All traders want to know how to save their account. Is it possible to trade over the market in the long term? It turns out, you can! From this article, you’ll learn how to do it.
Each trader must make up an own trading plan that will help them out-do the market. Many books say that technical analysis is the same for trading stocks, commodities, or forex trading. It is not true. All the above markets work, based on their own rules, though they have some common things.
Foreign exchange market is thought to be the most dangerous, though one can make money quite quickly there. But is it going to be a stable income? Before you start trading real money, you’d better trade on a demo account for enough time.
In forex, it is more risky to trade popular currency pairs than cross-rates or exotic currencies. Anyway, you should trade a small lot, then you’ll have a little higher chances to succeed. EUR/USD rate is rather volatile:
1 candlestick corresponds to 1 month:
Cryptocurrencies have aroused great interest in trader community, but, having analyzed the charts of bitcoin and other cryptocurrencies, it is clear that this instrument is not that simple. If bitcoin rate was almost two times down just in a few days, then it is a signal that one shouldn’t trade it. However, many speculators managed to gain quite a lot from this.
Stock market is thought to be the safest, though one can also easily lose money there. It is 2018 now, and ten years have passed since the last crisis. Crises occur once about every 5-10 years. One can also make money on the falling stocks (CFD), but it is much harder than on the rising ones. Bearish stock market is three times harder than the rising one due to the so-called up-tick.
Stocks are not just falling in price, but jump up from time to time; and so, it is difficult for a trader to make a pyramid. In the bearish stock market, many speculators refuse pyramids and trade with 1:2 or 1:3 strategies, that is they lose $10 and earn $20 or $30 per trade. But this approach doesn’t always guarantee success. CFD charts are more directed than currency pairs’ ones.
What stocks to buy? Those that haven’t risen in price too much. However, sometimes, even expensive stocks have great potential for growth. You shouldn’t buy low-rated stocks. For example, shares at $1, $2 or $3. These securities are often trading for years in this price range without getting somehow more expensive. Stocks, interesting for most traders, are not lower than $15-$20.
Commodity market is between forex and the stock market in terms of complexity. One can succeed trading silver, gold, oil, soy beans, corn or wheat. You should remember that liquidity in the commodity market is lower than in forex, for example. So, price gaps can be rather wide. In a pyramid attack, the price gaps can cause significant financial losses.
Trading commodities, you should also take into account the seasonal factor. For example, when crops are harvested in the Northern and Southern hemispheres, their prices can be changing greatly. You must also remember that summer in Australia, Argentina, New Zealand and other countries in the Southern hemisphere is from December till February. And the above countries are large crops exporters.
Copper price moves are relatively predictable:
Will to trade
Are you willing to trade? As experience proves, not everybody really wants to trade. Many speculators aren’t really willing to trade, though they think they want to. Have you asked yourself, what do you need the money for? If you don’t know the answer, money won’t come to you. It comes to those, who really want them. Gamblers, who want to gamble rather than to trade, also start trading. They don’t have any chances to succeed in the market. They may achieve some temporary success, but everything will end up badly.
How to spend the money earned?
You should spend the money, you make in the market, on yourself and on those who you love. For example, you can take your family to holiday in India or the Dominican Republic. It is very important that you should enjoy your success in trading. If you work hard to pay your utility bills, you won’t enjoy such trading. So, it is not surprising if your subconscious will block you way to success.
Find an advantage
Do you know how to win over the market? You need an advantage. What is it? Until you know the answer, you mustn’t even think about the charts. The right identification of the trend is the advantage. The advantage is also pyramiding, the strategy of opening consecutive purchases.
If you are going to win in the market, you need to be disciplined. You just can’t do what you want on the exchange. You need to do what you should. If there is a buy signal, you should buy. If a sell one - sell. If the trading system suggests you shouldn’t enter a trade, you’d better not. There are no undisciplined traders.
What to trade?
Each speculator answers the question themselves. In the West, the most traded is the stock market. In Arab countries, they actively trade commodities. Forex is popular in post-Soviet countries. It is reasonable to trade on a demo account for rather a long time and trade in all markets. Sometimes, it takes years to understand what market suits you more.
Fundamental or graphic analysis?
As a rule, traders apply both types of analysis. But still, if you need to choose one of them, most advanced traders prefer graphic analysis. Fundamental (news) analysis has one big flaw, the market immediately responds to the news release. You can predict a news bit, and it is even easier to explain the news background. But that is already an art. For example, bad news about the EU countries can seriously damage the single European currency. However, nobody knows what will happen the next second. Bad news is followed by good news, and vice versa.
