Turn On, Tune In Or Cop Out - When You Know It's Time To Trade Live.
One of the questions I asked myself time and time again when I started learning to trade, was ‘when do I trade forex for real?’. This was closely followed by ‘how do I know I’m ready?’ and ‘How much capital should I put in?’
To be honest, there was quite a significant duration of time between initially asking myself these questions and realising that it was time to go live, but it wasn’t a clean cut transition or decision. It wasn’t that one day I woke up and said today “I’m trading live!”, that there was an ‘it’s now or never’ moment. No, the transition happened naturally over time and all the training, learning and instinct building created an in print that eventually developed a confidence and belief. I still had fear, don’t get me wrong, but this confidence and belief led to courage and boldness and a willingness to confidently take the risk.
In The Beginning
When I started out in currency trading, I had an idea about what the currency market was. I had heard about Forex and some ‘tall tales’ from trading friends comparing winning trades like fishermen comparing catches. At a glance it looked like there was very little to it. It appeared like all you have to do is look at some charts, choose a direction based on what you see and buy or sell a position. For some traders that is probably as deep as it gets. That is if you like gambling, and for these traders Forex is likely nothing more than an extension of the Casino. However, for those genuinely wishing to manage success, to understand Forex and the market, there is more to it than that. Like the casino, trading has a great element of chance, but while in a casino there are fixed odds and limited possibilities in Forex the market is fluid. This fluidity commands respect and understanding and once I understood this, my perception of Forex changed and my journey began.
Educate Yourself Before You Wreck Yourself
The next phase of the journey into Forex demanded education, the development of a system and a journal and a demo account. Unless you plan on having a managed account or using a bot then there is a lot to learn. This is where a lot of traders prove or break themselves. If you can’t learn patience while in a demo environment you are hindering yourself severely. Many learn a couple of indicators, how to read candles and momentum and then they head straight for the live market having had a couple of wins in demo. In reality, at this stage you are far from ready to go live. While you may eventually only use a couple of technical tools, or price action alone, it is important to understand them all, what they do and why they work.
Not all tools are suitable for all trading personalities and styles but it is vital to find that out in a practice environment and to learn everything you can about the market in this safe bubble. Patience is so important and I cannot stress this enough. Respect the education process, it takes as long as it takes which is different for everyone. If you’re in a hurry to lose your money I can provide you with a stamped addressed envelope which is less heart breaking than jumping in feet first to the Forex market.
Demo accounts are fantastic, and a must for any aspiring trader learning the tools of the trade, learning how to read charts and to understand and spot fundamental impacts on charts. However, once you are competent at reading charts and putting on demo trades, your education is not over and you are still far from ready for the live environment.
The Missing Link
Something is missing in demo trading that you cannot replicate in a practice account. There is no psychology in demo trading, no real risk and it is too comfortable for the next step. Many traders make the mistake and jump straight from demo trading to live trading. The forums and trading blogs are full of sob stories from rookies that cannot get their head around why they are losing. Why they did so well in demo but not at live trading. They get frustrated, impatient and foolhardy, because they have not been exposed to this in there trading before. They get emotional.
Emotions left unchecked can be a traders worst enemy. Negative emotions and traits such as anger, rage, envy, jealousy, despair, greed, fear, panic, arrogance and impatience will ruin you if left to their own devices. The chances of this happening are greatly enhanced if you go straight from demo to a full account. In demo you are trading with play money. It doesn’t matter if you win or lose because you won’t feel it in your pocket and your mind knows this. Therefore it will not treat a loss or win with the correct emotional or mental response, and you will not learn anything about the relationship between your psychological makeup and your trading.
To learn this you need a live account, but not a standard account. A micro account is what you need, and what I would always advise to a trader that is ready to leave demo, but not yet ready to swim with the big fish.
A micro account will allow you to trade with a small amount of your capital. In some cases, this can be a very small amount. In order to learn in this environment you want to trade a value that will not damage you if lost, but enough that you care about winning or losing. You will never feel your heart beat faster or harder than when you put your first live trade on and when you feel this there is an instant recognition that you are tied far closer to your trades than you can learn in demo.
It’s A New Dawn, It’s A New Day
Eventually the analysis accelerates. You no longer have to look at your sheets to reinforce your understanding of what a movement or signal means. You come to a point where you have to rely on your notes less and less, and this leads to a keener eye on the charts. Next comes an instinctual habit to check valued news sources and to take on board periods where fundamental information is being released.
Your analysis becomes instinctual, and habitual. Over time, your strategy and system become shaped and toned, your journal keeps you in check and you become aware of your emotional responses. If you learn your emotions well, you will understand when to walk away, when to take a break or to cut your losses. You will learn that losses are part of the game, and with faith in your system you will know that a certain volume of losses are to be expected, that they are essentially part of the bigger picture.
Eventually you understand that the education is continuous, it is on-going. The fog lifts and you realise that when you are trading, you are systematic and industrious. That you are justifying your positions entered based on a solid understanding of your system and trading to your system to the letter.
Once you know you have the discipline to follow your system:
• You have your emotions in check
• You understand what the technical and fundamentals are showing you instinctively and naturally
• You have managed your expectations and you have proved your system in a micro account
Then you will know you are ready to trade real and live.