Hello, Steemit community. My name is Bulent, from Istanbul/Turkey. I'm an Elliott wave analyst and trader in forex, option and cryptocurrency markets. My goal is sharing my best trade setups daily basis, thus I hope I will be able to help some of you to make more money in trading. But in this post, I like to share the beginning part of my trading story and some lessons I’ve learned.
I started to trade 4 years ago in the forex market and at the beginning, my story was the same as almost everyone else's... I lost all money in my account. Then I deposited again and lost it as well. In time, I realized that the forex market is not something which was created to give me some free money and I definitely was doing something wrong. It took a lot of time and cost a lot of money to understand what was my biggest mistake in trading; my focus point. My aim was making money. I know, it sounds quite normal, no one wishes to lose money after all, and making money is the only logical reason for trading. But my aim was wrong. When I took a trade, I calculated how much money I could make. For example, when I bought 1 lot gold with $1000 potential profit, I asked myself a very simple question, why shouldn't I take 2 lot gold and increase my potential profit to $2000. Because of the focusing on only winning side, I had forgotten to look at what I left behind, what I was putting in the risk exactly. And this is the basic explanation of why almost all new traders are overtrading. This is the biggest problem of all newbies. You must focus on protecting your capital in the first place instead of making money. Only that way you can stay in the market for a long time, and staying in the market is the only way of making money in this (actually in any kind of) business. That's why the essential part of trading is risk management.
Lesson 1: Don't put any money into risk for one single trade more than you can afford to lose. Generally speaking, 1% of capital is good risk limit for each trade.
But of course, I didn't have any idea about risk management. So, I took some trades with big lot sizes according to my capital. Sad to say, some of them went extremely wrong. Then suddenly, I had a great idea. I should have added one more trade on my losing trade to bring closer the average entry price to the spot price. It's called Average Down strategy. Let's say my first trade's entry was 10 and the spot price was 12 at that moment. If I sold it one more time in same lot size, my average entry would be 11. So, why not, it was obviously the best thing I could do... But, of course, it wasn't. I like to explain what was the reason for taking such a bad trade. I took it because of my ridiculously high self-confidence of ignorance. Think about it, I looked at the chart and all my fancy indicators, I read the newspapers and listened to all experts and I knew it would go down. So, up moves should have been temporary. That was the self-confidence of ignorance. The market doesn't have to go anywhere just because I believe so. But this wasn't the only reason for taking this trade, there was one more, which was not being able to deal with losses. When I took the second short trade, my first trade's loss was about $500 (5% of my capital) and I didn't want to close it. Why? Because up moves should be temporary and simply I didn't want to give my money away. I want to keep it, it was my money and it was more money than I could accept to lose. This was a huge mistake.
Lesson 2: Calculate the possible loss of the trade in the first place, deal with that you can lose this money and only then you can pull the trigger. Don't try to recover. Close the trade and look for the new opportunities.
After adding 5 more trades, my total loss became about $6000 (60% of my capital). I could only sit in front of the computer and look at the gold chart and news desperately. Even sleeping was very hard. Basically, the pain was unbearable. Suddenly, I had another great idea. It just came to my mind. I should have taken a trade to cover all my current positions. I took a long trade in same lot size with my short trades. It's called hedging and it is a very attractive idea but only if you don't know anything about what you are doing. Thanks to hedging, I had a chance to look at everything again and decide what should I have done. But of course this idea was just good on the paper, in reality, it was extremely wrong as well. Because I was still believing that I could fix the problem. I could not. I lost my account at the end. But I’ve learned my lesson and never ever have repeated the same mistakes again.
Lesson 3: Don't hedge your trades. If you are such a bad trader, who put yourself such a desperate situation, you cannot be good enough trader, who can fix the problem.
Of course, these 3 lessons are not the whole story. There are many others, but these are the essential ones to stay in the market. As long as you can stay in the market, you have enough chance to learn more and make money. I was lucky, because I had enough money in my bank account, so I deposited again and I have stayed in the market.
Thank you for reading.
Until next time, stay in the market.