Have you ever wondered why 90 percent of traders lose money while trading. Did you know that almost 80 percent of traders quit in the first two years of unsuccessful trading.
The harsh reality is that trading is not easy and you as a trader must know exactly what you’re doing. If you want to stick around in the game for the long term. This is what I learned after trading the forex market for the past 10 years.
Overbought and oversold levels are not reliable in the long term
And if you stick with me a couple of minutes I will share with you my most important lessons I’ve learned so that you don’t make the same mistakes I did. The first lesson I’ve learned is that overbought and oversold levels are not reliable in the long term.
When I started trading I took the advice I read on different books about the overbought and oversold levels. And you know what the majority of books teach us that if a market reaches overboard levels meaning that there are too many new buyers on the market then the prices should go lower.
And if a market reaches oversold levels meaning that there are too many sellers on the market the prices should increase. After a lot of money lost I realized that that trading reality is that simply because a market which is overbought or oversold levels does not mean that the market prices will immediately reverse in the opposite direction.
During periods of strong got bought trends or downward trends the market’s going to remain in the overbought or oversold areas for days weeks or even months. Let’s look at this chart. Many traders believe that when the RSI or the stochastic indicator hits or exceeds values of 70 or 30 they should enter in the opposite direction.
That’s a wrong approach to what concerns these indicators. Sometimes the prices can stay a long time in overbought and oversold areas. And during this time they can continue to go higher or lower.
For every valid overbought or oversold signal offered by these indicators there are other 10 false signals in the longer run chasing overbought and oversold levels is not profitable. I have stopped watching these levels a long time ago and never looked back.
200 DMA only moving average needed on charts
Another lesson is that the 200 DMA was the only moving average I needed on my charts. Let me ask you if this sounds familiar your plot 5 or 6 indicators on the chart and after a bad week you remove those indicators and at others and the next week you repeat this process once again.
This wasn’t my style when I started trading my charts consisted of many indicators. Once I removed from my charts all the other indicators and moving averages and focused only on the 200 DMA my trading improved a lot.
The 200 DMA turned out to be very effective during trending periods and an important tool for identifying trends for establishing potential areas of dynamic support or resistance and even accurate entry points on the market.
Why is the 200 DMA story liable in the technical analysis. Well it is believed that many institutions like banks hedge funds for eggs dealers are following this indicator. If we take a look at this EMEA on any currency pair commodity or even crypto currencies we can immediately see its value.
Less is more
Another lesson was that the more trading won’t accurately predict how you will perform when trading with real money. There isn’t a simple and obvious. If there is no money on the line you eliminate one of the most important variables that affect our trading decisions.
The psychological pressure of risking real money if any of you perform extremely well when trading a demo account your results when you start to trade on a live account. My to do photo considerably so you should then why our strategy. Until you feel comfortable taking your signals Well I personally would not get focused on your demo account for too long.
Once you tested your strategy and managed to have positive returns on your demo open or micro account and trade there for a couple of months. Start small with few money and trade with cents instead of dollars.
Even if your trade would sense you wouldn’t feel the market much better than trading on a demo account.
Losing money is in fact a good thing.
As I said before trading is not easy and you should treat it as a learning experience. Losing money is very important for every trader’s development. It will teach you many things that you are not aware of.
Now don’t get me wrong. Losing is not fun and you will probably find it very unpleasant. While it’s not enjoyable to lose money while trading in the end you will learn more from taking a loss than from a winning trade.
The important thing when you lose money is to learn from this experience and not to do the same thing again. You get an education for that lost money and come out a little smarter in the future. Believe me once you learn an important lesson when losing money.
This prevents a much larger future loss another lesson was that you should trade a strategy that matches your personality. When I started trading I found an online course that was teaching scalping.
They claimed a high success rate and they tried to their approach for a couple of weeks. After that I was down 20 percent in my account. You see the key to successful trading is finding a strategy that works and that fits your personality.
The reason I was struggling with scalping was because I didn’t enjoy that fast paced trading style. I didn’t want to monitor the price action very closely and I didn’t want to sit all day in front of the screen even if they’re trading strategy worked.
It did not fit my personality so I end up losing a lot of money. My advice for you is to find your risk aversion your risk tolerance. You should look for the time frame that matches your trading style.
See if you are a day trader a swing trader a position trader or a scalper. Ask yourself if you are a technical trader or if you prefer fundamental setups.
Preserve your capital
Choose the indicators or other tools that you feel most comfortable trading with these simple elements will help you in establishing the strategy that will fit your personality. The final lesson was probably the most important one when I stopped thinking about the huge profits I could make and focused on preserving my capital.
I noticed a vast improvement in my trading results. Successful traders concentrated their efforts on how much money they could lose before thinking about how much money they could win. The key to making money over the long term from trading is simply staying in the game.
You need to preserve your capital so that you can stay in a game long enough to see your trading system reward you. When I started trading I had the gamblers mentality and I suspect a lot of you have this mentality too. I focused almost entirely on how much money I could win with almost no regard for losses.
When you start trading you should not ask yourself when I will become profitable. You should ask yourself how can I trade while preserving my capital and what should I do to live with my losses and be in the game one month one year from now.
So in order to be successful your forests need to become a break you wont trade the WTO being a break you one trader is that you protect your capital while gaining a market experience.
You don’t lose money. And guess what. You will be ahead over 90 percent of traders. Those were the most important lessons I’ve learned in the past 10 years. During my trading journey I have had my ups and downs. I’m still losing trades and I still have my doubts when taking the trade.
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