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A Journey Into Financial Trading

Financial trading? A science or an art form? This is one of the enduring questions that many would be traders have to ask themselves when starting out.

Trading on the world financial markets in all its forms is a game of risk. It’s one that many people are increasingly prepared to take however in the search for financial gain.

The key issue to trading these markets is that they are somewhat random in their movement. Many first-time traders who have just signed up to  binary options brokers or a spread betting company, do so with the view that they only have to learn a formula from which to profit. With all of the course n offer then surely the road to profits is simply to fill in the knowledge gap and then you are away?

Unfortunately, as anyone who has spent anytime in front of their trading terminal will testify, successful trading is not simply the results of being in possession of a successful formula. Trading is something where you need to hone your trading skills. But even then it is not that easy.

The reality of financial trading is much more complex. Of course, many times it has been quoted that the majority of traders will never make a profit. Far more often they are likely to blow their account instead.

Do I think that financial trading is a science or an art?

Well let me address the science part first. There is a huge amount of psychology involved in trading.

Most traders make use of technical analysis. This I regard as the science side of trading as it is very mechanical in its approach. To put it into context it is more statistical and relies on past market moves to anticipate similar patterns of movement in the further.

At its base level, it is no more than a representation of human psyche. This is because behind ever price movement in the market is a human that is prepare to buy or sell the market at a given price.

Now you many want to argue that markets these days are increasingly moved by machines Computers to be exact. However, these algorithms, no matter how complex, are still based upon prior trends and patterns. So ultimately, they are still based on the actions of buyers and sellers in the market.

Where technical analysis differs from science is in its randomness. Science tends to offer solutions that repeatable every time. Technical analysis however offers interpretations that are repeated some of the time.

I think that this is misunderstood by many traders. I would also offer the view that this is the reason why many fail when it comes to trading. They rely too heavily on technical analysis and in turn end of getting burnt.

So my opinion is that financial trading is as much an art as it is a science. While it can be learned and certain methods are indeed scientific, it is not an exact path to follow. Instead trading tools and indicators such as those used in technical analysis should only be used as a guide.

The question of course is that if trading is an art form then who likes the picture?

Well the artist has to draw their own canvass and like their own art. By this I mean that it is important to carve your own trading style. One that you will appreciate and one that will deliver returns.

Artists improve with time. It is important to remember that basic skills have to be learnt to provide a foundation for the activity. Likewise, with trading a certain amount of skills will have to be accumulated.

While I was dismissive of reading a book to learn about trading I whole heatedly recommend that you do. This will help to teach the range of skills that are required for you to build the foundations on which to build your art.

However, it is important to recognize that just because you are in possession of the tools, this does not make the artist. You can still easily fail as a financial trader.

Instead you will need to learn how to use these tools and factor in your subject. In the case of the markets this subject the market will be different every time. It will however at the same time share some commonality with similar pictures.

Take time to learn your trading skills. Start small and build. Don’t expect to be a top trader from the offset. Create a trading plan. Be humble. Look inside. These are just some of the truths that I would advise aspiring financial traders to live their lives by.

Oh and respect the markets.

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Reasons to Fail as a Financial Trader

The failure of a trader to make a profit can be the consequence of a number of failings in the trading process.  More frequently than not is the combination of failures that lead to poor trading performance.

Staking the odds in your favor is key when it comes to following a simple  Forex strategy and for this reason it makes sense in this article to outline the many areas where a trader can often fail. When in the possession of this knowledge it is then down to the trader to use corrective actions to address each of these areas. The result of this exercise is to reduce the risks and ultimately instigate a shift closer to profitably.

With this aim and without further ado, I will list the key areas that often impede performance. At the same time, I will offer some solutions to help each trader address these areas.

A key problem that I see with many traders is that they open themselves up to too many views and opinions.

This can happen on a number of levels including making use of too many trading indicators or simply following too many market analysts. Often struggling traders will fall into this second category as they seek ‘confirmation bias’ to help them back up their own trading decisions. Or after a poor run they make see consensus before entering the market again.

In either of the scenarios the problem is that they expose themselves to too much market ‘noise’. This is detrimental to the decision-making process. It can also damage levels of confidence in trading convictions.

The way around this is to stick with a single method or financial commentator, accepting that making 100% calls is never going to happen. If you suffer from this at present reduce your research, the number of indicators that you use or the commentators that you follow. Navigating the markets is difficult enough so it is important to keep a clear head and follow your own convictions.

The above issue can arise from not having a clear plan for trading. This is the point that I’d like to address next.

Trading plans are an essential part of trading. However, few bother with them and prefer to take a direct and often random approach to their trading. For most who do, success is never an option. By not creating guidelines to trade to inevitably risks increase. The result is that accounts get overexposed and at some point, will cease to exist altogether.

