5 Things You NEED to Know Before Trading Forex Live
You just hit another nice winner on your demo account ….it’s been about 3 months now and you feel confident that your ready to make the jump to trading a real live account. You feel ready to try your hand at live trading, yet questions and doubts still linger in your mind….
From all the emails I answer every week, I know for a fact that most traders begin trading live well before they are ready, and there’s a good chance you are guilty of this too (I know I was back when I started). But how can you know “for sure” if you’re ready to start risking real money in the markets or not? Well, unfortunately there is no 100% sure-fire way to know if you are ready to trade live or not, but there are some things that you can do to be prepared for live-account trading and there are definitely some things you NEED to know before trading live…
We tell ourselves all kinds of things that convince us it’s OK to start risking our money in the markets; it’s pretty easy to justify something to yourself if you really want it bad enough.
There’s a fine line between logic and emotion that causes many traders to trade live before they are truly ready. Today’s lesson is going to discuss 5 logic-based things you REALLY need to know before you start risking your hard-earned money in the markets, I hope what you read below will save you money, time and stress:
Be aware of your biology
Humans are wired to be less risk averse after winning and more risk averse after losing; in other words, we are basically wired by evolution to be bad at trading. In reality, how risky you feel the market is should not change very much from one trade to the next. For example, after wining 5 trades in a row most people will feel quite a bit more “numb” to the fact that the next trade could be a loser. Conversely, if you lose 5 trades in a row your perception of risk on the next trade is typically going to be a lot higher than it should be, so much so that you might risk a lot less than normal or possibly even be too afraid to enter a perfectly good setup.
What you have to realize is that for any given trading strategy or system there’s a random distribution of winners and losers. If you have found over time that you can win 55% of the time with your trading strategy, that means you’re going to lose 45% of the time…and you never know which trade is going to be a winner and which will be a loser…because they are randomly distributed. So, whilst you might have an entry method in the market that gives you the ability to profit over a series of trades, you cannot fall into the trap of thinking that you “know for sure” what is going to happen on your next trade. It’s this mentality that causes traders to become too confident after a few winners and risk more than they normally would and then….bam!; they hit a loser whilst their risk is ratcheted up to 2 or 3 times its normal amount. It doesn’t take too much to see how this can affect your trading…you hit a loser while risking too much because you were over-confident, then you get angry that you lost more than you normally do so you try to “make it back” and you dive right back in even though your entry strategy is not present… until you’ve blown your trading account.
What’s the fix?
The fix for our evolution-generated trading “handicaps”, is to first just accept that we were born pre-wired to be less concerned with risk after winning and over-concerned with risk after losing. If you don’t believe me about this “wiring” problem then check out this video and article by John Coates who is a former Wall Street trader, Deutsche bank trader and an author: Is Biology to Blame?
Once you’ve accepted your biological trading faults, you can start to work on overcoming them simply by being realistic, logical and disciplined. But, it’s CRITICAL that you are aware of your biological trading issues before you start trading live, because it’s very hard to detect them whilst trading live and especially if no one has informed you of them. It really just comes down to you being consciously aware of what you are doing in the markets all the time, always ask yourself if what you are about to do is an emotion-based decision or a logic-based decision.
Make sure you want to be a trader because you really love trading
On the surface, trading seems deceptively easy, but it really takes someone with a strong passion and interest to excel at it. You’ve got to be able to become immune to losing and be able to be disciplined and patient…many people simply cannot do these things very easily. Before you start risking your hard-earned money in the markets, you have to sit down and honestly ask yourself how well you think you will operate in a world of constant temptation? Are you someone who can look temptation in the eye and ignore it? If not, you might have trouble with over-trading and risking too much per trade.
Do you have patience enough to wait for your trading strategy to show itself before you trade? Are you disciplined? These things are not impossible for you to attain, but some people have an easier time with them than others. If you have enough passion and desire to become a successful trader you can work through whatever psychological traits you have working against you. However, if you’re just looking for some “easy money” and you don’t want to fix whatever psychological / mental problems you have that are interfering with your trading, you should probably forget about trading and move on to something else.
