It is many people's dream to able to make tens of thousand every month without sacrificing their time. They would love to spend their time at Hawaii beach, while others are busy sitting in front their PC handling their daily job routine. Many have chosen to trade in high risk high market such as forex, options and futures with a hope to achieve that one dream of not having to work. Yet, many fail. But, there are people whose full time job is trading forex, options or futures. How do they do it? Why others fail while they succeed? Here is my answer.
To be a successful trader, you have to conquer 3 pillars. The first and foremost is money management. It is the most important factor whether you will reach your financial freedom or not. Even in trading and investing, money management is one of the three main pillars which will determine your success rate. Why is it so? Trading involves a lot of risk management, and risk involves money. If you are unable to control your money, you’ll end up depleting your capital. That’s the reason many of my articles talks mainly on money management.
The second pillar to conquer is the method. Method is the technical/fundamental analysis you do on the live or historical data movements. You must have a method or two in order to know when to buy, sell and close your position. You will come across hundreds of methods out there. You have to find the right method to suit your style. Some methods are for intraday trading. Some are for inter-day trading. Some are for trending. Some are for ranging. Some are more suitable for forex. And some are more suitable for options.
Just to share my experience, I have been using a method to trade futures and it worked very well, until the market started to go sideways. My method started to fail. So, my solution was don’t trade in sideway market. Once the market resumed its up or down trend, I started to trade again.
The third pillar is the most difficult to conquer among all. At times, we might think we have conquered it, until something happen and prove us wrong. The third pillar is our emotion. Even if you have conquered the 1st and 2nd pillar, it would be useless if your emotion is not conquered. ‘Conquer your fear and greed’ is easy to be said, but to do it require lot of disciplines and learning from mistakes. Your mind has to be focused; undisturbed by your surroundings. The disturbance could be anything. It could come within you, such as your greed. It could even come from your loved one who somehow discouraging you. It’s not easy, but with full determination it can be achieved. At times you have to experience it to understand it better.
Here are some common mistakes done by many traders.
1. They want to earn a lot within the quickest possible time, but unwilling to learn the three pillars.
2. They use an obsolete method. Some methods might have worked a long time ago, but it no longer works due to change in trend. Some method needs some tweaking in order for it to work.
3. Using too many methods to trade. The more methods you have, the more confused you’ll be. So, try to choose a method which works for you.
4. Having all their money in high risk instruments. When you are not diversified, one bad move could end all your gains.
5. Diversifying into all high risk instruments. You are not really diversifying risk. The purpose of diversification is to minimize your risk.
6. They think trading is considered as passive income. The truth is it is active income. So, if something bad happens, they won’t able to support their family.
7. No proper stop loss.
8. No knowledge or experience. They trade as if it’s a gambling.
9. No extra/additional margins.
And here are some tips.
1. Having a mentor would have a great benefit in speeding up your learning curve, but don’t expect it for free. Some you have to show your determination and some you have to pay.
2. Read a lot books to gain more knowledge and
3. Choose only one. Forex, options or futures. If you try to venture into all of them, you’ll end up confusing yourself.
4. Once you have started to gain more and more money, put some portion of them into lower risk, long term investment. Try to create some passive income.
5. Learn to minimize the risk by having a proper stop loss.
6. Do some mock trading such as online demo or pen & paper trading.
The bottom line is to be a successful trader; one must be prepared both emotionally and mentally. It is not something impossible. The only question is, are you prepared for it?
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