The real trading practice is significantly different from the demo and yes, as expected, I burned some good money away the instant I started placing my trade. It was disheartening at first but I surely got something more valuable to my future as a beginning trader than the money I lost at startup. I gained practical knowledge on the best practices on how to and how not to trade going forward.
For those newbies like me considering on getting into spot trading, here are some practical and no non-sense advice you would definitely find it handy:
1. Expect to lose. Even the most well thought out trading plan provides no guarantee of winning. Not even the most sophisticated tools, softwares and charting indicators can give a trader full protection against losses. Losing is very much a part of a daily life of a trader. What sets a good trader from the rest is how they manage risk which I will talk about later.
2. Always start with a clear plan before entering a trade. This is the most important step. Study the currency pair you wish to trade and lay-out a clear plan on entry and exits. Take time to take a longer look at the charts, make scribbles and use whatever tools or indicators that suits your fancy and draw-up a plan. A good starting point is to identify the trend where the market is heading and knowing where the support and resistance levels are.
3. Be patient. Patience is a common virtue among professional traders. One of the many mistakes I made as a beginning trader is to "chase-the-market" and hoping to get into the trend. Though there are times I made some profitable trades with it, but most often than not, I lost a good deal of money with such a strategy. Another mistake I made was to get into short-term trading like "scalping" thinking I could reap some profits quickly in just a matter of minutes - wrong again. While it might be true to intermediate and veteran traders, it's definitely not the case for beginners.
4. Do not panic. Yes. This is what happened to me when I had my first loss - I panicked like crazy! I remembered putting a one-lot, long entry order then a few short minutes later the maket started moving against my direction and dipping to 100 pips on the short direction! Thinking that it will go further down, I immediately closed my trade to prevent further losses until it went back up again 20 minutes later to what had amost been a profitable trade. Never be hasty to close any losing trades. There are strategies where you can regain them and one of them is hedging.
5. Keep your strategies as simple as possible. It's so easy to get lost and be overwhelmed with a host of tools, indicators, and trading strategies available but the best plan is ALWAYS the simplest ones. Technical indicators such as Fibonacci's, Elliot Wave, Bollinger Bands etc only help to improve the probability of winning but it's no guarantee. To keep my trade simple I only observe and use the following: a) Identify the trend b) know the support and resistance levels, and c) use Slow Stochastics. I am not saying to limit yourselves to that, however use a few tools and strategies that works best for you.
6. Know your risk and manage them well. Since the possibility of losing is inevitable, managing risk should part of every trading plan. A good risk-reward ratio should be 2:1. This simply mean that for every dollar that you risk, your profit placement should be atleast two dollars. Another way to manage risk is to put in only a maximum of five percent of your total equity into trading. Do not risk more than what you can actually sustain.
7. Journalize past trades and study them. This is something that many traders does not do - journalize their trades. Keep a record of all trades such as: your entry position, lot size, stop loss, limits, risk-reward ratio, currency pairs traded, strategies and so on and so forth. This will give you an idea where you traded wrong and what you can do in the future to correct them. There are available commercial software applications (in MS Excel format) to help you properly journalize your past trades and it's always a good habit to keep one.
8. Trade on mid to longer timeframes. I do not specially recommend 'scalping' or any trading strategies to that matter with very short timeframes. Short time frames ranges from minutes to a few hours. Although, that is where the market action is, shorter timeframes are usually very unpredicatable and no technical indicators will prove very useful in these scenarios. I advise trading on a timeframe from three(3) days to two(2) weeks for they provide more information and outcomes are significantly predicatable.
9. Do not open too many trades all at once. Sometimes, we get giddy and get ahead of ourselves thinking that every chart we see is an opportunity that we cannot just let it pass. So we open up too many trades all at the same time. Openning a trade requires an ample amount of equity to sustain it. Openning too many all at once will definitely require more money and, if it cannot be sustained, you might get a margin call. Openning fewer trades, on the other hand, gives you more focus on a given trade and frees-up more time for you to do other things like: taking out your wife for a dinner.
10. Never place stop losses too close to your entry level. Because I wanted to limit my losses, I always make a mistake on placing my stop losses very near my entry level - like 30 pips. Since stop losses are to 'shallow', I end up getting stomped-out by normal market oscillations. Until you are very sure that the market will move towards your expected direction, do not place stop losses until you've earned enough pips.
11. Never put in too many lots on a single trade (over leveraging). This is one of the result of being impatient. Over leveraging, as they say, is a double edged sword. It may give us more profits only when the market is moving toward the expected direction but, it may not if it isn't. For beginners on a microlots like me, stick to 1 to 2 lots even if we feels we are very sure.
12. Focus on the pips, not on the profits. This advice was taken from a book somewhere. It changed my mindset on how I look into trading. It simply means that our success and failures should be measured on the number of pips we gained or lost instead of seeing it in the financial point of view. This is helpful for a couple of reasons: 1) we focus more on strategies and learning from them, and 2) we do not over-leverage our trades for a quick fix.
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