All brokers (and charting platforms) are not created equal
Unfortunately, all brokers are not created equal in the Forex world. Many brokers do not offer the most pertinent charts for you to make your trading decisions from. For many beginning traders, the fact that they might be looking at charts that aren’t as accurate or relevant as they could be does not even occur to them. Again, this is something that you NEED to know before trading live but that you won’t read on most other trading websites. So, that’s why I’m telling you…you NEED a broker who offers New York close charts that have 5 daily bars per week instead of 6, here’s why:
The New York close coincides with the end of the current Forex trading day and the start of the new one which occurs at 5pm NY time as New Zealand / Australia and Asia trading gets underway. The New York close charts also reflect the close of the 2nd heaviest Forex trading session which is the New York session.
Closing prices are the most important in any market, as they reflect who won the battle between the bulls and bears that day, and because daily chart trading strategies are so critical for all beginning traders to learn, we need to see the most accurate and relevant daily chart closing price. Also, it’s important to have 5-daily bars, not 6, as the Sunday bar should be included with the Monday bar since there is no actual “Sunday” trading at any of the world’s major financial centers.
Learn To Use The Trading Platform First
Another important part about trading platforms is that BEFORE you trade live you NEED to demo trade the platform you will use to trade live with. You need to get familiar with how the platform functions, how to execute trades and how to set up the charts for your analysis etc…you don’t want to lose money simply because you didn’t take the time to learn how your trading platform works. For those of you who need help with setting up your MT4 platform correctly, you can read the detailed tutorial I wrote recently: How to set up your MT4 charts.
Successful trading is not about being “right” or having high winning percentages
Many beginning traders think that they have to try and win every trade to be profitable. However, this really could not be farther from the truth. For some traders it becomes an ego thing in regards to losing trades; they think they are “smarter” or “better” than most other traders or that they have some special ability to analyze the markets that no one else has. This causes them to get too concerned with winning percentages and they try to have as few losing trades as possible.
The key to success in the market is not about having a small amount of losing trades, it’s about minimizing the losing trades you do have; keeping them contained. Trading success depends more on capital preservation and risk management skills than anything else: if you can manage to maintain all your losers at 1R (see previous “risk management” link if you don’t know what “1R” means) or less and only trade when your entry technique is really present, you will be putting yourself ahead of many traders. All you need to do then is combine your risk management ability with a high-probability trading strategy like my price action strategies, and trade it with discipline, and you’ll have a recipe for success.
Once you begin to focus on controlling your risk and on maintaining your losses instead of avoiding them, you will truly be on the road to trading success. This is called being a “risk manager” and this is a much more useful way to think of yourself instead of a “trader” or “speculator”. The underlying point here is that you don’t need to be “right” or have a high winning percentage to make money as a trader, to see the math behind this checkout last week’s article on how to remove fear from your trading.
If you can’t easily explain your trading strategy to a ten year old, it’s too complicated
Before you start trading live you need to make sure that you know what you’re doing. Before I sign off today, I’m going to leave you guys with some “must haves” before trading live. If you do not have the following things then I STRONGLY suggest you stay on demo until you do:
1) A trading strategy that’s not too complicated and that you can easily explain to a 10 year old kid. Price action trading obviously fits the bill here, I’ve been trading with price action strategies for years and it really is the most stress-free way to trade. If someone asks me about my trading strategy I can easily explain it to them by just explaining simple price dynamics in the market; I don’t need to talk about indicators, trading software, complicated math, Elliot waves or anything else that’s too complicated for its own good.
2) A trading plan you’ve built from the trading strategy you’ve mastered. I know it’s cliché and I know you might be thinking you don’t really need a written out or typed out trading plan, but you do. Even if your trading plan is to do a weekly or daily market commentary like I do, that is a lot better than many traders who have no plan whatsoever. You need to consolidate your thoughts and overall trading strategy into a daily guide of sorts, that way you are prepared and this helps you to trade off logic rather than emotion.
3) A trading journal to track your progress. A simple spread sheet journal is fine; it doesn’t have to be complicated. You just need a journal to track your progress over time, if you need a template for one then see this link on trading journals. A journal will help to show you how discipline and patience pay off over time and this will reinforce positive trading habits. It’s also a must to have an accurate track record if you want anyone to give you funds to trade with down the road.
