So you want to be a trader...some trading tips.
First, a few warnings...
This is not a trader tutorial site, in fact, Dreamfire52 generally avoids encouraging people to get into the trading business. Why?
90% of people who try to trade actively will lose money.
Most people are not mentally prepared for the amount of time and stress involved in active trading.
Trading is quick money, but not easy money. In fact, it is extremely hard work.
Active trading is a 24 hr business, it is very hard to disconnect.
We don't want to pretend that showing you a few videos and reading a few blogs can make you a successful trader.
Dreamfire52 is a passive income site in which we do the trading work while you do whatever it is you do best. We have so far gained -21.30% since January 1st, 2024 for our passive traders. If you want to participate in our copy trading program, feel free to get more information at our home page here or watch the short video at the bottom of this page. If you are one of those people who are hell-bent on learning to trade, we will try to help in any way we can. We always try to answer emails on the subject so feel free to contact us. Please note however - we are not financial advisors. We will offer general trading principles and techniques such as the principles below, but not specific financial advise for your situation.
Dreamfire52 is a passive income site in which we do the trading work while you do whatever it is you do best. We have so far gained -21.30% since January 1st, 2024 for our passive traders. If you want to participate in our copy trading program, feel free to get more information at our home page here or watch the short video at the bottom of this page. If you are one of those people who are hell-bent on learning to trade, we will try to help in any way we can. We always try to answer emails on the subject so feel free to contact us. Please note however - we are not financial advisors. We will offer general trading principles and techniques such as the principles below, but not specific financial advise for your situation.
Fooled By Randomness.
As pointed out in Nassim Teleb's excellent book "Fooled by Randomness", over the short term, traders can do the wrong
thing and be wildly profitable, but over the long term, those same methods lead to disaster. Your goal should be to
consistently trade in the right way. Why is this so difficult? The problem is that the market often rewards bad behavior and
that bad behavior often feels good. Good trading behavior often yields losses over the short term. Hedge fund legend, Tom Basso
once traded his system from January until August with losses. Then he was able to make up all the losses and make huge gains in
September. This kind of trading takes a huge amount of patience and most people can't do it. Based on 20+ years of experience, I have
noted here the most important of these good and bad behaviors.
If you are serious about trading, you should strive to master a few very important principles. Don't be fooled by how
short and simple this list is, it covers 80% of trading success. Trading is very simple, but it is not easy. Mastering these
principles will lead to success.
Let's start with a few things NOT to do.
Do not trade too large
Trading too large is the single biggest reason traders blow up. Everyone runs into streaks of bad luck. If you are losing 5-10% on a single trade. You will eventually run into a streak of losses that will blow up your account. Most people understand this, but they do it anyway. Why? Lack of patience to build their fortune. Aside from the straight mathematics of it, there is another reason that trading large causes losses. Think of a city sidewalk, picture yourself walking down the center of it for 100 yards. It doesn't take much effort to stay on the path. Now take that same sidewalk and raise it 200 yards up in the air. Can you still walk effortlessly? This is what trading too large does for a person's mind. By trading larger than you should, your internal fight or flight kicks in big time. You will sell your winners too early, and you won't be able to get out of losers. Trade small enough so that your decisions can be based on market factors rather than your fight or flight instincts. This can only be done if you are not in danger of losing a large amount of your portfolio. Here is a list of ways of raising the mental sidewalk that you should avoid?
Do not add to losing trades
The idea of adding to losers is an old idea going back to 18th century France and even back to the ancient Egyptians. It is formally called a "Martingale" strategy. Despite being an awful trading system, it still persists because adding to a losing trade makes us feel good. It cuts the distance that we need to be profitable on the trade. It also happens to be a terrible strategy for long term success because it turns risk vs reward against us. You are risking multiple units on a trade where the potential reward is only one unit. In reality, trades can go against us for a very long time. If a person continually adds to a losing trade, they will eventually lose in a big way. But before they lose, they will likely win many of these trades for small gains. This is the market's way of teaching us bad habits. We will add to trades that are going against us, but only within a certain zone, and only to a point. There is a fine line between entering a trade in parts and adding to a loser. It is best to avoid this practice completely or set definite limits on how you will add to losing trades.
Do not seek advice for your trades.
