Today I want to share with you guys 5 things that no one ever told me when I began trading, and that I didn’t read on any Forex website. Indeed, the 5 points below are all things I figured out through good old trial and error, and in hopes of making your Forex trading journey a little smoother I’d like to share them with you now .
1- Humans are not naturally good at trading
Whilst it is true that some people are naturally a little better at trading than others, it’s also true that the habits and mindset we need to consistently pull money out of the markets is not something anyone is born with. Basically, we come pre-wired to suck at trading.
Evolution has had a lot more time to have an effect on our more primitive ‘fight or flight’ brain areas than our more advanced brain areas which have evolved much more recently and are the ones we need to be good traders. When we have our real money on the line in the markets, our brains basically behave as if someone or some animal is about to steal all the food we just worked really hard to kill and bring back to the cave. Thus, when we lose that money we get emotional, because we know that we have to work to make that food back AND we are still hungry. Now, in the caveman days, our primitive brain areas would serve us well by urging us to go back out into the woods and hunt another animal…or we will starve.
2-You don’t have to be exceptionally smart to trade successfully
Perhaps one of the biggest misconceptions that most people seem to have about professional traders is that they are ultra-smart Ivy-League math-wiz’s who have some super-human ability to make money in the markets. This is really not the case; in fact, many successful traders never even went to college or never finished, like myself, because being a successful trader takes a skill set that is not taught in most schools. In reality, being a successful trader is really more of a psychology-based skill than a technical or numbers-based skill like many people think. You don’t need a college degree to be a profitable trader, and you don’t need to understand calculus. What you really need is to make disciplined and patient trading a habit and a part of your daily trading routine.
Now let's say I have the same coin, but this time if heads is hit, you would triple your net worth; but when tails was hit, you would lose every possession you own. Would you flip that coin? My guess is you would not because one bad flip of the coin would ruin your life. Even though you have the exact same percentage advantage in this example as the example above, no one in their right mind would flip this coin.
3– Forex is Not a Get Rich Quick Opportunity
Contrary to what you’ve read on many websites across the web, Forex trading is not going to take your $10,000 account and turn it into $1 million. The amount we can earn is determined more by the amount of money we are risking rather than how good our strategy is. The old saying “It takes money to make money” is an accurate one, Forex trading included.
But that doesn’t mean it is not a worthwhile endeavor; after all, there are many successful Forex traders out there that trade for a living. The difference is that they have slowly developed over time and increased their account to a level that can create sustainable income.
I hear about traders all the time targeting 50%, 60% or 100% profit per year, or even per month, but the risk they are taking on is going to be pretty similar to the profit they are targeting. In other words, in order to attempt to make 60% profit in a year, it's not unreasonable to see a loss of around 60% of your account in a given year.
"But Rob, I am trading with an edge, so I am not risking as much as I could potentially earn" you might say. That's a true statement if you have a strategy with a trading edge. Your expected return should be positive, but without leverage, it is going to be a relatively tiny amount. And during times of bad luck, we can still have losing streaks. When we throw leverage into the mix, that's how traders attempt to target those excessive gains. Which in turn is how traders can produce excessive losses. Leverage is beneficial up to point, but not when it can turn a winning strategy into a loser.
4- You Don’t Need Fancy Software or Multiple Trading Screen Setups
Most trading websites are not going to tell you that you really don’t need fancy trading software or multiple trading screen setups to be successful in the markets. The fact is, you don’t need this stuff, and you can actually trade very successfully just from your laptop and a free charting program like metatrader 4. I personally trade from my laptop most of the time as I am on the go a lot and I travel often.
5- Leverage Can Cause a Winning Strategy to Lose Money
This is a lesson I wish I had learned earlier. Excessive leverage can ruin an otherwise profitable strategy.
Let's say I had a coin that when heads was hit, you would earn $2, but when tails was hit, you would lose $1. Would you flip that coin? My guess is absolutely you would flip that coin. You'd want to flip it over and over. When you have a 50/50 chance between making $2 or losing $1, it's a no-brainer opportunity that you'd accept.
Now let's say I have the same coin, but this time if heads is hit, you would triple your net worth; but when tails was hit, you would lose every possession you own. Would you flip that coin? My guess is you would not because one bad flip of the coin would ruin your life. Even though you have the exact same percentage advantage in this example as the example above, no one in their right mind would flip this coin.
The second example is how many Forex traders view their trading account. They go "all-in" on one or two trades and end up losing their entire account. Even if their trades had an edge like our coin flipping example, it only takes one or two unlucky trades to wipe them out completely. This is how leverage can cause a winning strategy to lose money.
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