Trading. The wonderful art of losing money in the most stressful way possible. Also the art of making decisions as complicated as possible. Wait a second, man! I don’t make complicated decisions! I use my moving averages and my stochastic oscillator and my Fibo lines and my RSI and when they line up I check my pivot points. If those check out and there aren’t any news releases coming out and all my indicators line up and Pluto, Jupiter, and Mars are in alignment, I make a trade. That isn’t complicated, it is informed.
This is a very common way of trading. Everything has to be in order. Everything has to line up and look right. More information is better information. Right? Well, that might be the case if you’re in FBI hunting a dangerous criminal or an archaeologist running through Egypt looking for the Ark of the Covenant, but not in Forex. In retail Forex, we are in the middle of an information overload.
Every day FX traders look at their chart with all the indicators and other bells and whistles attached and try to make a good trading decision. They hope that if everything is lined up just the right way, a good trade will appear. The thing is, most of the stuff people put on their charts tends to lag, contradict other indicators, or just plain not work. This leads to people looking at a bunch of different signals and listening to all sorts of different advice and choosing what signals or which advice is right. So, instead of just trying to buy or sell, you have someone sitting there trying to decide which of the things telling him to buy or sell is right. The process of making a simple decision just tripled in complexity.
Now, tell me how this makes sense. How does complicating a decision lead to a better outcome? Think about it for a second. It doesn’t make sense. We don’t do this in real life. When deciding what to eat a restaurant, we don’t call up our favorite aunt or Google the recipe, or look up the chef’s Facebook to make sure he’s a nice guy. Instead, we make a decision based on what we like to eat. And how do we know what we like to eat? From experience.
Almost every decision we make is based on experience. Why don’t you just run out into the street when you want to get to the other side? Maybe because we saw Fluffy do that once and learned that when a 2 ton vehicle traveling 50 miles an hour and a 2 pound kitty get in a shoving match, the kitty isn’t going to win. After we witnessed this event and became traumatized for life, we learned not to run out into the middle of the street without looking.
So, if we make everyday decisions based solely on experience and not on a bunch of rainbows and magic numbers, why don’t we do the same with trading? The reason is simple: most people just don’t have the necessary experience. Most people just want into the market without any preparation or education. That way, they can start turning their $250 dollars into a million in under a week! Sound familiar?
The entire point of this article is to show the necessity for experience. Forex is not something you can learn in a month or a year or even a few years. Learning how to trade FX takes time. It is just like any other career. You don’t just hand a random guy on the street a badge and a gun and call him a cop. When you want to be a doctor you don’t head to the store, buy a knife and call yourself a brain surgeon. For both of these jobs, and every other actual career in the world, there is a huge amount of education involved to learn how to do the job. Plus, even once the whole education period is over, there is still a lot of time spent actually becoming good at the job. Again, this isn’t a six month process. This is a process that takes years.
This same approach should be used with Forex. Instead of jumping straight into the market, a new trader should spend at least a year on learning how to actually trade, instead of the commonly accepted six months learning on a demo account. After that year or so, try opening a very small live account. “WHAT!?!?!” is what most traders would say to this statement. Almost everywhere you go on the internet, people are always saying to use a demo account for six months before trading. Well, the thing is, demo accounts are nothing like live accounts. Once you actually start trading live, you essentially have to re-learn how to trade. You now have to worry about slippage, re-quotes, low liquidity, and many other things. This changes the whole game. Instead of first demoing and eventually relearning how to trade, open up a $250 account and practice with micro lots. You will probably lose this money. If you don’t have $250 to lose, you probably shouldn’t be in an industry where you can lose thousands of dollars in seconds.
I’m not saying you should entirely throw out the demo account. You need the demo account in that first year of learning in order to first, learn your platform, and second to learn how the market works. You don’t want to learn about lot sizes and how to place trades while fooling around with real money. The demo account is crucial for this. The trick is to not get used to trading in the demo account. When the time comes where you want to place actual trades to try and make a profit, do it in your mini live account. This might sound odd, but the time in a trader’s career when he loses the most money is in the transition from demo to live accounts. He has just finished his six months in demo and now he thinks he’s a big bad trader and tries to trade the same way in his brand new live account. Then he loses. Everyone has done it, including the most successful traders in the business. The whole point to opening that small $250 account and learning to trade there is to eliminate the transitory losses.
This is actually why most people actually fail in Forex market. Not because they lose money, but they haven’t lost enough money. A trader needs to be able to keep funding his account over and over again to stay in the market because he will lose money. This builds experience. After a certain period of time, 3 years of full time trading and 5 years of part time trading, most people will start to see a significant increase in trading ability. However, they can only see this increase in ability if they stay in the market, and they can only stay in the market if they can keep funding their account. This whole concept is pretty much like any other small business (which trading FX is): most people don’t make a profit for five to six years and will not receive a salary in that period.
When beginning the whole trading process, a trader has to start by viewing the whole thing as an investment. Not as a way to make a quick buck, but as starting a business. This way, he won’t give up once he starts losing money. He will have to invest quite a bit of capital before he starts seeing returns.
This all sounds pretty crazy, right? I mean, no one ever spends a year on education or three to five years making small trades. That’s ridiculous! Yeah, most people don’t do things this way, but most people who enter the retail FX market also are not successful. Maybe there is a reason for that. Maybe, if these people had actually taken the time to build up a knowledge base and some actual experience, then stayed in the market long enough, they might be successful traders.
Now, how does this whole “taking the time to actually learn” thing go back to un-complicating decisions? Well, after you actually have that lovely experience we’ve been talking about, you won’t need all those indicators and reports and all the other junk. You can still use them and use them profitably, but now you will know how to use them. You will know how the market works and how to react to it. this way, you won’t need to consult your indicators or your magic ball on what to do. You will look at the chart and make a decision. It is actually that simple. You will be making the decision based on experience.
Most of the people reading this probably aren’t new traders and the people who are won’t want to spend all that time to learn how to trade. However, at least listen to what was said about experience. The only way to become a truly successful trader is to build experience. If a trader can stay in the market long enough and go through the right amount of trial and error, that trader can become consistently profitable in the long run.
