3 Essential Questions New Forex Traders Must Ask Themselves

The advertising messages launched by brokers portray trading as an idyllic place where it's easy to make money. All you need to do is adhere to the strategy of the moment, usually offered for a fee. The reality is very different. Trading in general, and Forex trading in particular, are highly competitive places, therefore dangerous by definition. They are places of opportunity, of course, but that doesn't mean that a prudent approach isn't always advisable. New traders, therefore, are in danger. To transform pitfalls into opportunities, it's best that they arrive prepared for their appointment with the market. How? By answering three questions, first of all.

Have I studied enough?

This question is fundamental, perhaps the most important of all. It concerns the concept of education, which is central not only in the life of a young trader but also in that of more experienced ones. "You never stop learning" is a popular saying but it also applies to investors. In any case, educational needs primarily involve beginners. The biggest mistake you can make, in fact, is to start trading without a solid foundation - both theoretical and practical. Unfortunately, this is exactly what advertising pushes you to do. The first step to take on the path of education is the acquisition of theoretical notions, which concern market dynamics, asset characteristics, history, economics in general, and trading platforms. Unfortunately, there are no ad hoc schools, so it is necessary to act as a self-taught person. From this point of view, there is no shortage of sources. The literature abounds, especially for those who are willing to study in English. And then, it should not be forgotten, there are also webinars and courses - often online - organized by brokers. Many brokers, in fact, provide clients with real lessons capable of preparing future traders. The second step is to practice. Here a problem immediately emerges... How is it possible to practice if it is not advisable for beginners to trade in the market? Well, brokers have thought of this too and in fact they offer demo accounts. Thanks to these special accounts, the client can invest in the real market but by simulating orders. In short, they invest fake money. The problems associated with this solution, which however seems largely feasible, are two. On the one hand, the absence of risk is poorly combined with the need to acquire skills from a personal point of view. If there is no fear, there is no stress, therefore one does not learn to manage emotions. Secondly, demos are free only on paper. In order to access these particular accounts, it is necessary in the vast majority of cases to purchase a real account. The demo, therefore, takes on the appearance of a mandatory antechamber. Very few brokers grant demos on a totally free basis.

Do I have sufficient personality?

This is also a very important question. At the same time, however, it is also a difficult question to ask because, by answering, you put your own being, your own identity into play. However, it is necessary because trading is an activity that requires moral qualities of a certain level. It requires the possession of specific characteristics, which are not even easy to find. The issue is linked to the impact that psychology has in trading. Very often, the boundary between victory and defeat, between profit and loss, coincides with one's mental resilience. The market is a place where stress reigns supreme, and with it even more dangerous feelings such as fear and panic. So, what qualities must a trader have? First of all, they must be able to resist stress, which during trading can literally overwhelm the investor. Of course, having a solid strategy can help but it's like sweeping dust under the rug: by limiting the space reserved for decisions, the obstacle is avoided not overcome. Secondly, they must have a "quick" mind. Very often, the market contradicts what was planned and it is necessary to make a decision in the shortest possible time. Finally, they must be rational. Courage is the virtue of the strong, but not of traders. If we exclude certain situations, prudence - and only that - is the North Star of investors. It follows that it is best to avoid certain emotional drifts which, among other things, are the main culprits of the failures of new traders, even those prepared from a theoretical and practical point of view. It is necessary, first of all, to avoid getting involved in dynamics that concern the concept of hope and presumption. Both, in fact, lead - almost without realizing it - to an approach similar to that used for gambling. And, despite what detractors say, there is nothing more different from gambling than trading. Even an ultra-conservative approach, perhaps driven by fear, is not very desirable, as it means that important opportunities are lost.

What type of trader am I?

This question should be asked last, since it represents the last step before making your debut in the market. Very simply, it is necessary to know yourself, as an investor, to choose the most suitable strategy or basic approach. There is no one-size-fits-all way of understanding trading. We are not talking about a priori effectiveness, but about trader-strategy coherence. Even to an untrained eye, it is clear that there are two possible approaches, at least at a general level. The first is the approach that we could define as prudent-reflective. In this case, the trader loves to study, ponders their choices for a long time, perhaps more than they should. They prefer planning to operating. The most suitable area for this type of trader is the one represented by the long-term horizon, which is mainly based on a "macro" level price forecast. The second approach could be defined as courageous-operational. In this case, the trader loves risk, albeit in a necessarily rational framework, and is at ease with operations. For them, scalping, or fast trading, could be suitable. This term refers to the approach that exploits price movements in the very short term (we are also talking about a couple of minutes) and which aims to make numerous but small profits. Let it be clear, scalping is not for everyone. Rather, it is best to approach it only after having accumulated a certain amount of experience. The reasons are now intuitive: not only is it very heavy from an emotional point of view and requires remarkable presence of mind, it requires the possession of in-depth knowledge about market dynamics. The advice, therefore, is to operate in the short and medium term, especially if you are a "new trader". Not before having answered the three questions that are the protagonists of this article. Three questions that help you understand yourself and the role you can play in trading - despite misleading advertising.