Five Trading Questions That Need To Be Answered

Five Trading Questions That Need To Be Answered

Q: Is there any risk in profit taking?

The next phrase may be somewhat of a cliché, and in my personal opinion rather bad advice, but it needs to be noted.  Using a static perspective with specific and well-detailed wording, a trading career carries the indirect expectation of being a binary bet and NOT any long-term plan.  This means that taking a profit may give you a dollar at this moment; however, if the profit is based on an initial set-up with a monetary risk of hypothetically USD $100 and you are planning to execute a trade with the same R/R condition, a risk of doing this continues to exist.  The risk which is, over a period of time, equivalent to the overall sum of your account balance.

Q: Should I begin practicing with a demo account?

Beginning with a demo account may be a positive thing to do; however, it can also be viewed as poor advice.  One reason people opt for demo accounts is because they are told that a demo account will assist in finding a suitable and profitable strategy before “going live”.  No, this is not beneficial!  Why, you may ask?  Surely developing a strategy on a demo account would be useful.  Not exactly.  A demo account is alternate to a live account because of the use of “funny money” and its affect on a person’s psychological mindset.  To find a profitable strategy, you must be willing to face losses of real money and not “fake money” which cannot be gained on a demo trading account.

A demo account should rather be utilized as a means of gaining a practical understanding of the trading platform functions with your account details.  Before going live you must be aware of how to effectively place orders, close orders, and identify how this action will affect your account balance, margin, equity, etc.  Once you are confident in these skills you can begin using a live account.

Q: Should I have a trading plan?

The general belief is that the only method to becoming a successful trader is to have a specific trading plan with set-ups that trigger exits and entries.  A trading plan that has specific take profit and stop loss levels.  This is not necessarily true.  While the plan may offer success for some traders, it is not always the best option for others.  This can be easily seen in the algo trading market.

I have seen innumerable traders opting to trade with specific plans but turning out to be nothing more than “hot air”.  Interestingly enough, the plans are based on specific trading set-ups.  While there are set-ups that are profitable, you should not fall into the trap that any random strategy will be effective simply because it is based on a fixed parameter.  Trust me, it won’t!  Take the time to find a strategy that suits your style and use it for your needs.

Q: How can I control my emotions?

Controlling your emotions is extremely important in trading, but it is not easy to do.  In fact, many times people do not control their emotions at all.  The odd thing is that this advice is offered time and time again, but rarely followed.  In many cases, new traders are the most affected because they are unaware of how emotional trading can be until they find themselves in a compromised situation.

To control emotions, it is recommended that you use certain steps or actions when in your trading space.  Of course, I can only offer advice and cannot state that this is perfect advice, but it may help.  It is rare that people offer their opinions on how to control these mind states, but finding a method to do so is important.

Q: Should I follow trends?

Following trends can be beneficial in certain markets and with certain trading strategies; however, it is not always important.  Some traders will highlight trend following as essential in market trading, but they are typically using trend following strategies.  If you opt for another strategy it may not be as vital to your trading.  The discussion about following trends is more commonly seen among stock traders than in FX trading circles as there is a mean reversion tendency in FX markets.  Furthermore, the trend is a blurry concept and many FX traders are unsure of how to identify it, the time frame for spotting a trend, or how to manage it.

While it is possible to use trend following to make a profit, it is not always necessary and in some cases can be detrimental.  If you opt for trend following strategies, it is recommended that you use them for the correct reasons and not because “everyone else was doing it”.  Be wise and work according to your strengths.

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