You should be trading a system that you developed including rules for every situation. If you have to ask advice on a trade, you either do not have a system, or you are not trading your system. When traders are sitting on a losing trade, they will often go to the news or dive deep into the fundamentals of a particular position (even if they entered the trade for short term technical reasons). Avoid this practice! Trade your rules and nothing else. If you are a technical trader, trade the charts, never trade your profit/loss.
Don't switch methodologies in the middle of a trade.
It amazes me how technical short term traders often turn into longer term traders or fundamental traders when a trade goes against them to justify staying in a bad trade. If you got into a trade for short term technical reasons, don't switch your reasoning in the middle of a trade. Never trade your profit or loss. You must remain true to your system at all times.
Don't treat trading like physics.
Trading is not physics! Listening to some trading teachers, you would think that trading follows a set of laws that always work. If you just buy when this moving average crosses this point you will be rich etc... Trading is not a black box. This is why so many smart people fail at trading. Every situation is different. One must be able to guage the current situation and trade it based on what you see right now or in the "Now moment of Opportunity" as Mark Douglass would say. The worst trades that I have ever made were those that I felt sure I knew what was going to happen. The truth is that unlike physics, anything can happen.
Don't focus on the Money.
This sounds wrong! Afterall, all traders trade for the money. Money is the reason why we trade! But those who focus on the money rather than on consistent good trading behavior will be very disappointed. They will inevitably end up doing risky things to force a win during a losing streak. Those things may pay off in the short term but will eventually catch up with the trader. Trading your profit or loss takes your eye off of your technical or fundamental strategy and on to something you have no control over. Traders should have clear goals which put the focus soley on their behavior, not the short term results. This is easier said than done, but I have found that it is the only way to guard against bad behavior after a losing streak.
Trading too large is the single biggest reason traders blow up. Everyone runs into streaks of bad luck. If you are losing 5-10% on a single trade. You will eventually run into a streak of losses that will blow up your account. Most people understand this, but they do it anyway. Why? Lack of patience to build their fortune. Aside from the straight mathematics of it, there is another reason that trading large causes losses. Think of a city sidewalk, picture yourself walking down the center of it for 100 yards. It doesn't take much effort to stay on the path. Now take that same sidewalk and raise it 200 yards up in the air. Can you still walk effortlessly? This is what trading too large does for a person's mind. By trading larger than you should, your internal fight or flight kicks in big time. You will sell your winners too early, and you won't be able to get out of losers. Trade small enough so that your decisions can be based on market factors rather than your fight or flight instincts. This can only be done if you are not in danger of losing a large amount of your portfolio. Here is a list of ways of raising the mental sidewalk that you should avoid?
- Trading too large.
- Trading with borrowed money.
- Setting market goals in which you try to force a certain percentage gain from the market.
- Trading for others (Trade for a very long time before you attempt this)
Do not add to losing trades
The idea of adding to losers is an old idea going back to 18th century France and even back to the ancient Egyptians. It is formally called a "Martingale" strategy. Despite being an awful trading system, it still persists because adding to a losing trade makes us feel good. It cuts the distance that we need to be profitable on the trade. It also happens to be a terrible strategy for long term success because it turns risk vs reward against us. You are risking multiple units on a trade where the potential reward is only one unit. In reality, trades can go against us for a very long time. If a person continually adds to a losing trade, they will eventually lose in a big way. But before they lose, they will likely win many of these trades for small gains. This is the market's way of teaching us bad habits. We will add to trades that are going against us, but only within a certain zone, and only to a point. There is a fine line between entering a trade in parts and adding to a loser. It is best to avoid this practice completely or set definite limits on how you will add to losing trades.
Do not seek advice for your trades.
You should be trading a system that you developed including rules for every situation. If you have to ask advice on a trade, you either do not have a system, or you are not trading your system. When traders are sitting on a losing trade, they will often go to the news or dive deep into the fundamentals of a particular position (even if they entered the trade for short term technical reasons). Avoid this practice! Trade your rules and nothing else. If you are a technical trader, trade the charts, never trade your profit/loss.
Don't switch methodologies in the middle of a trade.
It amazes me how technical short term traders often turn into longer term traders or fundamental traders when a trade goes against them to justify staying in a bad trade. If you got into a trade for short term technical reasons, don't switch your reasoning in the middle of a trade. Never trade your profit or loss. You must remain true to your system at all times.
Don't treat trading like physics.
