There are some aspects to trading that a lot of people don’t want to talk about. Especially, people trying to sell you expensive trading systems, some brokers, and other people who might have an interest in keeping some of the not-so-pretty parts of trading ‘under the covers’. Basically, not many other people in the mainstream Forex world are going to tell you many of the ‘ugly’ aspects of becoming a trader, so that’s a role I’ve decided to take on…
Today I want to share with you guys 7 things that no one ever told me when I began trading, and that I didn’t read on any Forex website. Indeed, the 7 points below are all things I figured out through good old trial and error, and in hopes of making your Forex trading journey a little smoother I’d like to share them with you now:
1: You don’t have to be exceptionally smart to trade successfully
Perhaps one of the biggest misconceptions that most people seem to have about professional traders is that they are ultra-smart Ivy-League math-wiz’s who have some super-human ability to make money in the markets. This is really not the case; in fact, many successful traders never even went to college or never finished, like myself, because being a successful trader takes a skill set that is not taught in most schools. In reality, being a successful trader is really more of a psychology-based skill than a technical or numbers-based skill like many people think. You don’t need a college degree to be a profitable trader, and you don’t need to understand calculus. What you really need is to make disciplined and patient trading a habit and a part of your daily trading routine.
So, don’t be overwhelmed by the endless amount of complicated trading systems and messy looking indicators that seem like something only Einstein could make sense of. You need to have emotional intelligence and the ability to control yourself in the presence of constant temptation, but you don’t need to be a mathematician, an economist or even a college graduate to be a successful forex trader.
2: Humans are not naturally good at trading
Whilst it is true that some people are naturally a little better at trading than others, it’s also true that the habits and mindset we need to consistently pull money out of the markets is not something anyone is born with. Basically, we come pre-wired to suck at trading.
Evolution has had a lot more time to have an effect on our more primitive ‘fight or flight’ brain areas than our more advanced brain areas which have evolved much more recently and are the ones we need to be good traders. When we have our real money on the line in the markets, our brains basically behave as if someone or some animal is about to steal all the food we just worked really hard to kill and bring back to the cave. Thus, when we lose that food (money) we get emotional, because we know that we have to work to make that food back AND we are still hungry. Now, in the caveman days, our primitive brain areas would serve us well by urging us to go back out into the woods and hunt another animal…or we will starve.
Fast forward thousands of years and here we are in the 21st century sitting at our computers trying to multiply our hard-earned money (food) by pushing buttons. We have really only lived in the age of computers and modern-technology for about 50 years or so, and electronic trading on the internet is much newer than that. So, the point is that our brains are basically sending us signals as if we are cavemen while we are trading, and this is the reason why we immediately jump back into the market after a loss or why we take bigger risks after we hit a big winner. To overcome this, we have to use our most advanced brain areas like the prefrontal cortex, which are more recently evolved and more adapted to the tasks of planning and holding off near-term temptations for larger longer-term gains.
The point is that it takes a conscious effort to do this, you can’t just think you’re going to ‘run and gun’ in the markets and have no plan or no logic behind what you’re doing. If you do trade in this manner, like a lot of traders, there’s almost a 100% chance that you’ll be operating off of those fight-or-flight brain areas instead of your more highly evolved brain areas which require conscious effort and ‘work’ to make use of.
3: Pro Traders Don’t Think In % Returns
One of the biggest ‘secrets’ of trading is that percent returns don’t really matter. Think about it, if someone tells you they made “100% on their account last year”, what does that really mean? It is not actually a relevant measure of trading performance because it could mean some amateur trader got lucky a few times and turned his $300 dollar account into a $600 account, or it could mean a professional trader followed his plan to the T and banged out a nice return at year’s end, also doubling his account. The point is this…percents don’t actually mean anything in the trading world because they are relative to too many other variables. Let me explain…
Professional traders are not typically reporting annual performance to a group of share holders; rather they are trading for profit on a month-to-month basis. They withdrawal money regularly and live off the profits…therefore their account balance is probably not a reflection of the cumulative profits they have made for that year, because they’ve taken a lot of profits out of the account. Essentially, pro traders don’t track their account value by how much ‘percent’ it is up because they take money out of it and the balance will fluctuate dramatically from month to month depending on profits and losses that occur.
In reality account size and % returns are very arbitrary in professional retail trading, the most important thing is overall risk reward…as in how much you risked vs. how much you gained, and that would be the truest measure of performance and a more genuine benchmark to compare one trader to another. Thus, professional traders are always thinking in terms of risk reward; how much money did I risk last month and how much money did I make?
4: It takes time to become a successful trader
You probably aren’t going to hear this one from anyone in the mainstream Forex world either. Most brokers and people selling “magic-bullet” Forex trading systems really want you to think that trading is easy and that soon you’ll be pulling a full-time income out of the markets.
