To become a trader you must be willing to learn. Only those with a thorough understanding of the underlying financial instruments can manipulate the markets. Therefore, you must do your homework and work diligently. Trading has many nuances and unwritten rules of thumb that take a long time to learn, especially if you don't have someone guiding you through the process.
The following is a general list of things I wish I had known before becoming a trader.
What I Wish I'd Known Before Becoming a Trader
1. I wish I'd known that leverage goes both ways
I thought I understood all of the risks before I became a trader. What I didn't understand, though, was that leverage goes both ways. It's true that if you use the right strategies, a small amount of capital can be leveraged into a large trading account. But if you make one mistake or find yourself in a down market, even a small account can get wiped out completely.
No matter how they trade, every trader has a story about seeing a market's enormous potential only to lose everything because they bought in too hard. Understanding that leverage works both ways is essential for trading success. The market has an infinite loss floor, but the ceiling can be just as high.
- Advice: Many beginner traders have no idea what it takes to succeed in the markets. My two most important pieces of advice to newbies are to use no more than 10x effective leverage and to trade only the best-known, lowest-risk, market-tested systems.
- Read: 4 Essential Risk Management Tips
2. I wish I'd known about the psychological aspect of trading
Every trader has to battle fear and have the mental discipline to keep on trading, despite knowing that the market is random. Most people fail because they do not have what it takes psychologically. Traders need to be confident, calm under pressure and have a level head when all around them are losing theirs.
Fear of Missing Out (FOMO) affects a lot of traders. When you first begin trading, don't expect to perform as well as an expert trader. One way to avoid FOMO is to open a demo account.
Don't open a live trading account if you're still learning the basics of trading. Instead, start mock trading to get more experience and skills because FOMO is a similar situation when you're losing an ongoing trade. It is critical to understand the psychology of trading. To protect yourself, develop the proper mindset and strategies.
- Advice: Success in trading comes from developing the habits of discipline and emotional control. Thousands of traders try to enter the market without having either. Creating these characteristics is no easy task, but as with any skill, repetition and carefully considerate practice are the keys.
- Read: The Ultimate Trading Mindset Checklist
3. I wish I'd known how much time it takes to learn
From the start, you can begin to see that it takes time, research and patience. The markets aren't easy to figure out. It took me days to realise what I wanted to do with my money and months to find the right trading strategy.
Trading appears to be chaos at first. There is a lot of talk about technical analysis, pivot points, support-resistance levels, and Bollinger Bands. You have no idea what forex pairs to trade, which indicators to use for which pairs, or where to find the most important news stories. Many traders do not even know if it is sufficient before they begin trading.
Before you start trading, prepare yourself for a learning curve. You will go through the same emotions as I did when I started trading, and a lot of it will be trying to make sense of what you are seeing relating to the charts and what they mean.
- Advice: Learn the rules and take your time doing so. One mistake people make is thinking they can start trading right away after extensive online training. On the contrary, it takes a thorough understanding of the interworld workings, coupled with genuine feeling, to make intelligent decisions. As I studied more, I became more capable of developing these instincts, but they only came with time and experience.
- Read: 5 Basic Things to Know About Forex Trading
4. I wish I'd known that I don't need a huge account to start trading
Before becoming a trader, I had no idea what it would cost to start trading. From many books and articles, I thought you need around $5000-$10,000. I then found out that is not the case! All you need is as low as $250 to jump in and begin trading!
Don't feel that you need to have a massive amount of capital to get started in trading. Set aside an amount that won't cause financial strain if it all gets sucked up in bad trades.
- Advice: Start small, but think big when you first open your account. I wouldn't have grown if I hadn't built a process and stuck with it. My strategy today has evolved, but the fundamentals remain the same.
- Read: How to Start Trading with No Money
5. I wish I'd known that trading won't make me an instant millionaire
Most beginning traders have visions of trading to get rich quickly, which is why they start trading. I'm not saying you won't become wealthy by trading, but I am saying that you shouldn't expect to become a millionaire overnight. In fact, it could take years, if ever. However, I can promise you that if you are passionate and have a nose for money, trading is the best way to make money while doing something you love.
- Advice: Instead of trying to make money all the time, focus on the performance of your trades. The journey has been much more enjoyable because the emphasis has been on trading well and making sound decisions rather than trying to make a lot of money. Learn to be patient and take things slowly at first. There is no doubt that forex trading is a tricky business. Day trading requires hours of work to execute a trade successfully, but the rewards are well worth the effort for those who take the time to learn and apply it correctly. One of the first things I learned was that effort in = results out. Determine the amount of effort required, then focus on implementing it correctly in your daily routine.
- Read: How to Grow a Small Forex Account