4) Take points 1 to 3 and demo trade with them until you’re confident and seeing consistent profits on your demo account. Some people will only need a month of demo trading, some might need 6 months; every trader is different. The point is that you are taking your trading strategy and practicing it on a demo account before you go live. It always amazes me how so many traders just ignore demo trading and begin trading live as soon as they feel like they know a thing or two about the markets. Don’t be fooled, if you aren’t prepared you WILL lose money, and losing money is equal to losing time, and time is precious as we all know, so do what you can to avoid losing it unnecessarily. You will have losing trades no matter what, but the goal of trading is to minimize them; not to avoid them. You minimize them by being prepared.
Maybe you realized after reading today’s lesson that you shouldn’t be trading live, in which case, stop now and go back to demo. Maybe you haven’t yet traded live and you are still getting prepared, in that case I trust this article helped you a lot too. Whatever the case, leave your comments below, I want to hear your thoughts.
If you enjoyed this lesson and want to learn more about developing the strategies and skills required to trade live with confidence, checkout my Forex trading course here. If you have any questions, feel free to contact me here.
63 Comments Leave a Comment
thank you some much you have made an impact,
I am thankful to Bro Nial for all the simple and outstanding lesson, very helpful and as an Asian, i believe you have make so much good carma in this life as your profession and your willingness to help newbie trader…. Thank you and God Bless you….!
Hello my loved one! I wish to say that this post is awesome,
great written and come with approximately all vital infos.
I would like to look extra posts like this .
If you have money to burn, trade real money off the cuff. I tried that since 1999. Rather send me the money. You are going to lose it anyway! I remember my first live trade back then. Pressed the button, started sweating and lost. First thought: “You are no good at this” Gave it up for six months and tried again. Same thing. Less sweat but still lost the first trade. Back to square one.
Discipline, know your rules and boundaries and wham! Ego and lack of patience are some of your biggest enemies. Go and play golf and learn not to get upset after a very bad shot and you are half way there to trading without emotion.
Very nice article
You are such a Mentor.,I blew my $2000 account in a month within my first three months of FX trading a year back., I found all my odds in your articles and it is a fantastic Forex world today. Long Live Good Teacher, and God Bless..
Am new and i am really intrested in forex trading, what shall i do?
Thanks Nial for this eye opening article..This is a good preparation for people like me who is just about to start trading..Though I have been gaining in my demo account, I realized I need to educate myself more on Forex and practice it in my demo account…Your website is loaded with information….Thanks for sharing…
Sincerely speaking u are d best forex teacher i ever come across escept who didint listeen or come accros ur blog, right now as im comending u, im trading one of ur price action which is false brake on gbpusd buy signal since 30th till today 31st which is still fetching me money i hve got 80 pips alredy with trail stop and ive try many of ur price actions all perfect though on demo. THANKS 4 saving my soul from d hand of brokers, U are fantastic.
I used to focus a lot abut winning and winning. When I have a lost trade, I beat myself up. But over time, I have learn that losing is part of the game.
And there is this thing called random distribution. I learned.
I used to do very well in demo but failed in Live. I realized it is fear and the wrong lot sizing. Now, I m getting better because I never give up and still trading and testing after all these years!!!
Thanks Nial for this great article.
Hi Nial….I really like almost all your article.
I’ve been reading all your articles once I get notification in my email….almost 2 years now, and it gives me lots of positive thought about Price Action and its simplicity….stress free trading method I’m looking for few years ago.
In this article, I agree with you. Most of new/novice trader don’t want to learn in the right way as pro traders (like you Nial) do. They just want to get short cut to get success in forex trading (like I was, few years ago) and they want to get rich in short period of time without thinking and doing risk management well. Good setup without proper Money Management will get bad result or the worst thing is loss all your money or margin call will comes.
Minimize the risk and maximize profit is the smart choice. I managed to trade when I get 1:3R setup shown up on the chart. Even though it’s not appear every day, but I can get low risk and more profitable trade. I trade almost all major pairs and metals now using Price Action method only and it has made my account growing 100% within a year now, not a bad result for me…:D
Keep writing good article Nial, I’d love to read it to give me more spirit and make me enjoy my trade. I Love Being a Trader
Hi Nial, this is a well explained and truly a great article. Thanks.
