5 essential elements that will improve your trading
Forex statistics are scary! As much as 95% of traders lose their money…
So let’s consider whether each of them can be called a trader? Analyzing entries on forums, discussion groups, observing the level of discussion of anonymous “users” we conclude that the vast majority of market participants are not well prepared. So how to prepare well for trading? How long does it take? How much does it cost?
We will try to briefly describe the evolution we have gone through, referring to our eight years of experience in the difficult currency market. We will present five essential elements that have changed our trading, our approach to this profession. They are a kind of ready-made recipe that you can duplicate, first of all:
- Avoid the mistakes we made,
- Shorten the period of preparation for this profession.
1. Technical analysis above all!
When answering a question like “how to make money in forex” we answer to find one recurring pattern in the market, identify the currency pair on which the structure occurs most often, and “play” it at least 50 times to see what result you get.
The process of such testing is laborious and unfortunately lengthy, as selecting the appropriate layouts is not a simple task. It is directly connected with the necessity to choose the right structures, formations and market approach. We are, of course, talking about the constant dependencies occurring on the chart, i.e. the widely understood Technical Analysis.
In our opinion, this is the basic element, which should be studied, properly known, and consequently understand why certain formations are visible on the market, on what principle the self-repeatability of appearing objects works, and most of all to answer the question: how to make money on it?
Probably the most common problem of a novice investor is the sheer faith in what he learns, what he gets to know – so that in a short time he can use it on the real market, opening real transactions. The problem is very complex, because “in history everything seems so simple”, and when making real transactions we need enough time to “feel the effect”. – and it is the time element in this whole puzzle that is the most difficult. Why is this the case?
For several reasons:
- Having a lot of time at our disposal we observe the market non-stop, and the worst moments are when our position brings neither profit nor loss.
- When entering a position we usually try to look for many confirmations, which will convince us that our choice is correct.
- We want to be right at all costs and we try to prove it to the market…
Each of these points is equally important, because if we have too much time and get too impatient, a very dangerous process of “combining” begins, which consists in constant improvement, correcting our previous assumptions. Then we look for a countless number of confirmations, we usually try to “forcefully” speed up the waiting process to earn as much as possible in the shortest time. Only this is the illusion on the market…
From the Fibonacci Team’s trading experience, it is clear that:
- The timing of a deal is important, but it is not the most important. What matters is the timing of the market entry.
- The timing of a trade depends on the currency pair on which you are speculating. Some stocks remain in “boring” market consolidation for more than 80% of the time. But we know that it pays to wait for this 20%…
- The harmonic system that worked in 2008 on the EURUSD will work again today, provided that we consistently invest under it, maintaining the appropriate principles of Money Management.
After all these years spent on the market, we have concluded that the most important element of Technical Analysis is not a pattern or a recurrence, but the belief that it will work again, and that we will make money on it!
For a long time we have also tried to explain logically why using Fibonacci tools one can estimate even more precisely certain geometric structures, which not only appear more often, but are also easier to play. For several years now we have not been thinking about it, but have been consistently following our strategy consisting of a dozen or so fixed patterns that we observe on the market every day.
2. Adequate capital in the beginning
Taking the subject of trading seriously, we should have a sufficient amount of cash assets at our disposal, which we are able to allocate to the broker so that we can freely use this cash.
The question of scale is very important because we will operate differently on the account if we have $100 and if we have $100,000:
- If we achieve a rate of return of 5% per month, it will be “only” $5 in the first variant.
- If we get the same 5%, but from the amount of $100,000, it will be already $5,000. The amount exceeding PLN 15 000, which is our salary, gives much more opportunities in relation to the symbolic $5.
However, keep in mind that the higher the amount, the more exciting the trading is, so the iron rules of position management and risk management are essential in this profession.
The key to success in FX is to determine the monthly real returns that you are able to generate using your strategy. With us, it is a bit different because our monthly target is set in pips and it is one of our assumptions, closely related to the Fibonacci Team’s trading philosophy.
This result translates directly into the final result. Every day in the market we know how much we have contributed to the final result because it is easy to calculate.
Conclusion: on the forex market we trade for pips!
3. A good lead can be invaluable…
In this case, however, we are not talking about position management but… mentoring. Starting real trading without good preparation can be painful not only financially but also psychologically. The foreign exchange market is one of the most volatile and difficult investment markets. If someone claims otherwise, they either haven’t invested a real dollar or… are trying to sell you something. The statistics we mentioned at the beginning, although somewhat inflated in our opinion, do not change the fact that there are far fewer investors making money on the currency market. However, this is not because Forex is so difficult that it is impossible to learn how to invest. Such thinking would be completely wrong and completely inconsistent with reality. The problem lies somewhere else. Namely, the Forex market requires time.
