Subscribe
Apple | Google | Spotify | Stitcher | Soundcloud | YouTube
In today’s episode, you’ll discover my top 7 advice for new traders who are just starting out.
So tune in now…
Resources
The 7 Biggest Reasons Why Traders Fail
How to be a Profitable Trader Within the Next 180 Days (Even if You’re New to Trading)
Forex Risk Management and Position Sizing (The Complete Guide)
Transcript
Hey, hey what’s up my friend?
In today’s episode, I want to share with you my top 7 advice for new traders.
In other words, if I were to start trading all over again, I would tell myself these 7 things.
1. Trading is not a get-rich-quick scheme
Trading is not meant to replace your day job immediately because trading is a profession, just like being a lawyer, a doctor, or an engineer as a profession.
If you want to make money this month, like now, would you be thinking…
“Oh, man, I need to generate some income, let me be a doctor now.” Doesn’t make sense.
“Oh man, I need to put food on the table and pay my bills, let me be a lawyer now.” That’s crap.
But when it comes to trading, people go, “I need to make some profits to pay my mortgage, let me set up an online brokerage account and be a trader now.” Can you see where I’m coming from?
Trading is a profession, it’s not a get-rich-quick scheme. You’re not going to make millions or even thousands over a few weeks, not to mention overnight. It takes time to master your craft – it takes years. So forget about all the get-rich-quick fantasies that you have.
Moving on…
2. Don’t hop from one trading system to another
By now you should know, there are winners and losers in trading because you’re dealing with probabilities. You don’t want to hop from one system to the next because you must have a large sample size of trades before you can come up with anything conclusive.
When your sample size is too small, the results are pretty much random. For example, let’s say I give you a special coin. Whenever it comes up heads, you make $2. But whenever it comes up tails you lose $1. Let’s say you toss the coin 4 times.
Are you guaranteed to make money based on the 4 tosses of the coins? Yes, you have a positive expectancy and an edge for this coin toss. But based on 4 tosses, there’s no guarantee that you’ll make money. Because the sample size of 4 coin tosses is too small.
You probably need to toss 100 or even 1000 times to be pretty sure you’ll make money, provided you have an edge in the coin toss. And this is the same as trading.
You might have a trading system that works. But if you only traded 4 or 5 times then after a few losers, you claimed it doesn’t work, then you’re only getting fooled by randomness.
So don’t hop from one trading system to the next. You got to dedicate yourself to it. Generate a decent sample size before you come up with anything conclusive as to whether that system works or not so you won’t be fooled by randomness.
Next…
3. You must have a planned exit for every trade
Many times, traders just focus on the entry, the pattern, the signal. And they kind of ignore the exits. But guess what? The exit is the one that determines whether you’re going to end up with profits or not.
You can buy at the most favourable price. But if you don’t know when to exit, then you’ll watch the market move in your favour and then go against you until you get stopped out.
So focus on the exit as well, not just your entries. The exit is important.
4. You must limit your loss to a fraction of your trading capital
This is especially for those of you who trade leveraged products like forex and futures. You want to make sure that every loss that you take is only a fraction of your capital. I usually recommend a loss of not more than 1% of your trading capital on each trade.
The reason is simple. When your losses are like an ant bite, you can take 10 or 15 losses in a row, that’s fine. Your account is not going to blow up and it can still sustain that series of losses.
Eventually, when the market is back in your favour, you’ll overcome those losses that you’ve sustained. But if you are risking 10% or 20% on each trade where each loss costs you 20% of your account, it’s only a matter of time before your account gets wiped out.
Whenever you put on a trade, if that trade turns into a loss, it should not be more than 1% of your capital. I know some of you don’t have a large trading account so the loss might be 2% or 3%. But you get where I’m coming from.
5. Your entry is only a small part of the equation
Earlier, I had emphasized on the exits and that many traders are obsessed with the entries, the patterns, the signals, etc. But remember, your entry is only one part of the equation.
You still have to consider things like:
- How much are you willing to lose?
- Where will you exit your trade if you’re wrong?
- Where will you exit your trade if you’re right?
- How will you manage your trades?
- Which markets will you be trading?
- What timeframe will you be trading?
There’s are lots of questions to consider before you put on a trade, not just your entry. your entry is only one small part of the equation. Your entry alone will not make you a profitable trader. There are other factors at play, don’t neglect those other factors as well.
I know the entry is a sexy part because after you put on the trade, that’s where you’ll find out shortly whether you’ll make money or not. But if you want to be a consistently profitable trader, your entry is only one small part of the equation. Don’t forget that.
6. Your earlier years are for learning
Your profit will come later. In other words, give yourself time to master trading as a craft. Give it a few years, 3 to 4 years, don’t expect to make money next week, next month, or next year.
Because again, like doctors, lawyers or engineers, they take years to be competent with their craft and if you treat yourself as a professional trader, you’ll give yourself the ample time to be competent in trading.
Unless you’re short-sighted or driven by the wrong reasons, then you’re pretty much setting up yourself to fail.
And finally…
7. Focus on the concept
Don’t focus on the strategies, the tactics, the indicators, the parameters, the settings or whatsoever. That took me a long time to figure out. Because if you find a proven trading concept that works, you can build multiple trading strategies from it.
For example, trend following is a proven concept that works and you’ll make money when the markets are trending. So you can develop medium-term or long term trend following system. You can develop a trend following system that trades across different markets.
But if you focus only on that strategy without knowing the concept behind it, then if the concept behind the strategy is wrong, no matter how you adjust or fix that strategy, it’s not going to work because it’s based on a wrong trading concept.
There are concepts like trend following, mean reversion trading. Focus on the concepts that work and understand why it works. And then from there, you’ll develop trading strategies around it.
Now you have a much higher chance of building something that actually works. Make sense?
With that said, here’s a quick recap of the top 7 advice that I have for new traders.
Recap
- You’re not gonna get rich quick, so don’t fool yourself.
- Don’t hop from one system to the next.
- Always have a plan for exit especially if the market moves against you.
- Risk a fraction of your capital. So if you sustained a loss, it’ll only be a fraction of your trading account.
- Entry is only one part of the equation. Don’t forget the other factors as well.
- Early years are for learning.
- Focus on the concept, not the strategy, the system, the indicator.
That’s it. I wish you good luck and good trading. Until next time.