I am a great fan of trading plans and as a result I suggest that everyone should have.  This is sage advice, however the caveat I have to this is that the trading plan must suit the individual. The journey into financial trading is not easy without a plan. Countless market guru’s will advocate the use of blueprints but frequently forget to point out that it needs to be tailored to the individual.

In setting up a plan you need to be first and foremost be happy with it. If you are not then it is unlikely that you will stick with it. Even if the plan is wrong and you go bust you will at least have a point of reference as to why things went wrong. Without a plan you won’t be able to define, in black and white, you points of failure. Remember that if a plan is wrong you can address and fix it. However, if you don’t have one then will have nothing to improve.

What should you include in a trading plan is the question that most students ask? My answer is everything!

If you have ever started a business, no matter how small, you will probably need to have opened a bank account. If you have you will now exactly how hard this can be when it comes down to filling out the forms.

Banks these days will want to know everything about your business. Forms are filled with questions such as how much will you make? What is your turnover? How do you expect to achieve this? What if it goes wrong?

Now think about your trading career.

Financial trading the markets is a business. Whether you plan on trading Forex, Stocks or Shares you need plan to work to. Think of it as your business plan.

Sticking to your plan is the hardest part. That is why you need to be happy with it and believe in it!

Traders of stocks, shares, binary options… whatever, will all benefit from a plan.

Practice Makes Perfect – Honing Your Trading Skills

I am constantly amazed by the number of traders who expect to read the first text book they come across and then make money.

This nativity often leads me to think how easy it must be to become a doctor or airline pilot. Perhaps I just need to read a book or sit in on a 2 hour course to achieve this. Perhaps I am mistaken and becoming proficient at these highly skilled jobs is a lot easier than it looks.

The over optimism that is shared by many new traders to financial trading. This I believe the result of too many industry get rich schemes and over hyped marketing. Did I say over-hyped marketing? I meant downright misleading marketing!

Financial brokers such as those who offer Binary Options, Forex and Spread Betting are chiefly to blame. In much the same way as betting companies post disclaimers or risk and loss on the one hand and then offer easy ways to high odds and profits in the other, so too, financial companies want to entrap the gullible.

The problem with this is that too many people fall into this trap. Most often they don’t know what they are getting themselves into until the costs hit home. This may the result of a big loss beyond what they expected.

If you come from the standpoint that it is possible to profit from trading, then what can you do to hone your skills? Is there such a thing as the perfect trader? Can you learn profitable trading from a book?

My own take on this is that trading is something that you can learn to a level of proficiently. Some people will be naturally adept and possess the skills to succeed from the outset. Others will struggle. I do of course believe that that it is possible to improve your skills by study. However, this will only take the majority of people so far and this is why.

Trading is a skill. Fact. It is a skill that is balanced between analytical skills and psyche. The analytical skills are required to the analyze and read the markets. The psychological skills are required to keep the trader in check.

When learning to trade the easy skills to pick up are analytical skills, In my opinion, understanding technical indicators and devising a strategy to identify entries etc. is fairly straightforward. Of course, it needs some study, but the basics are fairly easy to pick up.

The difficult part of trading is the psychology. Where trading skills can be honed over time, dealing with the psychology of trading is much harder. The trading mindset is not easily mastered from a book. This is why I said earlier that some people are naturally ‘born traders’ while others have to attempt to learn how to behave as such.

Shaping the traders’ mindset is difficult because it is deeply rooted in psychology and values. The natural traders’ values are often very different from those that we naturally possess as human beings.

OK so traders are not psychotic. They do however elicit different emotional response which enables them to deal with the cut and thrust of the financial world.

Now I’m sure that many people have seen the Wolf on Wall Street or watched Nick Leeson melt down Barings bank. The key take on the central individuals in these movies is the ease with which they deal with events without melting down.

OK so they manipulated people and tried to manipulate the markets. However, the take from this is that didn’t completely fall apart although the risks were high. Having seen many new traders at the first sign of their trade moving into the red it becomes clear that certain people are cut out to trade. Others aren’t.

I talked in my previous article about reasons people will fail when financial trading. I stand by this and offer a new piece of advice.

In order to hone your trading skills and increase your chances of success, it is vital to stick to your pan. It is difficult to change your mind set, yet if you place rules in your plan then it should be possible to create a framework in which you are happy to operate as a trader. This can help to reduce the psychological element of trading and avoid any meltdowns.

So how can you do this? Simply be honest with yourself. Set out realistic attitudes to risk that you are prepared to accept. I mean really accept. There is a difference to what you thing you might accept when things are going well and what you will be prepared to stomach when the chips are down.

Cover off some basic scenarios and work through what would happen in the event of a, b or c happening. The plan will offer a trading structure that you can stick to and lean on when the inevitable market shakes happen. It will help to frame your trading and should help to provide reassurance.

With this increase reassurance, you will be in a position to perform better as a trader. Ultimately that means better results which is what we as financial traders are all aiming for.