Have you ever heard a popular statement that 95% of traders won’t make it, no matter what they do? Or maybe trading requires a certain type of person to become successful? Let’s be real. While some are trying to shake the potential traders out, others live in their own realities. Some believe if it doesn't work for them, you’ll fail too. But what you should remember from the very start is that 95% don’t fail, they just give up.
So, let’s sort out how to get into those 5%!
1. Start small
Do you think that putting more money into a trade would increase your profit accordingly? If so, let us reassure you. Oftentimes, this led to going all-in in your trades and getting backfired. Unless you’re trading with a prop firm and don’t risk your money at all.
We all are emotional beings. With money at stake, traders get even more emotional and start acting vulnerable. This leads to most of them making even more irrational decisions.
Treat it like a business and focus on long-term growth.
We’d recommend you to start small. In that case, emotions are different. They will hardly prevail over your pragmatism and it’s not the same when you are trading all-in. When you enter a trade with big money, you literally can hear your breath and heartbeat. It’s not good for a sharp mind, isn’t it?
On the other hand, when you start small, your emotions are in control because you realize you simply can’t lose big. That will help you make the right trading decisions and gain the required experience.
So, it’s not a good idea to double your stakes in a short time. Trading is not a get-rich-quick scheme. Trading is a long-term game. So, climb the hill step by step!
2. Don’t hop from one strategy to another
What can be even more harmful to traders than emotions is their own experience. For instance, you learn a successful trading strategy online. Everything looks clear; you start using it and lose a few trades in a row. Your own experience tells you that this strategy doesn’t work. But is it true? It could be, but at this point, you don't know because your recent experiences were negative.
If you start with harmonic trading, you switch to price action, trend following, or anything in between. But the problem is that your personal experience is too small. Beware of it.
You never know whether something works or not until you test it properly.
Test your strategy for a few months in a paper account. By trading it regularly in different market conditions without the emotional impact of gains and losses, you'll get a better understanding of the process which allows you to truly evaluate the chosen strategy.
3. How does “availability bias” affect traders?
One of the biases that can influence traders is availability bias. It’s the tendency to open or close positions based on the first available information, rather than trusted one. Using false or unverified information can increase the risk and lead to higher losses.
Think deeper and go beyond what’s happening right now.
Doing extensive research and analysis is the way to prevent availability bias. 56% of traders use the Internet for this purpose; others use newspapers, publications of financial advisers, TV, and podcasts. After all, trading depends on the world situation a lot. For example, a full-scale invasion of Ukraine caused unstable and fast-changing market conditions and the global economic outlook has worsened. Consider the objective probabilities of such events over the long run.
4. Losses are just a part of the game
Loss aversion can result in disappointment in the event of a major loss. Our mind considers it as something opposite to the same gain. People don’t like to lose what they have and traders aren’t an exception. Therefore, when on a losing streak, they strive to avoid risk.
But only the game can teach you the game.
Imagine a situation where a trade is about to open. In this trade, a trader is told that there is a chance to make $100 or lose it. Most likely, a trader with a loss aversion bias won’t open it since there is a strong belief that $100 will be lost.
Being overconfident is the opposite of having a loss aversion bias. Most likely, an overconfident trader will open multiple trades without thinking about their loss potential.
We don’t even know what is more harmful to a trader. As such, it would be better to find a golden mean. But even if you fail, treat your losses as a part of your trading journey.
5. Risk management is everything
As a trader, your focus should be on minimizing losses. It’s impossible to cut your losses, but possible to reduce their probability if you stick to risk management rules.
Focus on risk, not on profit.
Risk management helps traders prevent the downside of a trade. More risk means a bigger chance of tangible, positive outcomes or a higher chance of major losses. Therefore, the ability to manage risk to maximize gains and minimize losses is a key skill for traders.
What does it take? When entering and exiting positions, you should establish the correct position size, set stop losses, and control emotions. When implemented well, these measures can prove to be the difference between profitability and being a losing trader. Simply put, focus on risk, not on profit.
6. Knowing vs. Doing
Knowing does not mean doing. In trading, there are a few guidelines traders should follow to succeed, which often go ignored. These guidelines are about:
- making a trading plan;
- focusing on one or two strategies;
- sticking to the trading plan;
- trading in a demo account until it proves profitable over many trades.
People read these tips so frequently that they stop considering them to be the real ones. That’s the difference between knowing a concept and following it strictly. Instead of following these tips, they do quite opposite things.
Winners never quit, quitters never win.
Traders need a system to follow it religiously. It’s not about the lack of knowledge. It’s about psychology and discipline. If you stick to three values – dedication, time, and effort, you will eventually come to a stage where you know when to jump to catch a rat. You need a disciplined mind unattached to money, that’s the only way to succeed in trading. Treat it like a business and focus on long-term growth.
7. Anchoring bias
This tendency is about a misplaced reliance on an initial piece of information, regardless of its relevance. It can have unpleasant consequences in trading, as traders make inadequate assessments of assets’ worth grounded on the anchor value.
You can avoid it by doing comprehensive research and analysis of the Forex market to define your own anchor.
In conclusion
Your biases and lack of experience impact the way you make and implement trading decisions a lot. Knowing what you should or shouldn't do isn't enough. You need to build healthy trading habits to help prevent biases from clouding your judgments.
Trading is not just about making money, it's also about personal growth and self-discovery. So, equip yourself with our tips, stay resilient, and enjoy the journey as you work towards achieving your trading goals.
