understand all the basic aspects of forex trading.
2. Learn to program and run reliable simulations. Even for people who like to trade manual systems it is absolutely necessary to be able to run accurate simulations of the strategies one intends to use in real, live trading. When the advice of an already successful trader is missing it would take you months to test every single strategy and then years to learn its true potential. In order to understand what you are doing it is VITAL that you learn how to simulate system under past market conditions in a RELIABLE way to understand their true potential.
3. Know the profit and risk targets of ALL the systems you are trading. Nothing draws more traders into losses than their ignorance about the characteristics of the system they are trading. For any given strategy you are using you should be able to answer what the average yearly profit and maximum draw down values are expected to be. You should also have a very good idea about things like the number of consecutive losing months, the risk to reward ratio, the maximum length of a draw down period, etc.
4. Don’t trade anything you do NOT FULLY understand. This is one of the most important things people new to forex need to learn. Black boxes are absolutely dangerous for new traders since they put a strong psychological pressure and uncertainty on the trader. The best way to fail in trading is to use systems which you do not understand which use trading tactics you are not familiar with. When you don’t understand the reason why you are getting into a position besides “the robot entered a position” or “the blue line turned red” you are running into SERIOUS trouble. There is not a single successful forex trader I know who doesn’t absolutely FULLY understand all the ins and outs of the logic of the system they are trading.
5. Reduce risk to the lowest possible level. New traders are like new bait in a shark tank. There is absolutely no doubt that in the beginning a huge amount of mistakes will be made and these will make capital losses important. The most important decision you can make is to make capital preservation a MUST. Do not think of your success as your account percentage profitability but think of your success as your maximum draw down to average YEARLY profit ratio. In the first few years achieving long term profitability will be HARD so make sure this process is as cheap for you as possible. Trade with the absolutely MINIMUM risk.
6. Make a commitment to the systems and strategies you decide to trade. New traders like to hop from one strategy to another without ever giving them a chance to succeed. If you have followed the above mentioned steps you have a very good idea about the profit and draw down characteristics of the system you are trading. If you absolutely understand what you are trading then there is no need to change the system unless it shows that it has become too risky. However you have adequate risk and profit targets so it will be easy for you to evaluate your system as time moves on and know if it is or if it is not following the draw down analysis you performed before.
Even though following the above mentioned steps – except perhaps the first one – will be really hard for new traders it is what – in my experience – has to be done in order to become successful. It is obvious that many problems and probably some financial loss will come along the way but the above steps give you strong safeguards that will not guarantee but increase your chances of success to a great extent. Most inexperienced people face account wipe outs and long term losses in trading and the bast majority never follow any of the above steps. If you follow them I can tell you that you will feel much more prepared and ready to tackle the challenge, even if it takes a huge amount of effort.
If you would like to learn more about my journey in trading and especially with automated trading strategies and gain a true education regarding this type of systems please consider joining Asirikuy.com, a website filled with educational videos, trading systems, development and a sound, honest and transparent approach to trading systems. I hope you enjoyed this article ! :o)