Entry and exit points
A position should be opened neither too early, nor too late, but in the right time. Just as well, you need to close it on time. As a rule, it is hardly possible to enter and exit a trade at the very best moment, but you should seek to do so. Most traders use indicators and oscillators to do it. But there are those, who don’t. It doesn’t mean they won’t succeed. What is more important: to open or to close the position correctly? Both. But still, it is more important to exit the trade in the right time!
It is the most important science in the market. The best traders are not mathematicians, they are psychologists. Philosophers are good at trading as well. What will you do in a difficult situation? Don’t you know yet? In time, you will learn to understand yourself. It is more important than to learn the market psychology. You can know the market, but you can’t know it completely. But you can understand yourself, though it is not easy.
Trading with borrowed funds
There is nothing worse than trading with borrowed money. If you don’t have sufficient experience in trading, you are likely to lose in the market. It is thought that all newcomers lose all their money at first. The loan “presses” on a trader, so they can’t work in the market efficiently. You can borrow money not only from you friends or relatives, but also from a bank. If you borrow money from you friends or relatives, you are likely to spoil your relationships. It is even worse to take money from a bank. If your friends can forgive your debt, the bank will never do. You aren’t going to drain off your deposit? Then never trade with borrowed money.
Trading with your last money
This kind of trading is not as dangerous as trading with borrowed funds. But still, never trade with your last money. It will be extremely bad to deprive your family of the means for living. The money you trade should be “spare”. Of course, no one has extra money, but it could be the money you can do without.
Trading is thought to be a man’s job, though many women succeeded in this business. Apparently, men are philosophically minded, and seem to be more disciplined. If you want to succeed in trading you should develop these “male” qualities.
Contrary opinion strategy
There are legends about this trading system. If the majority of traders lose their money in the market, then you should trade against the majority. It is hard to say, whether it is true. But that is what speculators, sharing a contrary opinion, think. When most traders bet on the price But that is what speculators, sharing a contrary opinion, think. When most traders bet on the price rise, they go short. And vice versa. Anyway, those dissident traders do not always trade like this, only in the right time. Whatever you may say, but there is something in the strategy.
Beginner traders want to become rich right away and apply deposit accelerating strategy. Do I really need to say that most accelerations end up very badly? A trader should slowly but steadily advance to their objective, rather than do some strange, reckless things. No acceleration of the deposit will pay off. Some speculators promote their trading systems of unbelievable deposit growth, but you’d better not believe in such nonsense.
A good yield in the market starts from 30% per year. Of course, 50%-70% will be better for both a trader and an investor. You may as well expect 100% per year, but you must understand that this “appetite” will drive far greater risks.
“Pig tactic” is trading with extremely large volume. It is mainly applied by beginners and very greedy traders. You may well wish to double your deposit in a month, but this trading will inevitably get you to lose. This aggressive tactics can yield some profits once, but such traders always lose everything in the end. There are traders who earn thousands of percent per year, but they take very high risk. Many of them are just seeking thrill and gambling in the market.
Good luck and easy success
There are no lucky traders. If anyone is trying to persuade you that you are special, you should get suspicious. They may be just deceiving you. There may be people, born to trade. Many trained psychologists, philosophers, chess and checker players, poker players, wrestlers, tennis players have succeeded. However, there are people of various jobs among successful traders. For example, a train host or a cook.
There can be good and bad markets. For example, bullish stock market in 2009-2010 was very good. Anyway, traders have to work hard in any market to succeed.
Choosing a broker
Your trading success depends on the broker, you trade with. There are dealing centers that charge huge commission fees for transactions. Trading with such firms makes no sense, as they won’t let you earn. As a rule, advanced traders hold on their positions opened during a few weeks, or even months. If the commission fee is too much, you will always lose. Ask where a broker is registered. Find out about the terms of depositing and withdrawing your capital.
Trading on your gut
Such trading just can’t be winning. Trades, entered on spur of the moment, in most cases result in losses. However, intuition may suggest you winning decisions. But intuition will develop only after the years of practice. Sometimes, the spur of the moment is mistaken for intuition by beginner traders.
Should you consult a trained specialist to learn trading? Most traders studied trading in the books, as they didn't have any other coaches.
Express training can also be efficient, provided you have a good coach. According to a successful speculator, you can learn the rules of trading in two days. But the matter is that you’ll have to train to follow these rules the rest of your life. You should be careful if someone trains you to trade only in a single market. They may be getting you to lose your money.
