When people first start trading, their dreams are usually to make a lot of money in a short time frame. They dream of becoming millionaires , owning Ferraris, living in penthouses and all that good stuff.
It usually takes a dose of huge losses to awaken people out of this euphoric state and put them in setting where there expectations are more realistic.
I have thus decided to share in this article some guidelines about how to think about trading before embarking on it, whether you are a beginner or an expert , I hope these thoughts would be helpful in some way.
Firstly, when you start trading it is imperative that you have a defined strategy that has a relatively high win rate for e.g. 60%. In other words 6 out of 10 trades are winning trades and the remaining 4 are losing trades.
Do not jump from strategy to strategy. Today you trade the news, tomorrow you are on to trading breakouts, the day after you are trading Fibonacci retracements. That would not work out in the long term because you are not giving each strategy enough sample sizes for the win/loss rate to play out. So remember, stick with one strategy when you first start out.
Secondly, realise that losing is part of trading. There are only four things that can happen to you when you trade. You will either make: Big Profit, Small Profit, Big Loss or Small Loss. Out of these four outcomes, which one would you like to eradicate?
Big Loss of Course. And that is one of the main secrets to trading successfully in the long term. Keep your losses small. Only risk 1-2% of your capital on each trade. Therefore you must be adequately capitalised. You cannot open an account with $1,000.00 and be risking only a maximum of $ 20.00 per trade and expect to make $500.00 on the trade. A good starting capital would be $ 10,000.00 but only risk a maximum of $200.00 per trade when setting your stop loss. With this risk, making $400 -$500 per trade is more realistic.
Thirdly, give it time. It would probably take you a couple of years of a consistent go at it to internalise the right trading principles and to overcome your emotions in trading. Nobody becomes an overnight success in trading. You need to put in the hours. Do not get carried away by advertisements promising you millions overnight. It takes work.
I hope this helps you in some way.
Guest Post by Atiku Audu
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