IMHO the biggest psychological enemies are not necessarily fear and greed, but impatience, wrong expectation and undercapitalization. By 'wrong expectation' I mean that there are folk here who say that they're making anything up to 20% per month, and (while that may be truth) it is an totally unrealistic target for any newcomer. Setting one's expectations too high will result in oversizing positions and overtrading. Posts like "it's possible to turn 1k into 10k in one month" don't help, either.
Hence I disagree with those who recommend setting profit targets. What happens if your monthly target is +10% and you find yourself -5% after the first week? Or your target is +20 pips per day, and you're currently -40? How do you catch up, without trading inferior quality setups, and/or taking larger position sizes? The focus should be on trading a method/plan accurately and consistently, and preserving capital, as opposed to aiming for a predetermined level of profit. Trade accurately, and manage risk, and profit will take care of itself.
By 'undercapitalization' I mean somebody who starts with something like a 1k account and expects to be profitable enough to quit their job within 3-6 months. Another great recipe for chasing losses, overtrading, and escalating position sizes.
IMHO there is only one way to succeed (irrespective of whether you are a hunter or a gatherer
):
1. Find or develop a method/plan of entries and exits that delivers a winning edge. Even if the method is discretionary, your entries must be planned, and your exits must be planned. Otherwise you're just guessing, and gambling. Only with a clearly defined plan is it possible to take a detached, philosophical attitude toward losses; without a plan you're inviting emotion to make your decisions for you.
2. Prove to yourself that the method is profitable in demo before going live. I can't remember whether it was James16 or Fijitrader who said this: Don't go live until you have 3 (or was it 6?) consecutive profitable months in demo. If you have a losing month, start over. I can't think of a better way to develop patience and discipline. While you're doing this, use this time to also save up some $$$ to start a small account.
3. Stay with the same plan for at least 3-6 months and/or 500 trades. If you start experimenting with variations (like I did
), then you'll likely end up confused (which variations should I trade?) and mentally exhausted. I recall reading some time ago (was it in a post by Dopey?) to 'punish' yourself with a 1 week ban from trading every time you fail to follow your plan. If you don't stay with the same plan for long enough, you'll never know whether or not it has an edge; and unless you have real confidence that your plan has an edge, chances are that you'll never be able to trade it, especially when there's real money involved.
4. After you've completed your demo apprenticeship, allocate a small amount of money, that you can afford to lose, and open a live account. Risk no more than 1%-2% per trade, consistently, or even less if it makes you feel more comfortable. As the saying goes "scared money never wins".
5. If you blow your account, it's back to step 1 to start demo trading all over again.
These comments may appear to be harsh and uncompromising, but the market is no less so. There are no short cuts; only the most dedicated and disciplined ultimately survive. If the above seems unpalatable, then find a successful trader (with an independently audited track record) who's willing to manage your account.
My 2 pips worth.
David
Hence I disagree with those who recommend setting profit targets. What happens if your monthly target is +10% and you find yourself -5% after the first week? Or your target is +20 pips per day, and you're currently -40? How do you catch up, without trading inferior quality setups, and/or taking larger position sizes? The focus should be on trading a method/plan accurately and consistently, and preserving capital, as opposed to aiming for a predetermined level of profit. Trade accurately, and manage risk, and profit will take care of itself.
By 'undercapitalization' I mean somebody who starts with something like a 1k account and expects to be profitable enough to quit their job within 3-6 months. Another great recipe for chasing losses, overtrading, and escalating position sizes.
IMHO there is only one way to succeed (irrespective of whether you are a hunter or a gatherer
):1. Find or develop a method/plan of entries and exits that delivers a winning edge. Even if the method is discretionary, your entries must be planned, and your exits must be planned. Otherwise you're just guessing, and gambling. Only with a clearly defined plan is it possible to take a detached, philosophical attitude toward losses; without a plan you're inviting emotion to make your decisions for you.
2. Prove to yourself that the method is profitable in demo before going live. I can't remember whether it was James16 or Fijitrader who said this: Don't go live until you have 3 (or was it 6?) consecutive profitable months in demo. If you have a losing month, start over. I can't think of a better way to develop patience and discipline. While you're doing this, use this time to also save up some $$$ to start a small account.
3. Stay with the same plan for at least 3-6 months and/or 500 trades. If you start experimenting with variations (like I did
), then you'll likely end up confused (which variations should I trade?) and mentally exhausted. I recall reading some time ago (was it in a post by Dopey?) to 'punish' yourself with a 1 week ban from trading every time you fail to follow your plan. If you don't stay with the same plan for long enough, you'll never know whether or not it has an edge; and unless you have real confidence that your plan has an edge, chances are that you'll never be able to trade it, especially when there's real money involved.4. After you've completed your demo apprenticeship, allocate a small amount of money, that you can afford to lose, and open a live account. Risk no more than 1%-2% per trade, consistently, or even less if it makes you feel more comfortable. As the saying goes "scared money never wins".
5. If you blow your account, it's back to step 1 to start demo trading all over again.
These comments may appear to be harsh and uncompromising, but the market is no less so. There are no short cuts; only the most dedicated and disciplined ultimately survive. If the above seems unpalatable, then find a successful trader (with an independently audited track record) who's willing to manage your account.
My 2 pips worth.
David