Fantastic Article ! share more such article, thanks for your post
Extremely helpful article! Thank you!
I have fixed daily targets for this year’s resolution. One of the target is reading Nial’s article one per day. Reading again and again gives mental strength to me.
Thanks a lot.
I think my contrary opinion on learning on demo account is
tied to my BIOLOGY FOR TRADING[your no. 1 point]
Once again, a generous free gift to all.
I agree with you except on the issue of
Demo Account. Personally I found it
difficult to internalise/remember any
thing I do on Demo Account.What I do is to
open Cent account and trade on 1 cent lot
I wish all your readers would take your
write-ups seriously as if we paid for it.
Appreciate sharing your insight! Thanks
Thanks Nial, great article. I started with real money straight away blow my account within a month and I did exactly the same mistakes as you mention in your article. I wish I knew about your website when I started.
Bullseye again..l agree with the write up hundred percent..started trading live ,after some forex seminar about 5rs back…well you knw the rest!!even after trading demo,l thought l was ready,went back to live account,de ja vu !blew my account and friends too..until l came across Nials price action,only then, was the psychological and emotional problems addressed,..now l am a better trader,who only waits for the market to present me my defined edge and besides the previlage of interacting with others who are being mentored,so he who walks with the wise shall become wise,l beleive the same principle goes for forex trading ..Tnx Nial,coming accross you and your teachings was one of the best decisions l took in 2012..in 2013,surely there will be a lot of night rest and no high blood pressures..cheers!!
After trading a demo account for six months, I’ve had a $10K live account for just over three weeks. I lost my first three trades, broke even on the fourth, and and brought my account back to break even on the fifth. I rode an emotional roller coaster, but stuck to my guns, made my trades and walked away, except for the fourth trade. In the end (of a very early beginning) I am where I started. I am beginning to understand things that my mind hid from me in the recent past. I know that sounds odd, but that’s the only way I can explain it. I am beginning to see a philosophical shift in my thinking, and I’m hoping that that is a positive. All in all, it’s been a great undertaking, and as a member of this site, it’s been a privilege to learn from Nial. Thanks you!
Thanks again for the great article
Thanks Nial, excellent job! I have been trading for about 2 years now! My first 20 months was with a FOREX training and trading company. This gave me the foundations and more, but it ended up being too complicated – Eliot Waves, lots of fundamental analysis and indicators etc………..many hours a week spent confusing myself – contradictory prices / news / action……….Nial, you came along just at the right time. Keeping it simple and trading price action is a huge breath of fresh air, I feel confident again. Many thanks again Nial.
Its really useful articles for beginner like me…
I’m glad you mentioned to beware unecessary indicators & Elliot Wave rubbish early in this very well thought out article.If only I had come across your brilliant training methods earlier,I could have saved a heap of hard-earned & become a profitable trader a lot sooner!!!!!!!!!
Demo trading has no pschological input in your trading, no fears, greed , hope in your interraction with the market.Good strategy plus your ability to manage these emotions when trading live makes you a winner. Therfore demo trading is only 50% usefull.
Great Article Nial. A big insight..Thanks
everything checked out. I’m ready!!!!
you make it very simple and I like it, I have read so far all your lessons and have been demo trading for nearly 6 months and will keep doing it until january 2014, so far I’am being profitable and have been hit by the winner effect but thanks to your many lessons I have been watching myself and my thoughts, without all those lessons I’d probably be trading real money and losing it…. you are a legend, keep doing it please
CHYNADO. I have been trading for a few years now and do okay. A MM rule I have made for myself (based on personal trade experience) is I will only trade 0.1 lot / 2500usd in my trading account! Yes small trades only. However I can still make anywhere between 10 – 20% month trading this way.
Now with live account building my own plan based 90% in Nail advises. Have couple of months only and 300 usd funds,brake even right now. But I”ll be a excellent risk manager and trader.
Just What I needed – thanks Nial
just wanted to thank you again for your input.
I’ve got a demo trial with a Fund Management firm
thet want to see a 4% profit in a month.
With my own demo account
I’ve made a 7% return so far this month, so i should be abel to do this.
