have you ever wondered why 90% of traders lose money while trading? did you know that almost 80% of traders quit in the first two years of unsuccessful trading? the harsh reality is that trading is not easy and you as a trader must know exactly what you’re doing in order to win the game of trading. if you want to stick around in the game for the long term.
Hello traders, my name is Tomer and traded the options market for the past 7 years. and if you stick with me till the end of this post. I will share with you the most important lessons I’ve learned so that you don’t make the same mistakes I did.
Table of content
- What does stock overbought mean?
- RSI or the Stochastic Indicator
- Memories from the past
- What is the best strategy in trading?
- Focus on your capital
What does stock overbought mean?
The overbought and oversold levels are not reliable in the long term. when I started trading I took the advice I read in different books about the overbought and oversold levels.
The majority of books teach us that if a market reaches overbought levels, meaning that there are too many buyers on the market then the prices should go lower.
In the different markets which are oversold levels, meaning that there are too many sellers on the market the prices should increase.
After a lot of money lost. I realized that the trading reality is that simply because the market is overbought or oversold levels does not mean that the market prices will immediately reverse in the opposite direction.
During periods of strong upward trends or downward trends, the markets can remain in the overbought oversold areas for days weeks, or even months.
RSI or the Stochastic indicator
Many traders believe that when the RSI or the Stochastic indicator hits or exceeds values of 70 or 30 they should enter in the opposite direction that’s a wrong approach to what concerns these indicators.
Sometimes the prices can stay a long time in the overbought and oversold areas and during this time they can continue to go higher or lower for every valid overbought or oversold signal offered by these indicators.
There are other 10 false signals, in the long run chasing overbought and oversold levels is not profitable.
I stopped watching these levels a long time ago.
Memories from the past – ( Game of trading )
Another lesson is that the 200 EMA was the only moving average I needed on my charts.
Is this sound familiar? you plot five or six indicators on the chart and after a bad week, you remove those indicators and add others.
The next week you repeat this process once again. this was my style when I started trading.
My charts consisted of many indicators. once I removed from my charts all the other indicators and moving averages and focused only on the 200 EMA, I started to win the game of trading.
The 200 EMA turned out to be very effective during training periods and an important tool for identifying trends.
establishing potential areas of dynamic support or resistance and even accurate entry points on the market.
Why the 200 EMA moving average is so reliable in the technical analysis? well, it is believed that many institutions like banks and hedge funds are following this indicator.
Looking at EMA on any currency pair, commodity, or even cryptocurrencies. we can immediately see its value.
Can’t win the game of trading in demo mode
Demo trading won’t accurately predict how you will perform. when trading with real money the reason is simple and obvious.
When there is no money on the line, eliminate one of the most important variables that affect your trading decisions. The psychological pressure of risking real money (read more in my previous post), even if you perform extremely well. When trading a demo account your results when you start to trade on a live account might differ considerably.
Demo your strategy until you feel comfortable taking your signals.
I personally would not get focused on demo accounts for too long.
Once tested your strategy and managed to have positive returns on the demo, open a micro account and trade there for a couple of months.
Start with a small amount of money when trading. You feel the market is much better than trading on a demo account.
Losing money is a critical phase in the game of trading
Losing money might be a good thing. trading is not easy and you should treat it as a learning experience.
It is very important for every trader’s development, it will teach you many things that you are not aware of.
Don’t get me wrong losing is not fun, you will probably find it very unpleasant to lose money while trading.
At the end of the road, learn more from taking a loss than from a winning trade.
The important thing when you lose money is to learn from this experience.
Do not do the same thing again. Get an education for that lost money and come out a little smarter in the future.
Once you learn an important lesson when losing money this prevents a much larger future loss.
What is the best strategy in trading?
Trade a strategy that matches your personality.
when I started trading I found an online course that was teaching sculpting. they claimed a high success rate. I tried their approach for a couple of weeks and after that, my account had a major loss.
See the key to successful trading is finding a strategy that works and fits your personality.
The reason I was struggling with scalping was, I didn’t want to sit all day in front of the screen.
Even if their trading strategy worked it did not fit my personality, so I ended up losing a lot of money.
my advice for you is to find
- Your risk aversion
- Your risk tolerance you should look for a time frame that matches your training style
- Are you a day trader a swing trader, a position trader, or a scalper
- Are you a technical trader or if you prefer fundamental setups?
- Choose the indicators or other tools that you feel most comfortable trading with
These simple elements will help you in establishing a strategy that will fit your personality.
Focus on your capital
The final lesson was probably the most important one when I stopped thinking about the huge profits I could make and focused on preserving my capital. I noticed a vast improvement in my trading results.
Successful traders concentrate their efforts on how much money they could lose before thinking about how much money they could win.
The key to making money over the long term from trading is simply staying in the game. To preserve your capital so that you can stay in a game long enough to see your trading system reward you. when I started trading I had a gambler’s mentality and I suspect a lot of you have this mentality too.
I focused almost entirely on how much money I could win with almost no regard for losses.
You should not think about when I will become profitable. you should ask yourself how can I trade while preserving my capital and what should I do to limit your risk.
So in order to be successful you first need to become a break-even trader the beauty of being a break-even trader is that you protect your capital while gaining market experience.
Don’t lose money and guess what you will be ahead of 90%of traders.
Those were the most important lessons I’ve learned in the past 7 during my trading journey. I’ve had ups and downs. I am still losing trades and I still have my doubts when taking a trade. but there’s the job of a trader and whoever tells you that winning the game of trading is easy…. well…lying to you 🙂