Character and temperament in trading
What is the character of a successful trader? As a rule, they are independent, earnest and determined. If we speak about personality types, sanguine, phlegmatic, choleric and melancholic, the best traders will be among phlegmatics, rather than sanguines, as many could think. The sanguine gives up quickly, but the phlegmatic will do his job steadily and persistently for a long time. It is not surprising that they achieve success after a while.
Trading in a team
It is rather bad to trade together with a partner, or a team. Especially, if you manage small capital. MIFs have to hire a few traders, but it is not guaranteed that their work will be productive. Sometimes MIFs employ not only universal traders, but also true “bears”, who always look for weak-potential trades and go short. Their work could be very valuable, as it helps to avoid big losses during a correction in a bullish market.
Trading and health
If you are going to trade large volumes, don’t be surprised if your health will be getting worse. First of all, stress results in heart and stomach disorders. If you trade small volumes, your mood won’t change so sharply. So, it won’t do any harm to your health. One of the world’s greatest traders Jesse Livermore was suffering from a serious depression and committed a suicide in the end. It is further evidence that even really talented traders shouldn’t trade huge lots. Some speculators apply auto-training and meditation. Transcendental Meditation (TM) is especially popular among traders. They say, it helps to peer into the future. However, it is rather arguable. What is unarguable is that TM helps you calm down and raise your mood.
What you must never do in the market?
Trade against the trend
It is especially dangerous to go against the trend in the stock market. Forex is often going up and down. The equity market features directed moves. Of course, the stock market may also be shaken from time to time. But forex is always volatile. Oppositely minded traders go against the trend, but it is very dangerous, especially with stocks.
Ignore stop loss
All successful traders use stop losses. If you are going to succeed in trading, you must learn to limit your losses. Sometimes, traders enter a trade with a tiny lot, and then increase their positions. Besides, they don’t put a stop order for one position, and protect the rest at breakeven. This approach can yield quite a profit, especially in trading stocks.
Many traders use locks in trading. Their efficiency is doubtful. What’s the point in setting a lock if you can just exit the trade?Sometimes locks help in solving a difficult situation, but not always. The sense of using locks relates to psychology. If it helps traders, then they are wrong.
Trading classics suggest that you should never average. But even advanced traders sometimes apply it. At least, frequent averaging is very dangerous. If you go average from time to time, you are more likely to preserve your money.
This trading system is discussed by everybody. A French mathematician developed this approach to beat the Roulette. This strategy can be efficient only provided that you have a great deal of money. Beginners are often very excited about this system at first, but they are always disappointed finally. That is because one day they won’t have enough money to double their trading lot.
Blindly trust analysts
Analysts can’t know the future. An analyst may well be giving right tips for a long time, but they can’t be always right. Experts may also make errors. An example of such mass error is the forecast of gold price rise in 2011. Instead of a rise, the precious metal crashed.
Diversify too much
Sometimes, people trade multiple instruments. And it is not always efficient. If you buy commodities, shares, foreign currencies, it won’t guarantee that you correctly diversify. Instead of one problem, you can just get two or three. Moderate diversification is good, excessive is bad. It is often good to buy several companies’ stocks. And it is usually very bad to open positions for multiple currency pairs.
Be too greedy
The greed is the biggest enemy of a trader. If you seek a lot all at once, you will certainly lose your money soon. When you trade big volumes, your odds to make profits from your first trade are about 50%. You are 25% likely to win in two trades in a row, 12.5-in three ones, and so on. That is your chances for success in trading large lots are decreasing very fast. If your trading lots are not very, you are more likely to succeed. If you for some reasons went all-in, then go all the way. You may succeed. But this approach can’t be a trading system.
Give in to your emotions
Emotions are a setback to speculation. If you are too happy when you gain, you’ll be too sad in case you lose, and vice versa. Should you be afraid of the market? Of course, you shouldn’t. But you have to respect it. If you don’t respect the market, it won’t respect you either. And then, you shouldn’t be surprised if you don’t succeed. Euphoria is not as bad for your health as depression, but still, it can do you some harm. You should rejoice when you gain and withdraw your money. And that is not the money you should be happy with, but, rather, the way, you’ll spend it.
Think the profit to be the aim of your life
It won’t do you any good if you are rich, but unhappy in other spheres of your life. You should balance your life. That is seeking to have a happy family, and to enjoy your life.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.