But i must admit that i’m a little bit apprehensive about the 4 weeks ahead.
i’f i get this right i could be live trading a good amount of money for the firm and making a good profit.
I take your advice seriously, and am only trading on the daily bar, no indicators and price action and resistance and support levels key.
Thank you so much for your articles and videos, a great help here
All the best
Just great Nial!,
I have nothing to add, all to learn, all to remember and repeat, . Slowly i´m opening my eyes in the tunnel of forex!Hoping one day i´ll become a good and conscious “risk manager”.
all i can say is thank you!
Thanks nial, your quite a motivation. @ CHYNADO, i advise you stick to 0.1 Risking too much has more disadvantages when it strikes.
Thanks Nial. I take it that you are a young man, but you have a wealth of knowledge and simplicity in explaining your system.
Only if you knew how helpful you’ve been, Thanks
Great article & thanks.
I think if you go live before practicing on a demo acc you are simply going to be gambling. You’ve already started on the wrong foot-you don’t have the patience to learn…
Thanks Nial….for such a good article…pls reply after how much month of practicing a good plan it should be used in live account ?
Thanks Nial for another “BIG HELPER” lesson! I truly look forward to this every Friday!
Very good article for novice trader
That`s true, but Ilike more accurarate trading journal (with risk rewar ratio- planed and achieved, discribing reasons for entering/exiting, ect. And I think that emotions are different on demo acc. or live acc.
Tnx Nial, to remind me on some important aspects which I may forget from time to time or neglect.
I agree with Frankie! The best way is to start trading from the word go. Demo accounts are a total waste of time because they leave out the phsychological effects of risk. Once a newbie has taken a loss (small hopefully) they will feel very motivated to learn all the can on how to improve their trading!
Thank you for reminding us over and over again to be a patient trader. I started getting into FOREX last year but unfortunately, I set so many goals for 2012 and had to drop out on FOREX trading.
I am now back into studying the course and started trading in the demo account.I will make sure I am 100% confident before trading live again.
Thank you sir..
Good useful lovely information as usual.
Great as always!
I can let you know that I am profitable now since a few months back.
2-3 months before that, I could also take the right setups, but when I was winning I started take to big trades and made some huge losses, that started the need to try to “get the money back”. Then suddenly I was down at half my account (or less).
So as it is now, I am very strictly to have the same risk in dollar on every trade, and also only one trade at the time even if several pairs shows nice PA.
It helps very much to read that the problems that you have to go through isn’t something unique for me.
Now I just hope that I am able to continue like this, I sure feel that I am on the right track.
very good article nial
Hello I do NOT agree with this I think you trade straight away with a real account. Why! Because then you feel real emotions of trading, if you start of with trading in the beginning will it be all of emotions. But start with a small account for 100 Euro,Find your own edged I think you will get quicker ahead. I am not saying that Nail is wrong, but this it just different approach.
Frankie, I respect your views on this, however I have seen ‘way too many’ novice traders move onto a live trading account way too soon and start losing money. This creates lots of emotional problems and possibly financial problems for the novice trader. I think a novice trader should trade demo for some period of time. I guess we will have to disagree on that point.
Thanks Nial much appreciated.
Great and useful article. Thank you
ok. thanks, my man.
Nial, pls can i use 0.5 lot for small account of $300 USD or should i continue on 0.1?thanks.
you need to only trade what size position you are comfortable with. Make sure you can sleep at night :)
Nial you are absolutely uncanny with some of the articles, the
timing scares me. I ask myself how does he know that I just
made my first live trade not but a few minutes ago.
Thanks for a good read.
Thanks, Nial my man. am not yet successful but am on to it. am gradually building my account and i found out that EUR/USD is the best among others. am using 1:3R now, though my lot is very small (0.1), is working out gradually. thanks always. All your articles have been very helpful to me. thanks, man. am grateful.
Ok…but then why don’t we use a chart which has the highest trading volume which is the London market? Or there is no London close chart?
Hey Kamil. It makes no sense having a chart closing in London, that is only ‘mid way through the trading session’. The idea behind New York Close Charts is that the forex market opens and closes at the end of New York Trading (the day rolls over at that time). The shape of the NYC chart is important to price action trading analysis.
thanks For Your Article, that is useful article.