Trading is hard, despite what many new traders might think. Some investors expect to open an account, fund it and be on their way to riches in no time. Before the first trade is made, they are mentally buying a Rolex or Lamborghini.
Unfortunately, it doesn't work that way. Becoming a successful trader takes time to get your groove on, hone your skills and survive that dreaded trading learning curve. It's in that period – which can last anywhere from three to six years according to common estimates – that most traders drop out.
They can't take the heat and get out of the kitchen prematurely. But if they held on, learned the ropes and fine-tuned their skills and strategies, they may have turned losses into gains. That learning curve is why about 60% of Forex traders fail. But you don't have to be another statistic. Here's how to survive the trading learning curve and become a serious trader.
1. Set Your Expectations Low
It's easy to romanticize trading, assuming that within three days you'll be a millionaire giving veterans a run for their money. After all, trading can be formulaic. Wake up, click a button on the computer and potentially make a fortune. That could be your reality, too – but first, you need the skills. Success requires a lot of research, training and education, all of which you can do on your own if you have access to robust trading tools, analytics and continuing education. Without it, you are destined to fail. As such, it's best to expect little when starting out until you're truly confident you've developed all the skills you need.
2. Find A Mentor
Even better than self-learning is finding a mentor. This is a day-one type of task that can set you up for a successful career in trading. Mentors have been there and done that, they know what works and what is costly. What better way to avoid money-losing moves than to learn from the mistakes of the traders that came before you?
Having a mentor is a time-tested way to build skills and learn the ropes. But you have to be careful when looking for a mentor. Fraud is rampant in the online trading world. It's important to find a mentor who has a publicly available track record or, based on your judgment of character, appears to have integrity and the experience you need. The right mentor can shed years off the learning curve.
3. Practice Makes Perfect
You may have urges to bet it all on what you think is a foolproof trade, but going slow is the best option in the beginning. Just like you wouldn't put everything on red in roulette, you shouldn't make big wagers when starting out. Begin with a small amount of money you can afford to lose. That way, if your trade goes south, you won't be bankrupt or in a state of disrepair.
While testing a trade is fine, just using a simulator isn't the best route to success. A big part of being a successful trader is learning how to manage your emotions. If you have no skin in the game, you'll never learn how to do that. A simulator can potentially give you a false sense of confidence that could lead to trading mistakes when you have real money on the line.
Your trades should be extremely small, but they should also be real. Your fight or flight response will not be triggered if you operate only on a simulator, and without it, you will not learn to control yourself and your emotions.
4. Treat Trading Like A Business
A trading business needs three things to succeed: capital, an edge and a trader who can apply the edge consistently.
Take capital for starters. That's the money you need to make money. If you lose a large portion of your capital, it's the equivalent of a business losing most of its customers. You need to protect your capital by making smart trades and managing your risk. A good rule of thumb: never put more than 2% of your account on the line and if you are just starting out, wager even less.
Edge is another important trait. Edge is the set of behaviors you adopt that enables you to outperform your peers. Edge can be spotting trades based on momentum or betting against the direction of a currency. Edge means different things to traders, but without it, all the risk management and psychological discipline in the world will not help you.
Hand and hand with edge is expectancy. This tells you the likelihood of your trade being a success or a failure and should dictate your trading decisions. Remember that high reward-to-risk ratio strategies and low reward-to-risk strategies can both work, but they each have their pros and cons. What matters, always, is not how often you are right or how much you make on average, but both of those things combined and whether they add up to more gains than losses.
When it comes to trader competency in leveraging edge, the saying you are only as good as your discipline couldn't be truer. Once you've found your edge and learned how to control your risk, the rest is easier. Analyze and research your trading ideas and keep your emotions in check. If you have a good plan and possess the discipline to know when to stay in and when to get out, you'll avoid lots of costly mistakes. Over time, the number of rational decisions will outweigh the irrational ones.
5. Enjoy The Ride
Becoming a successful trader doesn't happen overnight. It takes determination. It’s something that can be exciting and gut-wrenching all in a day's work. Make sure trading is something you enjoy doing. When things are tough and your results aren't where you want them to be, the fact that you love trading can cushion the pain. Plus, knowing you are improving or learning a tough skill can sometimes provide a little solace.
Don't forget to partner with an online broker that provides deep research and analytics tools, ongoing education and a hand holding when you need it. You get that and more with Octa, the online broker connecting Southeast Asians to international opportunities. To learn more about what Octa has to offer, click here.
Disclaimer: Trading involves risks and may not be suitable for all investors. Use your expertise wisely and evaluate all associated risks before making an investment decision.
Featured photo by Stephen Dawson on Unsplash.
This post contains sponsored content. This content is for informational purposes only and is not intended to be investing advice.
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