I am not here to discourage you, because you CAN make money in the markets, I personally know quite a few traders who do, including myself. But, the ones that I know who make money in the markets were willing to put in the hours of trial and error to get to the ‘other side’. They were willing to fix their trading problems which very often meant ‘fixing’ their own mental problems that were preventing them from making money in the markets.
I believe that anyone can be a successful trader if they are willing to work for it. But you have to consciously put in the effort to only trade when your edge is present and to not risk more than you should per trade, and for many traders doing these things consistently is almost impossible.
Trading is not for everyone; even if you manage to make a living in the markets, it’s not a 9 to 5 job and you never know for sure how much you will make any given month, some people don’t like this uncertainty, actually most people don’t. This is why some traders try to set goals to make an exact dollar amount each month. But that’s not how the market works…you’ve got to trade to the best of your ability and take what profits you can get. Some months you might make a lot of money and some months you might just breakeven or lose a little bit as a pro trader.
5: Successful Forex trading should be somewhat boring
You probably won’t hear that a consistently profitable trader’s job is boring, because everyone just assumes it’s super awesome and filled with sports cars and a fast life-style. That isn’t always the case.
As a natural result of doing the things that it takes to trade successfully, like being disciplined, patient, having a trading plan, etc, you aren’t going to experience the high highs and low lows that many amateur traders experience on the way to blowing out their trading accounts. Instead, a pro trader is rarely surprised by any result in the market; win, lose or draw; they were prepared for any outcome because they had a plan before they entered.
I am not saying that being a professional trader isn’t fun or an awesome job and lifestyle; I’m just saying it’s quite different from what you might think. It should essentially be a non-emotional event if you are doing it right, like going to work each day. You don’t get super emotional at work every day do you? Once you reach a level where you have eliminated the emotions from your trading and you don’t feel your heart rate increasing when you enter a trade and you don’t get angry after a loss, you will be on the right track.
6: The more you ‘need’ to make money in the markets, the harder it becomes
Perhaps the best way to explain why many traders lose money over the long-run in the markets is because they put too much pressure on themselves to make it. One thing you need to come to grips with early on in your trading career is that it’s YOUR fault if you are losing money, not your brokers, not your trading buddy who told you to “buy the EURUSD because I’m sure it’s going up”…it’s all your fault if you lose money. The only person you are really in competition with in the market is YOU and more specifically, the mental variables flying around inside your head.
For most traders, they come into the markets because they think it’s an easy way to make some fast money, quit their jobs and live on the beach. Unfortunately, the reality is quite a bit different. The reality of trading is that it’s essentially a big paradox. By that I mean, the more you want and need to make money in the markets the less likely you are to do so. Whilst it’s OK to be passionate and enthusiastic about trading, for most traders they simply let those feelings influence their trading decisions too much. When you are excited about a trade, you’re emotional about it…you don’t want to wait 2 years and see your account grow at a respectable pace, instead you want to make exponential gains each week and watch your trading account make you rich. But, again, these feelings are actually causing you to lose money in the markets. You are putting too much pressure and ‘need’ on yourself, and this causes you to try and ‘force’ money from the market by trading too much and risking too much.
Instead, you have to take what the market is offering you, and if it’s not offering any good trading opportunities for a few days, or even for a week or two….THEN IT’S NOT. Just accept that the market is not going to provide you with a high-probability / obvious trade setup every single day, if it did then everyone would be rich. You’ve got to understand what I am telling you here…which is that the real ‘work’ and skill of being a great trader lies in sitting on your hands and having a very discerning eye and good timing for when to enter and when not to enter. Good traders also know that when in doubt, it’s always better to just not enter a trade.
You will make money faster by trading less frequently, because over the long-run your ability to use discretion in finding a high-probabiltiy price action trading strategy is going to get more and more refined and you’ll naturally filter out more and more potential trade setups, leaving behind the higher probability ones. But, until you have developed this discretionary trading skill to its fullest, you’ll have to err on the side of caution by not trading if you have any doubt about a particular setup.
7: You Don’t Need Fancy Software or Multiple Trading Screen Setups
Most trading websites are not going to tell you that you really don’t need fancy trading software or multiple trading screen setups to be successful in the markets. The fact is, you don’t need this stuff, and you can actually trade very successfully just from your laptop and a free charting program like metatrader 4. I personally trade from my laptop most of the time as I am on the go a lot and I travel often.
The most important tool in your trading arsenal is you, or more specifically your brain, not trading software, indicators, or multi-screen trading rooms. If you can manage to conquer yourself and your own mental mistakes that are causing you to lose money in the markets, you will be about 80% closer to making consistent money in the market. If you combine that self-mastery with a high-probability trading strategy like price action, you will have everything you need to become a successful trader. You can learn more about price action trading by taking my Forex price action trading course.
Good trading, Nial Fuller