Getting Set

• The challenge of traders is to find opportunities in a dynamic market.

• It requires focus to separate market action from emotional response.

• You cannot control the market, but you can control when to buy or sell.

• Below, we shall cover the challenges that traders are likely to encounter and how to overcome them.
 Have a watertight Strategy and stick to it
• No successful trader will last very long without a well-conceived game plan for each trade.

• With a strategy in place, traders have a specific plan of attack for each position, including position size, entry point, stop-loss exit
and take-profit exit.

• A strategy separates trading from gambling in the markets.

• Traders are more flexible with targets based on the profits they attain, sometimes settling for less if they judge that is all they can
take out of the market at that moment.

• Other times, they extend their targets if market developments are shifting in their favour, but without compromising the risk per
trade.
 Manage your expectations

• As a new trader it can be easy to become obsessed with chasing profits and this will almost definitely lead to problems.

• The anxiety which surrounds chasing profits can cloud your judgement and lead to costly mistakes which will cause huge losses.

• Therefore, my advice in your journey towards mastering this craft is to dispense with any unrealistic objectives.

• The prospect of becoming rich within a short period of trading is extremely unlikely.

• Believing differently may therefore cause you to operate with greater risk, thus jeopardizing your capital and chances of growth.
 Avoid overtrading

• Overtrading refers to a situation where a trader is executing trades too frequently, taking extremely large positions, inconsistent lot
sizes and/or taking uncalculated risks.

• Successful traders are extremely patient since intervals within which opportunities occur may vary based on the strategy and market
conditions.

• Sometimes, quality setups take time to materialize. As such, it calls for patience before confirmation of entry.

• It doesn’t matter how long it takes you before you find a set up.

• What matters is protecting your capital so that you can only place the trade when odds are in your favour.
 Keep up to speed with the market events

• Market movements are to a great extent driven by economic data releases and political events or the expectations thereof: Trading on
fundamentals.

• Even for the case of technical traders, (those who execute trades based on historical price/ chart analysis) they still need to pay close
attention to fundamentals.

• For instance, if you have a reliable strategy pegged on several technical indicators and you have identified an opportunity, you may
further need to check on the economic calendar to make sure there are no pending events later which could adversely affect the
outcome of your trade.

• Though technicals might indicate all confluences necessary, any impending economic data release later in the day relation to the
asset being traded may consequently change the dynamics of the trade.
• To stay on top of their game, successful traders are prepared for:

 Upcoming economic data releases in the week: Check what the expectations are in relation to the actual data.

 Scheduled speakers: Find out who’s speaking (central bankers or finance officials), what they’ve said in the past, and what they’re likely
to say this time.

 Central bank interest rate setting meetings and announcements: Know when they’re scheduled and what decision the market is
expecting.

 Important gatherings of financial leaders, such as G20 meetings or monthly get-togethers of Eurozone finance ministers: Get a
sense of whether currencies are on the agenda and what actions are expected.
 Check the technicals

• Even though you may not necessarily be trading on technical-based strategy, to become a successful trader, you need to keep close
watch of important technical levels in the instruments that you are trading.

• For instance, you need to check:

 Whether the market is trending or is confined within a range.

 Prevailing chart patterns if any.
 Key support and resistance areas.
 Price levels in relation to moving averages and trendlines.
 Swing highs and lows in trending markets.
 Keep your emotions in check

• The greatest enemy towards your success in trading may not be your broker or other traders: It might be you.

• Many traders tend to stray from their carefully designed trading plan, more so after a series of successful trades.

• In trading, strong emotions can work against rational analysis and lead to poor outcomes.

• Successful traders know how to manage their psychological state, including taking time off when they are emotionally unstable, so
that they can stay at the top of their trading game.
 Avoid overexposure
• Financial exposure refers to the risk inherent in an investment, indicating the amount of money an investor stands to lose.
• Successful traders seek to optimally limit their financial exposure as a measure to mitigate losses.
• Overexposure mostly occurs when traders trade in correlated assets.
• Correlation is a measure of how an assets value changes in comparison to another.
• If two assets are positively correlated, they tend to move in the same direction, while if they are negatively correlated, they will tend to
move in the opposite directions most of the time.
• For instance, when you have two buy positions of AUD/USD and NZD/USD; essentially its like having two identical trades open as
they are positively correlated.

• Equally, if you sell USD/CAD and at the same time sell Oil, you might be exposing your account to too much risk as these two assets
are negatively correlated.

• For the case of correlated assets, even though there may be two valid trade setups in both assets, it would be wise to take one trade
rather than both.
 Averaging down the loss

• Averaging down is the act of adding new similar trades to current open positions as the price continues to move against you, in the
usually mistaken belief that the trend will reverse.

• Adding to a losing trade is a dangerous practice. The price can move against you for much longer than you expect, as your loss gets
exponentially larger.

• Instead, its way better to take a trade with the proper position size and set a stop loss on the trade.

• Its way reasonable to have a trade closing with a minimal loss as opposed to letting a trade running into huge loss and try to manage it.
 Trading to recover the loss

• When a trader suffers a large loss or a series of losing trades within a short span of time, there is always that temptation to place more
trades to recover back money.
• This is called“revenge trading”.
• When you adopt such a mindset, you are more prone towards making even more trading mistakes, which results in you losing even
more money.
• How do you avoid it from happening?

 You need to have a trading plan.

 Be in a good state of mind: Avoid fear, greed, anxiety and impatience.
 Focus on the process – trading is long term: Don’t stress on one or a couple of losses.
 Risk only small percentage of your capital

• No matter how strong an individual trade setup looks, successful traders will only risk a small percentage of their overall capital.

• While it may sound exciting to place a trade with the potential to double your account value, it’s never advisable to risk losing a
sizeable portion of your entire equity.

• The recommended risk per trade is 1 – 2% per trade, based on the entire capital.

• Limiting the amount of risk on each trade allows winning traders to steadily grow the equity curve.

• With a minimum risk to reward of 1:2, it means you account stands a chance to grow over time.
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