43 lessons about forex trading at 43 that I wish I’d known at 23
Diupdate
I turned 43 last week. I’ve been working for global brokerages and trading for 16 years. Here’s 43 things I wish I knew back then when I first started trading:
1. Start with your objectives first. I once asked a hedge fund manager what his advice for new traders is, and he said ‘get your objectives clear first.’ Set your goals first, and then create a plan to achieve them.’
2. Risk/reward is everything. As a trader, your job is to place trades with an asymmetrical risk/reward profile – i.e. trades where you can make more than you can lose. That’s what good trading is all about.
3. You are a risk manager first, and a trader second. Your top priority as a trader is to protect your trading capital. Then, secondly, it is to make money. Not the other way around.
4. Cut your losses short and let your profits run. After working in brokerages for 16 years, if I know one thing about retail traders, it is they let their losses run and take their profits too quickly. Don’t be like them.
5. Be properly capitalised. The main reason I’ve seen traders lose is they have too small accounts and use too much leverage. Keep your risks small compared to the size of your account.
6. Use a rules-based approach to trading. Write a plan that contains rules for every decision you need to make as a trader…and then follow it.
7. Be clear and specific. Be clear about your goals, your objectives for each trade, and when you will enter and exit the market. If you are not clear, then keep planning until you are.
8. Mistakes kill trading systems. Errors – for example, not following your rules (or even worse, trading without rules) can make the difference between hitting your goals, or having a losing month.
9. Trade your best idea. Keep it simple and focus on your best idea at the time. Don’t trade too many strategies or systems all at one time.
10. Trade the correct strategy for the market type. Sell in bear markets, buy in bull markets. Range trade or stay out of sideways markets. If the market forms a tight range, trade the breakout. Pick the right approach for the current market conditions.
11. You will not win all the time… and that’s ok. Even the best traders have losing weeks, months and years. Go easy on yourself when things are not working out. Keep trying to improve.
12. Trade less, not more. I made 3% a month over 3 years, taking one trade a day. You don’t need to trade often to hit your objectives.
13. You only need one good trade. One good trade a week or month is all you need to achieve your objectives.
14. You achieve your goals through position-sizing. Controlling the size of your position is more important than getting the trade direction correct.
15. It’s not how often you win, but how much you make when you do. It does not matter if you take lots of small losses, as long as you make large gains when you win.
16. Play the probabilities, not what you think is going to happen. Don’t try to ‘make a trade work’ by taking profit early or not taking a trade, rather trust in the probabilities and your plan.
17. Time of day matters. The forex markets often change direction when the Tokyo, London and New York markets open. Be prepared.
18. Don’t trade on Monday mornings. Funny things happen on Monday mornings when most traders are asleep and the markets are illiquid. It’s best to avoid trading at this time...oh and stay away from New York Friday afternoon too.
19. Keep your entries simple…Don’t over-complicate your entries. A simple breakout or pull-back during a trend will work. Keep your entries simple so you can act decisively.
20. …and your exits complex. Many things happen after you enter a trade, so you need a toolbox of exit strategies.
21. Take some profit when the market gets overbought or oversold. I used to hold on to every trade, hoping it would be a massive winner, only to see it reverse and my profit disappear. Now, I’m happy to take profit as soon as the market signals it’s about to reverse.
22. Trail your stop-loss, but not too close. A trailing stop will allow you to keep your gains. Don’t put it so tight that it will knock you out of the big winners.
23. Move your stop to breakeven, but not too early. Having a trade that you’ve made risk-free by moving the stop loss point is a great feeling. But don’t do it so early that you get whipsawed.
24. News events will be the greatest source of profits and losses. Pay close attention to news events, as they have the power to wipe out your hard-earned gains or generate windfall profits - in the blink of an eye.
25. Record your trades. Keep track of all the trades you make so you can review your performance and…
26. Do more of what works, and less of what doesn't. Doing this over and over again is the secret to success.
27. Know your macros. I’m not talking about calorie-counting. Learning macro analysis of the forex markets will prove valuable in the long run as you will understand what is behind the movements on the charts.
