If you converse with experienced retail traders, regarding the mistakes they wished they’d avoided when they first discovered and began trading the markets, they’ll often point to understanding and applying the concepts of: money management, risk and probabilities. These three factors are inextricably linked. Successful traders, whether institutional or retail, will also state they should have been highly disciplined from day one. Instilling their own professional standards, by way of creating their own highly detailed, personal trading plan, also ranks high, as an overlooked critical element. In fact, they often stress they should have ensured their blueprint, trading plan was perfected, before they actually traded.
Many older traders will also shudder when they recall blowing up
their initial accounts; losing the vast proportion of their funds leaving them
unable to place a trade, because they couldn’t satisfy the margin and leverage
requirements. With the obvious benefit of hindsight, they know how easy it was
to avoid losing close on all their funds in their first accounts.
Traders are impatient to get involved with the markets and simply
trade, but that natural and (at times) irrational exuberance, has to be
contained. The only comparison and previous experience new traders will have
with financial markets’ trading, is generally sports betting. But the financial
markets isn’t an industry in which you can place $50 on which team will win a
match, or what horse might win a race, and simply pick and choose which matches
or races to bet on, as and when the mood takes you.
In order to trade FX in particular, you can’t just bet a spare €50
on which direction EUR/USD might take on any given day, you need an account and
when you open an account you immediately need to apply money management
discipline, to attempt to succeed. If you don’t apply forms of self control and
discipline from the outset, you’re likely to burn through your first account in
rapid time. Finding yourself out of the market, with your finances and ego
bruised and realising you’re unlikely to return, is an unpleasant and damaging
experience. The scenario just outlined, is clearly illustrated by the recent
investigations the European body ESMA conducted, before applying their
increased leverage requirements.
ESMA discovered that out of the circa 80% of private Europe’s retail
traders who lose when trading forms of CFDs, the vast majority lose circa €8k
inside a short period of approximately 3-4 months, before giving up the idea of
trading as a bad experience and never returning. To lose so much so quickly,
suggests a reckless, impatient attitude and the question needs to be asked;
“how can anyone begin to learn the complexity of financial markets in 3-4
months?” You don’t want to be part of that churn, you don’t want to be part of
those statistics and it’s surprisingly simply to ensure you never will be, if
you apply self respect and respect the retail trading industry, from day
Whether you trade a demo account initially, or quickly move onto
micro or mini account trading, it’s essential that you apply the same
disciplines. If you fail to exercise self control, then you can’t begin to
develop your money management (M.M.) skills and understand the impact risk and
probability has on your outcomes. You have to develop basic M.M. skills from
day one and they really are basic, common sense parameters. You also need to
buy time, as you have to fund your trader education. You can only do this by
staying in the market, blow up too hard or too early and you’re out, you won’t
have given yourself the opportunity for your initial period of education to
start, let alone complete.
With demo accounts you can choose circa 50,000 units of currency as
a bank, treat it as you would your own money. Don’t bet 5% or 2,500 units per
trade, risk the same conservative level of money you would in a real situation.
If your level of tolerance would be 0.5% if it was your own funds, then that’s
250 units. And apply further money management rules, by way of using stops and
take profit limit orders. If you have a daily loss limit stick to it. If you
have a circuit breaker for an overall accumulated loss, before you stop trading
and revise your method and strategy, then ensure you respect it.
Similarly, once you move onto mini and micro accounts, you must
adhere to the same levels of self discipline. You must practice and then
perfect the strategy you eventually put into place in the market place,
irrespective of whether the account is: virtual, micro or mini. Once your
technique is perfected, you then have a track record, you have some statistics
behind you, that should ensure that when you open your first retail account trading
lots, you’re in a position to capitalise on the efforts you’ve put in. There
really is no excuse to blowing up any form of account, if you adopt the