If you’ve read on one of our previous articles, Why 90% of Traders Fail, you’ll know that there are many things that could go wrong in anyone’s trading career. For some, this realization comes pretty early. In fact, 80% of these failed traders actually quit within their first two years of unsuccessful trading.
The truth is that trading, specifically currency derivatives trading, simply isn’t for everybody. We like saying that trading is easy because, well, in theory, it is easy to analyze charts, apply strategies, and familiarize yourself with your chosen trading platform. But in practice, it can be quite difficult. Things don’t always go as planned and even one small mistake could easily cost you your whole account balance if you’re not careful.
Interested in becoming a trader for the long-term? Today, I’ll share with you the most important currency derivatives trading lessons that I learned in my 10 years of trading. Hopefully, by telling you these, you’ll be able to avoid the same mistakes I did.
You can’t always rely on overbought and oversold levels
One of the first currency derivatives trading lessons I learned as a beginner trader was that overbought and oversold levels could help me predict when a trend reversal was going to happen.
According to various books and guides I read, if the overbought level exceeds 80, the price is bound to have a pullback soon after. Conversely, if the oversold level goes lower than 20, you should expect a price bounce almost immediately. That’s because an overbought level of above 70 means that there are already too many new buyers while an oversold level of below 20 means that there are already too many sellers. It seemed pretty straightforward to me at the time, so I made sure to follow this advice religiously.
Sadly, it didn’t take me a long time to realize that, as with a lot of things in life, this advice isn’t 100% accurate.
As you can see in the above example, the oversold level already went below 20, but the downtrend still continued going down for quite some time before finally turning slightly bullish, and then just kept on going down. And even then, it didn’t completely reverse. In fact, the only hope for an uptrend was quickly crushed by an equally strong bearish candle.
Meanwhile, in the example below, you can see that the overbought level already hit 80 after that large spike in the price, but the prices kept on ranging. Not to mention, a trend reversal didn’t even happen. The prices just continued ranging before falling ever so slightly, but the overall trend was still going upwards.
It’s a little embarrassing to admit, but I lost a lot of money while trying to follow this advice as strictly as I could. Things only became better when I finally accepted the truth that was staring me in the face the whole time: a market could remain in the overbought or oversold levels for a long time, and even then, it doesn’t automatically mean that a trend reversal is going to happen.
This is basically why I always say in my guides that there’s never just one way to do something, especially when it comes to trading. Most of the time, even the best advice can only be taken on a case to case basis. As a beginner trader, your goal would be to become knowledgeable enough to know when’s the best time to apply specific advice. It’s really all a matter of timing.
Not to mention, when it comes to these indicators, you can’t just rely on your strategy without analyzing the actual situation. For every accurate signal you get from using indicators, you’ll likely see 10 other false signals. And that’s one of the biggest differences between a beginner trader and an experienced trader. The latter would be more likely to realize that he’s looking at a false signal than the former. Personally, I just stopped watching these levels a long time ago and I don’t regret that decision at all.
You only need the 200 DMA on your chart
Another one of the currency derivatives trading lessons I learned in my 10 years of trading is that I only need one moving average indicator on my chart, the 200 DMA indicator.
Here’s an example that may seem familiar to you. You plot 5-6 indicators on your trading chart. Sadly, you end up having a bad week, so remove all those indicators and replace them with new ones. The week after that, you repeat the process again. This goes on and on for the rest of your trading days.
I actually personally went through this stage as well, trading with a lot of indicators cluttering up my chart. However, I soon realized that focusing on just one indicator, specifically the 200 DMA indicator, managed to improve my trading a lot. After all, it’s a very effective indicator during periods where trends are developing, as well as for determining the right trade entry points, You can also use this tool to find possible areas of dynamic support or resistance.
It’s also widely-believed by traders everywhere that financial institutions like banks and hedge funds use this indicator as well. You can see its importance just by looking at the EMEA on any currency pair, commodity, or cryptocurrency.
‘More’ is not always better
When it comes to trading, it’s rarely ever the number of trades you make, but the quality, that matters. Even if you enter numerous trades on your free Binomo demo account, it doesn’t automatically mean that you’ll be a skilled trader when it comes to the real account.
Actually, many traders tend to get reckless when they know that there’s no danger of losing real money. They make multiple trades and think they already know it all. Once they transfer to the real account, that’s when they realize that they weren’t able to practice the skills needed to be able to win trades. They only practiced clicking the buttons over and over again. That’s why, despite all the time they spent on their practice account, they still end up losing money in their real account.
Remember, your goal with the Binomo demo account is not to practice trading but to practice making money by trading. You definitely don’t have to enter 15 trades a day just for that. What you do need is the knowledge of indicators, signals, and tools that can help you win your trades.
