An unfortunate reality of the market is that most new traders lose, and are unable to find a successful trading strategy that is consistent and repeatable over time. There are many reasons for this. The first mistake most new traders make is to jump into the market and trade large amounts of money without doing a sufficient amount of research. This turns new traders in to gamblers, rather than methodical strategists.
Of course, it can be difficult to know where to start. Most successful trading strategy is based either on “fundamental” factors (economic influences) or “technical” factors (price behavior). Many traders will use some combination of both approaches. So, it is important to a basic understanding of the commonly used terms in both reforms of analysis before any real money is put at risk. Many new traders are caught unprepared, however, and are driven by greed. Losing traders fail to realize the importance of starting slow and gaining the necessary knowledge, and this is the primary reasons most new traders lose the entire balance in the first trading account.
Technical Analysis vs. Fundamental Analysis
Broadly speaking, most trades are based on economic data (such as inflation numbers, GDP, retail sales, trade balance and jobs increases), or changes in prices as viewed on charts. There is no rule suggesting that traders must rely solely on one approach. But it is important to choose a method that works well for your personality, knowledge strengths, and level of time commitment.
Traders that are able to read and understand economic reports and make interpretations based on that information will likely rely more heavily on fundamental analysis. Those looking to take a more objective view, and based trading decisions on changes in price (for example, developing trends, increasing or declining momentum, or breaks to new price highs or lows), might choose to focus more on technical analysis (activity on price charts). Either way, it is vital to use at least one of these methods when placing trades. Without this, you are doing nothing more than “flipping a coin.” As a successful trader, it is important to isolate important market knowledge and events, and then use that information to enter into positions with a chance of success that is higher than 50%.
Finding a Mentor or Trading Network
Once we have a general idea of how we plan to approach the market, (i.e. which strategy to use), it is important to do the homework and learn about the discipline. But which knowledge is important? There is a wide variety of educational materials, how can we know which information is accurate and most useful? These, of course, are difficult questions to answer on our own (especially when we are just beginning). For this reason, it makes sense to start with a trading mentor, or even a social trading community, where it is possible for you to interact with those more experienced and be able to ask questions.
Social trading communities have become much more common, and there are excellent reasons for this. No longer is it necessary to trade alone. One example can be found at the MQL5 trading community, which allows access to the trades and forums of those more experienced trading the markets. This is especially beneficial for new traders looking to see a variety of different strategies. In addition to this, once you become successful on your own, you can become a community expert and pass on your knowledge to those that were once in your position as a newbie.
Starting with a Demo Account
The final point to remember is that it is important to start trading with a demo account. These accounts allow you to trade under live market conditions with “virtual” currency. Gaining practice with a demo account will not only allow you to become familiar with the basics of a trading station (such as placing trade entries, stop losses and profit targets), it will allow you to see how various trading approaches would succeed or fail when real money is used to initiate positions.
So, whether you ultimately decide to base your trades on trends, news events, or technical indicators, all of these factors must be considered. Always remember, the biggest mistake traders make when starting is to focus purely on the greed aspects of trading (i.e. how much money can I make right now). This is a flawed mindset, and one that has led to the demise of many aspiring traders. A much better approach is to take things slowly, learn the markets, interact with other traders and then decide on your broad approach. This can be done using technical or fundamental analysis (or some combination of both). But this should never be done with haste, as this carries unnecessary dangers that should be avoided.