Posts Tagged ‘Golden Rules’
Hi all. I’ve been playing the financial markets recently, and to say it has been an emotional roller coaster would be putting it mildly.
I only recently restarted after taking the summer period as time out. I usually resume around mid September once all the Hedgefund Managers have finished their summer break and go back to work in the city. It’s around that time the markets start to pick up again. This time, I was a little late in starting due to other commitments getting in the way. I usually just deal in FX, in particular GBP/USD or EUR/USD, but a new system I’ve picked up on involves playing the FTSE 100, or maybe Wall St on the dailies.
Like I said, it’s been a bit of a roller coaster ride this week. I set my account up with just £100 on Monday 10th Oct. I didn’t do anything on Monday; I just didn’t like the look of it. By Wednesday I had taken that £100 up to £155.60. Not a bad few short hours work there, huh. Where else are you going to get a 55% return on your money in two days!
However, today was a different story. Not only did I lose the £55.60 profit, but I wiped out my initial starting bank in the process. How did I manage that? I let stupidity, greed and desperation get in the way of my thinking.
Stupidity was playing with more per point than I should have. I’d been playing with£2 per point, which was working out ok for me. I suffered a bit of a reversal, but got that back quickly enough by playing £10 per point on the next trade.
Greed was because I had just seen it in action and I thought I could double my money in no time by taking a chance and increasing the stakes. I did actually see the account grow to £196, but left it to hopefully take it higher. Yeah, right! You can guess what happened next.
Desperation comes into it because like everybody this time of year, we’re thinking about the approach of Christmas. I hoped to be able to finish off this week with around £250-300 in the trading account. The idea being to withdraw my initial £100 deposit, leaving me £150-200 to continue with my trading activities, and begin to do my Christmas shopping, hence the decision to trade with more than I should have. So I suppose you can include a lack of patience into the mix too.
The point is; I had drawn up a self imposed set of rules to follow. Golden Rules that had served me well, up to my taking a break from trading in June this year. Golden Rules that I totally ignored this week.
I’m going to start again, with a fresh £100, but this time I will be adhering to those 7 Golden Rules. I did prepare them with FX specifically in mind, but they’re good for all aspects of your trading. I will include them here for your perusal.
#1 Finance: It goes without saying really, but it rightfully earns its place at #1 in this list. I do agree with the folk who say that you need a starting account of at least £1,500. As you should only be risking 1 or 2% of your trading account on any 1 trade. Unfortunately, not all of us are blessed with that sort of money to start with. I have actually started with as little as £50.00, and built up from there in the past, but it was damned hard work, and fraught with anxiety. So my personal recommendation for a starting account would be at least £250.00, trading with .25p per pip, but the more you can start with the better.
#2 Experience: When you’re just starting out your experience is going to be zero! To gain experience I would advocate opening a demo account. That way you’re trialling a system at no financial risk. In the meantime you can be building up your trading account, whilst getting a feel for what you will be doing for real. The beauty of demo trading is, you can make your mistakes without the emotions of trading for real.
#3 Knowledge: This will come with experience, and is fundamental to your trading activities. You need a basic understanding of how to read the charts you’re looking at, remember those burned fingers! This is another reason to gain experience on a demo account. You don’t need to be a Mervin King, but you do need to learn what the indicators will do to help you in your trading. You only really need 3 – 5, any more will just complicate things and confuse you.
#4 Strategy: Know in advance what you plan to do. Watch the charts, read what the indicators are telling you. Plan your entry and exit strategies in advance and stick with them. Be prepared to take a loss on the chin. If the system you are using has proved to be a good system, stay with it. All systems will experience losses. The market is going to do what it’s going to do, it’s not going to do what your indicators are telling it to. Plan your strategy in advance of your trade.
#5 Awareness: By this I mean be aware of any news announcements that could affect the pair you’re working. Some news announcements have a higher impact than others on particular currencies. However, I have traded during major news announcements, and there didn’t appear to be any impact. On other occasions, there has been a sharp spike either way, before the level returned to where it was prior to the news breaking. It is the latter scenario that has been the death of a few of my trades, as the spike can penetrate your stop loss DOH! I’m not saying don’t trade here, just be aware of it. My favourite mantra here is “If in doubt, leave it out!” To check out news items you can go to www.forexfactory.com
#6 Patience: Trading FX can be quite a waiting game. I’ve actually waited for almost a full day before a trade order has opened, let alone hit my profit target. Sometimes I’ve actually gone 2 or 3 days without trading. Remember too, you don’t have to trade religiously every day. Sometimes the market is too volatile to trade successfully, so take a break and let it settle.
#7 Accept Your Losses: It’s hard to take but your stance should be “I was prepared to lose that amount anyway.” If that is not the case then forget about trading FX. I personally take that stance, I write the money off as though it has already gone. Once my account had reached a certain amount, I withdrew my initial investment, I still have that as rainy day money, and I’m trading with winnings.
I hope the above Golden Rules give you some food for thought. I for one will certainly keep them in mind next time I’m thinking of setting up a trade.
Until next time, keep your chin up, and be wise.
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