Updated from its original posting on 2014-01-02
Starting to draft your list of resolutions for a brand new trading year? For both forex newbies and pros out there, here are a few things you should remember before you make new goals for next year.
For the newbies:
1. Forex trading is NOT an avenue for making quick money.
Hate to burst your bubble so early in the game but this is something that you have to learn right off the bat. Sure, it’s possible to make fast money, but odds are probably 99.99999% that you ARE NOT in the less than 1% camp of naturally born, financial wizards who can sustain a 100% gain a year for an entire career, let alone even for more than one year.
The fact is, forex trading is more like a business, and its a long, grinding business of highs and lows. You put up capital, you make and lose money while you improve your skills, and you SLOWLY learn to be consistently profitable.
2. Only trade money you can afford to lose.
One of the most common newbie mistakes is risking money they can’t afford to lose. You need to take out the fear of losing money so you can focus on your trading skills. If you don’t have enough capital yet, you can start with small accounts or try trading on demo.
3. You need a forex trading journal.
You will be a very, very bad trader in the beginning, and that won’t change until you keep a trading journal. Because you’re new, you’ll likely make a lot of trading mistakes that takes experience to overcome. Even a simple, well-kept trading journal could speed up the improvement process by showing you what’s working and what isn’t, and if you’re making the right changes. What’s not measured cannot be managed.
4. Don’t hesitate to ask for help.
For the pros:
1. New is not always better.
Before you explore new strategies this year, take a second look at your old ones and check if a simple adjustment in stop losses, position sizing, or indicator settings would have changed the outcome of your trades. Unlike Barney Stinson, I don’t believe that “new is always better.” Also, check your journal to see if you consistently executed your strategy–even the best strategies can’t be made profitable with poor execution.
2. Set realistic expectations.
Just because you caught a 200:1 reward-to-risk trade last year does not mean that you should aim for a 1,000% gain in your account this year. Set your goals and expectations based on your average performance, available time for trading, and capital limitations.
3. Winning can be as dangerous to your account as losing.
Psychologically similar to how losing streaks can make you fearful of taking trades, winners can also cause psychological damage by making you overconfident. This can lead to lack of preparation and overtrading, which is worse that being too fearful because you are most likely taking on unnecessary risk. No matter how big your wins are, remember to be consistent with the final point:
4. Focus on the process, not the profits.
All the points above can be summarized into this one. Forex trading is a marathon, not a sprint. Like any worthy endeavor, becoming consistently profitable requires consistent practice and self-development–don’t kid yourself if you think it requires anything less than that. Don’t be distracted by one-time profits and losses. Keep your eyes on the prize, and stay focused on doing the right things, the right way, at the right time.