28. Scale-in to high-conviction trades. If you have a high-conviction winner, backed by the fundamentals, then maximise it by adding to the trade as it goes your way.
29. Practice mental rehearsal. Like an elite athlete before their big event, practice executing your trades perfectly in your mind's eye. And take deep breaths while you’re rehearsing.
30. Trading is a game. View trading as a game, where you make the rules and your profits are your winning score.
31. Develop personal discipline. The key to consistent trading is developing the discipline to trade your tested rules, even when you have a series of losses.
32. Keep your thinking flexible. Don’t hold onto a view too tightly, and be prepared to do a u-turn and go the other way.
33. Trade for yourself, not what others will think of you. Do you for you. Not for what others will think of you, or because of what you’ve seen another trader do on social media.
34. Know yourself, before you trust others. Don’t give your money to someone else to trade, until you at least understand how to manage risk yourself. Then you can tell if they are any good at it.
35. Your broker is (probably) not your enemy… in my 16 years of experience, major regulated brokers are not trading against you. They want you to have a good trading experience.
36. …but they are not your mate. They are not always going to call you if you lose money to assist you. That’s not their priority.
37. Costs add up. Costs compound negatively, just like returns compound positively. Keep your transaction costs and fees as low as you can.
38. There is always a marketmaker. If your broker is not the marketmaker, then their liquidity provider is. In the forex market, there is always a marketmaker somewhere down the line.
39. Grind it out. Show up each day, follow your processes, and the results will come. Get used to the grind, and don’t chase the fast win.
40. Don’t tie your self-worth to the markets. The markets are a fickle, challenging beast and your success as a trader is not something to base your personal self-esteem on.
41. Spend your time being happy. Good traders are relaxed and happy. Remain calm and have a positive expectation.
42. Fight the good fight. Author Paulho Coelho said: “The Good Fight is the one that we fight in the name of our dreams.” If you are passionate about trading, keep up the fight. Keep trading, learning and growing and you’ll get there.
43. Enjoy the journey. Trading is a journey through the Himalayas. The highs are high and the lows are lows. The key is to enjoy every step.
Thanks for listening.
Sam
1. Start with your objectives first. I once asked a hedge fund manager what his advice for new traders is, and he said ‘get your objectives clear first.’ Set your goals first, and then create a plan to achieve them.’
2. Risk/reward is everything. As a trader, your job is to place trades with an asymmetrical risk/reward profile – i.e. trades where you can make more than you can lose. That’s what good trading is all about.
3. You are a risk manager first, and a trader second. Your top priority as a trader is to protect your trading capital. Then, secondly, it is to make money. Not the other way around.
4. Cut your losses short and let your profits run. After working in brokerages for 16 years, if I know one thing about retail traders, it is they let their losses run and take their profits too quickly. Don’t be like them.
5. Be properly capitalised. The main reason I’ve seen traders lose is they have too small accounts and use too much leverage. Keep your risks small compared to the size of your account.
6. Use a rules-based approach to trading. Write a plan that contains rules for every decision you need to make as a trader…and then follow it.
7. Be clear and specific. Be clear about your goals, your objectives for each trade, and when you will enter and exit the market. If you are not clear, then keep planning until you are.
8. Mistakes kill trading systems. Errors – for example, not following your rules (or even worse, trading without rules) can make the difference between hitting your goals, or having a losing month.
9. Trade your best idea. Keep it simple and focus on your best idea at the time. Don’t trade too many strategies or systems all at one time.
10. Trade the correct strategy for the market type. Sell in bear markets, buy in bull markets. Range trade or stay out of sideways markets. If the market forms a tight range, trade the breakout. Pick the right approach for the current market conditions.
11. You will not win all the time… and that’s ok. Even the best traders have losing weeks, months and years. Go easy on yourself when things are not working out. Keep trying to improve.
12. Trade less, not more. I made 3% a month over 3 years, taking one trade a day. You don’t need to trade often to hit your objectives.
13. You only need one good trade. One good trade a week or month is all you need to achieve your objectives.
14. You achieve your goals through position-sizing. Controlling the size of your position is more important than getting the trade direction correct.
