Thursday February 26, 2015 - 12:57:23 GMT
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How to Stay in the Retail Forex Trading Game
Many new traders who enter the retail forex market come there with blinders on. What I mean by that is they look at the potential riches and ignore the potential risks. A key to staying in the game is to protect your capital so you can live to trade another day. As those who got burnt by the Swiss National Bank shocker learned the hard way, not only is your capital at risk but it could be a lot more. While this was an extreme and hopefully not to be repeated case, it underscores the importance of protecting your downside when trading.
Trading in real-time is a lot different than trading in a demo mode.
The first step in trading is often to open a demo account to practice on with a forex broker, such as ETX Capital. This is a good way to start as it gives a place to practice trading without risking your capital. However, there is another side to it. Demo accounts are not reality. There is no emotion when trading a practice account. Do not underestimate the impact of emotion when trading live, especially if you are a new trader. I do not care if you are trading a $1 or $1 million position, there is an emotional component when putting your capital at risk.
In demo trading, you also do not have to worry about a drawdown that reduces the amount of capital you have to trade. In real-time, losses are part of the business but new traders have to learn to live with them. If a loss results in a larger drawdown than usual due to poor money management, it can have a severe psychological impact as well.
So the question is how do you stay in the game?
The first step for new traders is to learn to walk before they run. This means to start slow and recognize that demo trading is different than trading in real-time. I have seen too many traders who possess potential never get the chance to reach it by blowing their accounts before they reach a skill level to stay in the game.
You will learn more from your losers than your winners. Make sure your losses are manageable and allow you to continue trading. When you build consistency then you can consider increasing your risk. It is better to risk house money than your base capital.
It is easy to give a list of trading tips, such as use stops, do not overleverage, cut your losers and let your winners run, etc. However, these are just words. In reality, you have to first get past the first hurdle, which is the transition from demo to real-time trading. Do not underestimate it. This is a big step and will allow you to run after you first learn to walk.
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