DailyFX Tips & Picks: There’s a way to deal with inevitable new trader doubts
THERE are only a few things that can make you feel alive like trading with real money. Seeing a position gain in value will, without doubt, fill most new traders with a strong sense of euphoria.
Yet any new trader who is happy with his or her returns, and who has gained confidence, will almost certainly trade the same set-up the next day if possible. But this time, the gains may not materialise. Instead, the position generates a loss, and it takes some time before the position hits the stop loss level, thereby exaggerating the pain. The trader is now confused and starts to look for reasons for the loss and the emotional toll. The next time a position is taken, he or she may be more careful, as doubt has been allowed to creep in, clouding judgement.
This is the common story of the new trader. Little do they know that most trading strategies will be wrong 40 per cent of the time and there is no holy grail. A trader’s doubts are therefore unwarranted, as losing 40 per cent of the time is just part of the game. This is one of the first lessons of trading.
Given the small edge of most systems, like being right 60 per cent of the time, many positions are required to fully eliminate the randomness factor of the markets. As such, maintaining low risk, and therefore the ability to trade many times, is important. To further eliminate doubt, proper research – like where to enter, where to take a loss, where to book a gain, and how much to risk per trade – are crucial parts of a complete trading system.
Alejandro Zambrano is a currency analyst at DailyFX.
He leads DailyFX’s Premium Educational Seminars – http://bit.ly/PremiumEDU
Azambrano@dailyfx.com
Twitter: @AlejandroDFX