Trading is not physics! Listening to some trading teachers, you would think that trading follows a set of laws that always work. If you just buy when this moving average crosses this point you will be rich etc... Trading is not a black box. This is why so many smart people fail at trading. Every situation is different. One must be able to guage the current situation and trade it based on what you see right now or in the "Now moment of Opportunity" as Mark Douglass would say. The worst trades that I have ever made were those that I felt sure I knew what was going to happen. The truth is that unlike physics, anything can happen.
Don't focus on the Money.
This sounds wrong! Afterall, all traders trade for the money. Money is the reason why we trade! But those who focus on the money rather than on consistent good trading behavior will be very disappointed. They will inevitably end up doing risky things to force a win during a losing streak. Those things may pay off in the short term but will eventually catch up with the trader. Trading your profit or loss takes your eye off of your technical or fundamental strategy and on to something you have no control over. Traders should have clear goals which put the focus soley on their behavior, not the short term results. This is easier said than done, but I have found that it is the only way to guard against bad behavior after a losing streak.
Here are some things that you MUST do.
Trade with a small account when you are just starting out.
Unless you are different from everyone else, you will lose for the first couple of years trading (maybe longer). Everyone must pay a tuition. Pay your tuition on a small account. You can trade FOREX these days with less than $100. Get your experience, prove your system, then add to your account. Paper trading accounts are useful but trading a paper account is not the same as trading real money. Trading is about controlling emotions so use real money, but keep it small.
Get an edge.
Whether you trade fundamentals, technicals or some other method, you must have an edge when you trade. Study the markets. Find trends and patterns that work over time. Test these patterns. You will be surprised to learn how many patterns look like they will work, but do not in real practice. For each pattern that you trade, make sure that the risk vs reward over time is in your favor. Ask yourself, If I make this trade 1000 times, what would the outcome be? If you are not sure what edge to use, take a serious look at technical trend trading where you are trading trend continuations. Don't trust books or youtube edges without testing them yourself. We are amazed at how many people are teaching you to trade who are not traders themselves or have no proven track record. we show you every trade we have ever made in our host account here, verified by a third-party independent organization. If your teacher can't do this, seek a better teacher or learn on your own with a small account.
Have a pre-defined plan for every trade.
Having a system and a pre-defined plan for every trade saves us from making irrational decisions in the heat of battle. Know where you are going to get in and where you are going to get out. Know how much money you are risking on every trade. Have a set of rules that you will never violate. Note every instance where you don't follow your plan. Strive to eliminate these instances.
Your plan must include an exit point for losses.
Make sure that any trading plan you create covers the potential for loss. No one likes to believe that their trade will fail, but even the best traders are wrong 30-40% of the time. Know how much money you are willing to lose before you make the trade and back it up with a stop loss. Don't be fooled by thinking it is ok to let a small trade go beyond your loss point. If you have ever experienced a flash crash, you know that even small trades can generate huge losses under those rare conditions. You should learn and internalize the maxim "Anything can happen" and live like you believe that is true. If anything can happen, how does it change the way you trade?
Hold on to winners.
Holding on to winners (or better yet adding to winners) is one of the most difficult aspects of trading. For some reason deep in our evolutionary development we tend to have hope when we are losing and fear when we are winning. This causes us to hold on to our losers and sell our winners. A trader must learn to reverse these impulses and have hope when we are winning and fear when we are losing. We must be able to add to winners, and cut losers. This is much easier said than done and takes an enormous amount of patience because you watch many of your winners turn into losers and you will take losses that could have been winners. There will also come a time when a winning streak occurs and you will have huge gains. Most traders never get to that point. Practice holding winners longer. Write your results in a journal. You must have a positive risk vs reward in order to succeed. To get to that point, you must either let your winners run or cut your losers (preferably both).
Test and Practice Your System.
Your system will be the heart of your money making operation. You need to test it. There are fancy applications that allow for this, but they are not strictly necessary. You can paper trade before trading for real. If your system is technical, you can follow charts marking every buy and sell point. This approach will often yield good information. Once you have done the preliminary work, you are now ready to practice trading your system. Make a set of 20 trades using your system following the exact written guidelines which you have created. Do not change your system until after you have completed the 20 trades. This will not only tell you how well your system works, but it will tell you if you are capable of following your system or not. Keep in mind that 20 trades is not enough to make a complete judgement, but it is a very good start. You will most likely have to make adjustments and repeat the exercise a number of times. Most people are unable to do this consistently. If this sounds like a lot of work, it is! but that is what it takes.
