The pathway to your trading and investing success in the forex and futures market
In this article we get into the three critical elements of any trading and investing strategy: The importance of probability, risk management, and leverage.
The pathway to your trading success in the forex and futures market
At our online trading academy, we emphasize on the institutional way of thinking. Understand the market, define the risk and then embrace the leverage. Leverage is a fantastic thing but also can be dangerous for untrained individuals. Just like anything in this world has its yin and yang. Also, a fast car, like a Ferrari, can be hazardous to inexperienced, and unlicensed individuals.
The reason leverage and risk are demonized in today’s world is just that amateur traders start off with overleveraging their accounts first without understanding the market. If you let a 12-year-old drive a Ferrari and they cause an accident, then no-one would turn their head in saying that the Ferrari was dangerous. No quite the contrary, a Ferrari is only a tool, that can also be driven as slow as a Ford Fiesta, but if needed has more power if you can handle it. The market is similar. However, the reality is: no one will let a 12-year-old drive a Ferrari, but the forex market is accessible to anyone. Professional traders understand the market, define their risk and then embrace the leverage.
Let’s get into the three critical elements of any trading and investing strategy: The importance of probability, risk management, and leverage.
Be able to measure the probability of any trade setup
Possibilities of an event to take place in the financial market can be measured. Novice traders would, however, like to believe that all things are possible in the forex, futures or stock market. We all know there is the possibility of finding a bag filled with cash around the dark alley just next to your street but what is the plausibility of that ever happening? Novice traders usually do not have a reliable method of accessing probability before getting into a trade, but students at our online trading academy enter every trade regardless of trading forex, futures or stocks after evaluating and considering its probability of success. At our online trading academy, we will equip our students with the necessary skills to calculate and forecast the probability of success before entering a new trade or investment.
Understand what risk management in trading really means
Let us discuss risk management with the use of an illustration: Let us say you are driving a car, for example, the airbag is not to prevent accidents from happening but to ensure you do not get fatally injured from the crash. There are simple rules to follow, like do not text while driving, do not drink and drive; all these ensure you do not even need your airbag at all.
Now a lot of novice traders seem to think to have a “stop loss” is all the risk management they need to trade, but the “stop loss” can be likened to the airbag. Knowing when to trade, what assets to trade and when to buy and sell to prevent your stop loss from getting activated in the first place is the definition of true risk management.
Would you consider driving a Ferrari without any prior training on how to drive? That is just like a disaster waiting to happen, and the probability of you excelling at such is close to none. There is a simple rule when trading, which is buying at wholesale prices and selling at retail prices, and if you are going to risk your resources on trading forex or futures, it's only wise to learn the ropes first, to ensure you do not suffer unnecessary loss.
Our students at our online trading academy learn a strategy that actually works and develop a plan around it. They test their plans by executing it in a demo account and ensure they have harmonious results before going ahead to use actual money. And exactly like every business, when they start using actual money, they start small then gradually increase it with experience. Once they eventually get some results, they move to the next phase which is a leveraged asset class such as forex or futures.
It will be wholly irresponsible to want to skip the first few phases and just jump to a more advanced phase, you will only end up losing your money to someone who was diligent and thorough enough to go through the process because just like driving a Ferrari you need to have the necessary training to prevent you from crashing.
The power of leverage and how you actually should use it
These are merely us multiplying our efforts through external means to generate more results. Will it be possible for us to pull a big truck with our bare hands? The simple fact is we can't, but this same seemingly impossible task can easily be done by a tow rope right? The tow rope simply leverages our efforts, and this can be likened to tools like forex and futures, which we use to leverage our dollars. Leverage evens out the playing field such that as a Forex trader with one thousand dollars in my account, I have the same purchasing ability as someone who has up to five hundred thousand dollars in a stock cash account, which means lack of capital is not an excuse to not becoming a good trader. Of course, we hear many stories about how leveraging is risky but the risk in leveraging lies with untrained traders, not the leveraging tools.
New and untrained traders believe they should get leverage first, then put a little amount into a trade with high-risk value, but being untrained, they do not realize that with elevated leverage, and elevated risk comes low probability. As a skilled trader, in our online trading academy, we measure the probability first and ensure the odds are in our favor. At our online trading academy, we do this by making use of our Supply and Demand strategy, which measures the probability and our risk and this knowledge is what we use to decide to take leverage. Our leverage comes from the asset classes we have previously determined from our plan, our measured risk, and the style of trading we chose to employ.