When you’re finally confident in your knowledge and you can already translate your learnings into positive returns, that’s the only time that you should try out the real account. Start by doing $1 trades and only add more when you’ve already earned more than 100% that amount. Even then, always keep in mind that there are risks involved, as there’s always the possibility of losing.
So, the third point of our currency derivatives trading lessons: ‘More’ is not always better. In fact, ideally, you should aim to make as much money with as few trades as possible.
Losing your money isn’t the end of the world
As with everything else in life, losing is inevitable when you’re trading. No trader in the world, regardless of how successful they are, have ever gotten where they are in life right now without losing money.
Although it’s undeniably painful, it’s an important part of every trader’s development. It’s also a great learning experience that will definitely teach you a lot of things, and not just about trading.
That said, I’m not saying that you should expect to lose on purpose. At the end of the day, you should always try to minimize your losses as much as possible – part of the most vital currency derivatives trading lessons to live by.
All I’m saying is that if you do happen to lose, don’t worry about it too much! Sure, it’s not fun, and it may even be quite unpleasant. But you need to set aside your feelings for now and focus on the positives of losing first.
That’s right, losing does have its positives. For one, losing can help you figure out what you’re doing wrong. If you win all the time, you’ll never reach your full potential, because you’ll never stop to think about what can still be improved. But if you lose, you start to think about what you did. Hopefully, you’ll figure out your mistakes and avoid doing them from now on. This prevents potentially bigger losses in the future.
I remember one online course that I encountered when I was still a beginner trader. The course talked about the benefits of ‘scalping‘, a trading strategy that involves making money off small changes while day trading. According to the course, scalping ensured high success rates, so I was really impressed. Since I was still new to the trading world, I took all advice as fact. I did exactly what the course suggested. Unfortunately, I wasn’t knowledgeable enough yet to know that individual strategies fit different personalities. Guess what? After a couple of weeks, my account was down to only 20%. That’s right, I lost 80% of my money because of scalping.
Although I lost, I’m still grateful for that experience. Why? Because I learned a lot of things that I wouldn’t have learned otherwise. I learned that I wasn’t good at monitoring the price action very closely. I learned that I didn’t enjoy sitting all day in front of the screen, just watching minute price changes. Lastly, I learned that I didn’t like fast-paced trading styles in general.
If I didn’t lose money, I never would’ve learned all those things. It’s one of the most important currency derivatives trading lessons I learned: losing is far from being the end of the world. Instead, you should use your losses as your motivation to become a better trader in the future.
Focus on preserving your capital
Although your main goal is to earn money, this doesn’t mean you should ignore preserving your capital. In fact, that’s one of the most important currency derivatives trading lessons you can ever learn.
What do I mean by this? Simply put, you should never gamble your capital in the pursuit of earning more money. It doesn’t matter if you’re expecting a 150% return by investing 90% of your capital. If there’s one thing you should know about the currency derivatives market, it’s that there’s never a sure thing when trading. Once again, there’s always a chance of decreasing your account balance when you’re a trader.
Personally, in my 10 years of trading, I’ve been surprised far more times than I’m comfortable with. In fact, that’s already one of my mottos when trading: always expect the unexpected.
The best you can do is to hone your trading skills and to familiarize yourself with different indicators. It would also be better if you can choose the perfect indicators for you so that you can develop your personalized trading strategy. All of these can help you focus more on preserving your capital.
A stark difference between a beginner trader and an experienced trader is their mindset while trading. A beginner trader always thinks about how much they could win. An experienced trader always thinks about how much they could lose. One of these two is in danger of being reckless, while the other knows that slow and steady wins the race.
This doesn’t mean that you shouldn’t set weekly trading goals. All this means is that you should be realistic about the goals you set. Don’t be like a gambler who’s willing to lose it all just for the chance to gain everything in one round. Better yet, build up your wealth slowly but surely. Not only is that more realistic, but it’s also a lot more satisfying.
If you really want to have a long and profitable career in trading, the best way to do so is to simply know how to extend your stay in the industry. And based on all the lessons that I’ve learned in trading currency derivatives so far, that can only be done by preserving your capital.
Currency derivatives trading lessons conclusion
To summarize it, the currency derivatives trading lessons I learned in my 10 years of trading are: don’t always rely on overbought and oversold levels, try to use only the 200 DMA indicator, aim to make better trades not more trades, don’t fret too much if you lose, and lastly, focus on staying in the trading game as long as you can.
If you can apply these currency derivatives trading lessons in your life, I’m sure you can already be ahead of 90% of traders nowadays.
Don’t have a Binomo account yet? Be sure to try out the free demo account first before dipping your toes into the real deal!
Good luck on your trading journey with Binomo!