Survive!
The most important concept one must learn about trading is the art of survival which combines all of the "Do not's'" with the "Do's'". I take a deep dive into this concept in this video (Click Here). If you get one lesson from this article, let it be the one I outlined in the video. Survival is the key, and there are some definite concepts one must learn to survive. Trading small and setting stops are a part of it, but one must also look into the hidden risks of losing streaks and rare events.
Surviving Forex - A must see strategy for mastering forex.
Unless you are different from everyone else, you will lose for the first couple of years trading (maybe longer). Everyone must pay a tuition. Pay your tuition on a small account. You can trade FOREX these days with less than $100. Get your experience, prove your system, then add to your account. Paper trading accounts are useful but trading a paper account is not the same as trading real money. Trading is about controlling emotions so use real money, but keep it small.
Get an edge.
Whether you trade fundamentals, technicals or some other method, you must have an edge when you trade. Study the markets. Find trends and patterns that work over time. Test these patterns. You will be surprised to learn how many patterns look like they will work, but do not in real practice. For each pattern that you trade, make sure that the risk vs reward over time is in your favor. Ask yourself, If I make this trade 1000 times, what would the outcome be? If you are not sure what edge to use, take a serious look at technical trend trading where you are trading trend continuations. Don't trust books or youtube edges without testing them yourself. We are amazed at how many people are teaching you to trade who are not traders themselves or have no proven track record. we show you every trade we have ever made in our host account here, verified by a third-party independent organization. If your teacher can't do this, seek a better teacher or learn on your own with a small account.
Have a pre-defined plan for every trade.
Having a system and a pre-defined plan for every trade saves us from making irrational decisions in the heat of battle. Know where you are going to get in and where you are going to get out. Know how much money you are risking on every trade. Have a set of rules that you will never violate. Note every instance where you don't follow your plan. Strive to eliminate these instances.
Your plan must include an exit point for losses.
Make sure that any trading plan you create covers the potential for loss. No one likes to believe that their trade will fail, but even the best traders are wrong 30-40% of the time. Know how much money you are willing to lose before you make the trade and back it up with a stop loss. Don't be fooled by thinking it is ok to let a small trade go beyond your loss point. If you have ever experienced a flash crash, you know that even small trades can generate huge losses under those rare conditions. You should learn and internalize the maxim "Anything can happen" and live like you believe that is true. If anything can happen, how does it change the way you trade?
Hold on to winners.
Holding on to winners (or better yet adding to winners) is one of the most difficult aspects of trading. For some reason deep in our evolutionary development we tend to have hope when we are losing and fear when we are winning. This causes us to hold on to our losers and sell our winners. A trader must learn to reverse these impulses and have hope when we are winning and fear when we are losing. We must be able to add to winners, and cut losers. This is much easier said than done and takes an enormous amount of patience because you watch many of your winners turn into losers and you will take losses that could have been winners. There will also come a time when a winning streak occurs and you will have huge gains. Most traders never get to that point. Practice holding winners longer. Write your results in a journal. You must have a positive risk vs reward in order to succeed. To get to that point, you must either let your winners run or cut your losers (preferably both).
Test and Practice Your System.
Your system will be the heart of your money making operation. You need to test it. There are fancy applications that allow for this, but they are not strictly necessary. You can paper trade before trading for real. If your system is technical, you can follow charts marking every buy and sell point. This approach will often yield good information. Once you have done the preliminary work, you are now ready to practice trading your system. Make a set of 20 trades using your system following the exact written guidelines which you have created. Do not change your system until after you have completed the 20 trades. This will not only tell you how well your system works, but it will tell you if you are capable of following your system or not. Keep in mind that 20 trades is not enough to make a complete judgement, but it is a very good start. You will most likely have to make adjustments and repeat the exercise a number of times. Most people are unable to do this consistently. If this sounds like a lot of work, it is! but that is what it takes.
Survive!
The most important concept one must learn about trading is the art of survival which combines all of the "Do not's'" with the "Do's'". I take a deep dive into this concept in this video (Click Here). If you get one lesson from this article, let it be the one I outlined in the video. Survival is the key, and there are some definite concepts one must learn to survive. Trading small and setting stops are a part of it, but one must also look into the hidden risks of losing streaks and rare events.
Surviving Forex - A must see strategy for mastering forex.
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