Learning to trade is not just reading books and copying patterns. Successful and profitable trading comes primarily from experience. Every situation is different. Each pattern develops under specific economic and technical conditions. On the one hand, we look for repetition, on the other hand, we must remember that each of these repetitive patterns is in some way unique. The only experience gained through practical observation will allow us to fully understand the nature of the market and individual instruments. It may take many months or even years to gain the experience that will allow you to systematically earn money. Unfortunately, many aspiring traders do not stand the pressure and leave the market before understanding its mechanics and nature (hence the statistics!).
Is there any way to speed up the education process? As the famous saying goes – if you want to get somewhere, it is best to find someone who has already gotten there. So, if we have a trader in our circle who will agree to be our mentor, it will be a great help, which can significantly contribute to shortening our path towards successful trading. Mentoring not only allows you to benefit from the knowledge and experience of a person who has gone through all the stages of evolution of a trader but also helps you save time, money and avoid any unnecessary mistakes. If we can learn from the mistakes of others, we should fearlessly take advantage of this opportunity! Regardless of whether we learn investments by ourselves or with the help of more experienced traders, we should always keep in mind the most desired traits by the market: persistence, patience, and determination.
4. comfortable strategy. Efficiency vs. R: R.
Choosing the right trading methodology is one of the most important factors for trading success. Moreover, using the right tools is not enough here. In addition to a specific trading technique, the style also means an investment time horizon and a precise trading plan that includes elements of capital and position management. The trading strategy should be adjusted to our time frame and be consistent with our psychological profile. We should consider what situations we are able to allow in our trading, and which ones may cause a chain of errors and lead to a loss of capital.
A very important and very rarely discussed element in the context of Forex trading is mental comfort. Defining a rational and acceptable framework for our behavior allows us to trade comfortably, which in turn affects the effectiveness of our decisions and, as a result, translates into results. Some traders are comfortable with high trading efficiency and closing trades in short but reliable ranges (e.g. scalpers), others are more comfortable with a high risk-reward ratio and the awareness that each profitable trade is many times bigger than the sum of possible losses from previous positions. There is no single, universal style that is comfortable and suitable for everyone because every trader is different. This, in turn, requires some modification of the commonly accepted trading techniques and individualization of the chosen approach.
5. Timing has big eyes
One of the most common mistakes is expecting absolute market precision in the formation of structures and execution of ranges. When making analyses on the basis of the strategy developed by us, we like to become paranoid, waiting for the perfect moment to enter into transactions. Not only did the market draw a harmonic pattern, confirm it with internal geometry and the location of turning point “D” in the area of strong support/resistance, but at the very top, it formed meaningful candlestick formations on lower time differentials. So we are in the turning zone and plan to open a trade in line with the trend. However, the market is dynamic and does not give us much time to make a decision. However, we have made a thorough analysis and everything is in line with the trading plan. Now that the price has reached the turning point there is nothing left to do but… wait. Is this it? Or maybe 2 pips higher? And when the price goes up by 2 pips, maybe it is already too high and a reversal is about to occur? After all, this candle on H1 has such a high body! In addition, it broke through the Fibonacci level by 2 pips! Second, after the second passes and the market does not like to wait for the undecided. We are about to press sell, but the price has already “spilled” a good 10 pips in reaction to important levels. We feel disappointed because we wanted to be precise! This time, however, there will be no second test. Quotations give money to the brave, and we? This time, we have to leave it at that.
There are at least two conclusions from this story:
- First: do not be afraid! – After a conscientious analysis and in a situation consistent with our assumptions, our goal is to react. That’s why we have position management rules, we follow a precise capital management plan and that’s why we have to stop losses, so the market doesn’t hurt us. A 100% strategy does not exist, however, there is a statistical and long-term advantage that we will only achieve if we… trade. If we are afraid of this, this profession is not for us.
- The market is not a pharmacy – let’s give it space! – It is unreasonable to expect that the price will bounce back from the level of every pip and then react in a textbook fashion by reaching all the planned (in every pip) ranges. It is very important to be flexible, to be able to react to changes, as well as to rationally set turning zones. The entry-level should not be defined by a single price. The market breaks out levels and returns to them leaving shadows, it is important to skillfully designate turning zones.
The above tips are practical observations we have made during our several years of Forex trading. They also stem from the experiences and problems faced by other traders we have had the pleasure of meeting or working with. Consider each of the above points in the context of your own trading, because trading is one of the most individualized professions in the world!