I cannot help but read time and time again that only a very small percentage of private traders manage to actually make a profit trading their hard earned cash on the forex, stock, and commodity markets. I have contacted a few people whom I know to have lost money trading over a fairly short space of time, and enquired as to their respective trading strategies. Most were kind enough to admit that although they had read various articles about trading and money management they had no strategy at all, and really just resorted to guesswork as to the future direction of a trade.
Others advised that they used various direction indicators, but unfortunately it is well known that just about all indicators lag the market price and therefore are quite useless, unless of course you require to know what the price movement was in the past.
I tried to explain that the indicators used were just that – an attempt to show the possible direction of the
market price. Still not good enough. The best use for such indicators is to wait for the end of a steady
uptrend or downtrend of the market price, at which point you should stand a good chance of having a retracement or reversal of the market price in the opposite direction, and at which point you could open a
trade in that new direction.
Unfortunately, you also have the buyers and sellers presently trading the markets to contend with. This means that in a sharp uptrend of the market price for example, where there is Buying pressure overcoming any Selling pressure (usually accompanied by high volume) any retracement back downwards has to wait for the Buying pressure to run out of steam. When it does Selling pressure then takes over the reins and commences to push the market price back downwards. Is this the time to enter a Buy trade ? Not at all.
What usually happens is that the indicators are showing that the price will drop, and they will be correct, and consequently the private trader will immediately enter a Short down trade. What often happens in these cases is that the Sellers in the market are taking their profits in what is known as a “pullback”.
Once the Sellers have taken their profits on the previous market price rise their Selling pressure runs out of steam and Buying pressure resumes. In fact the Sellers, having closed their trades may well be entering the market again, this time buying. As a consequence the market price resumes rising upwards, and the whole situation is usually known as a “pullback”.
The poor old private trader (who is still not sure exactly what is happening) has to bale out of his newly opened Short trade at a loss, accompanied by much wailing and gnashing of teeth. Our private trader may even consider that he is just not cut out for trading, and may decide at this point that he would probably have more fun losing his shirt on the horses. A great pity because there is another way to counter this losing situation.
The rising of the market price cannot go on forever of course, and eventually a market price will be reached at which point the Buyers consider the market price is too high to purchase. At this point the market price will turn downwards into a downtrend.
So what can our poor private trader do to alleviate the distress over losing trade after trade ?
He could give several thousands of pounds/dollars to a trading broker to manage an account on his
behalf. The risk is that the broker could come back at any time asking for more money saying
“unfortunately the market…..” tale of woe, and our private trader is still no better off. Very many years ago I remember futures brokers, mainly in the USA, regularly telephoning potential clients to manage their funds for trading futures. I cannot remember any clients actually making money on futures at that time. Our private trader should certainly vet any broker approached as to their past performance, or better still a recommendation from an existing client of theirs.
What other options has the private trader ? Well, one other direction would be to subscribe to a membership with a signal service provider, whereby you will usually receive trading signals on a daily basis with directions as to what to trade, either for day trading or for longer term trading, for the forex, stock, and commodity markets. All our private trader has to do is open up a live account (and a demo. account if necessary for initial paper trading) with either a broker, or one of the less complicated spread betting trading platforms. Usually a much higher deposit is required by a broker, especially in the USA where day trading rules of more that three trades each week require you to have and maintain an account of $25,000. Subject to certain minimum margin requirements you can often trade with around £100 deposit on a spread betting trading platform.
The private trader must decide which style of trading he feels most suited, which ranges from “scalp” trading covering a duration of a few minutes often entailing around 400 trades open and closed during the day, but this type of trading is for the experienced trader as the market takes no prisoners. Day trading with just a few trades opened and closed during the day. Longer term trades over a week or even months duration.
Often the style of trading will be dictated by whether the trader has to work during the day, and therefore cannot be at the computer for trading. These days I understand a Smartphone can be used for trading from the place of work.
The point to remember when choosing a signal service provider is that the most expensive signal service providers are not necessarily the best by any means. Some providers offer just one solitary currency pair for daily trading whilst most others offer many pairs also stock and commodity signals for trading. A few even provide their own trades immediately they are placed to be copied by the members, should they wish to trade alongside the provider, giving newbies an opportunity to get into the markets.