15. It’s not how often you win, but how much you make when you do. It does not matter if you take lots of small losses, as long as you make large gains when you win.
16. Play the probabilities, not what you think is going to happen. Don’t try to ‘make a trade work’ by taking profit early or not taking a trade, rather trust in the probabilities and your plan.
17. Time of day matters. The forex markets often change direction when the Tokyo, London and New York markets open. Be prepared.
18. Don’t trade on Monday mornings. Funny things happen on Monday mornings when most traders are asleep and the markets are illiquid. It’s best to avoid trading at this time...oh and stay away from New York Friday afternoon too.
19. Keep your entries simple…Don’t over-complicate your entries. A simple breakout or pull-back during a trend will work. Keep your entries simple so you can act decisively.
20. …and your exits complex. Many things happen after you enter a trade, so you need a toolbox of exit strategies.
21. Take some profit when the market gets overbought or oversold. I used to hold on to every trade, hoping it would be a massive winner, only to see it reverse and my profit disappear. Now, I’m happy to take profit as soon as the market signals it’s about to reverse.
22. Trail your stop-loss, but not too close. A trailing stop will allow you to keep your gains. Don’t put it so tight that it will knock you out of the big winners.
23. Move your stop to breakeven, but not too early. Having a trade that you’ve made risk-free by moving the stop loss point is a great feeling. But don’t do it so early that you get whipsawed.
24. News events will be the greatest source of profits and losses. Pay close attention to news events, as they have the power to wipe out your hard-earned gains or generate windfall profits - in the blink of an eye.
25. Record your trades. Keep track of all the trades you make so you can review your performance and…
26. Do more of what works, and less of what doesn't. Doing this over and over again is the secret to success.
27. Know your macros. I’m not talking about calorie-counting. Learning macro analysis of the forex markets will prove valuable in the long run as you will understand what is behind the movements on the charts.
28. Scale-in to high-conviction trades. If you have a high-conviction winner, backed by the fundamentals, then maximise it by adding to the trade as it goes your way.
29. Practice mental rehearsal. Like an elite athlete before their big event, practice executing your trades perfectly in your mind's eye. And take deep breaths while you’re rehearsing.
30. Trading is a game. View trading as a game, where you make the rules and your profits are your winning score.
31. Develop personal discipline. The key to consistent trading is developing the discipline to trade your tested rules, even when you have a series of losses.
32. Keep your thinking flexible. Don’t hold onto a view too tightly, and be prepared to do a u-turn and go the other way.
33. Trade for yourself, not what others will think of you. Do you for you. Not for what others will think of you, or because of what you’ve seen another trader do on social media.
34. Know yourself, before you trust others. Don’t give your money to someone else to trade, until you at least understand how to manage risk yourself. Then you can tell if they are any good at it.
35. Your broker is (probably) not your enemy… in my 16 years of experience, major regulated brokers are not trading against you. They want you to have a good trading experience.
36. …but they are not your mate. They are not always going to call you if you lose money to assist you. That’s not their priority.
37. Costs add up. Costs compound negatively, just like returns compound positively. Keep your transaction costs and fees as low as you can.
38. There is always a marketmaker. If your broker is not the marketmaker, then their liquidity provider is. In the forex market, there is always a marketmaker somewhere down the line.
39. Grind it out. Show up each day, follow your processes, and the results will come. Get used to the grind, and don’t chase the fast win.
40. Don’t tie your self-worth to the markets. The markets are a fickle, challenging beast and your success as a trader is not something to base your personal self-esteem on.
41. Spend your time being happy. Good traders are relaxed and happy. Remain calm and have a positive expectation.
42. Fight the good fight. Author Paulho Coelho said: “The Good Fight is the one that we fight in the name of our dreams.” If you are passionate about trading, keep up the fight. Keep trading, learning and growing and you’ll get there.
43. Enjoy the journey. Trading is a journey through the Himalayas. The highs are high and the lows are lows. The key is to enjoy every step.
Thanks for listening.
Sam
Catatan
I've done a video of this on youtube if you search for it. Cheers.
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