Many people aspire to be the next successful trader in the market, motivated by the stories of trading legends such as the likes of George Soros and John Paulson.
Of course, reality is very often different from what we read from articles online. The truth is, trading is extremely challenging and the journey towards becoming a successful trader is very often a difficult one.
We had the opportunity recently to speak to an experience trader, Mr Loh. Mr Loh has more than 10 years of experience trading on a variety of different asset classes such as indices and commodities. He is also very active in Forex trading, which is an area that many aspiring traders typically look at. We decided to take the opportunity to ask him more about Forex, and some lessons he has learnt after his years of experience in the sector.
Here are 5 lessons we learnt about Forex from our conversation with Mr Loh.
(1) Don’t Blindly Follow Other People’s Strategy
One of the most common things to do when you first start forex trading is to try copy the strategy of someone else whom you think is an expert. The general idea is that if it works for someone else, it should work for me.
The problem with blindly following someone’s strategy is that their strategy will not account for your requirements as an individual. In the case for Loh, he sometimes utilise Forex as a way to hedge the positions he has taken on for other asset classes such as commodities, which he also trades in. Hence, it does not make sense for him to follow what other people are doing. At the same time, it is also illogical for others to be following his trading strategy, given that they don’t own the same portfolio that he has.
(2) Learn Through Your Experience
To be good in something, you need to practise constantly. This holds true for any new skills that you want to pick up, be it learning how to play a musical instrument or a new sport.
People don’t simply attend a lecture on how to play the guitar and suddenly become good in it. Neither do they read a book about how to play football and suddenly transform into the next David Beckham. We need to practise to become good. We need to learn from our own experience.
In the same way, you can’t simply read a book or attend some courses to become a good trader. You need to consistently practise over a long period of time before you become familiar with trading and gain the experience needed to become successful in your preferred forex currency pair.
Loh shared with us that the main way he improves his strategy today is by learning from his own experiences, be it successful trades or mistakes that were made.
(3) Part Of A Bigger Portfolio
One common mistake that people sometimes are guilty of would be to look at their forex portfolio as a standalone portfolio, rather than to see it as part of a bigger portfolio that they own.
Risks across various asset classes are sometimes correlated. For example, the prices of commodities such as gold are closely correlated to the strength of the US Dollar (USD). So if you are taking a position in the prices of some of these commodities, it might be worth taking a hedge in your forex position to minimise your overall portfolio risk.
Again, this goes back to point (1), where individuals have to understand for themselves the various risks they are exposed to base on how they are constructing their portfolio. So unless forex is the only thing that you are trading, you need to take into consideration the other asset classes that are in your portfolio.
(4) Risk Management Is Everything
According to Loh, this is probably the most important element of trading would be the process of risk management. Too often, we hear of people who are new to trading bursting the few thousand dollars in their account overnight simply because they did not set a stop lost measure in place. Others may risk too much on a single bet, or insist on carrying out a strategy that is no longer working.
When it comes to trading, it is always important to assume that you might be wrong on your trade and to have a backup plan that you will execute without question if things do indeed turn south. Leverage is a two-edged sword. You could make a lot of money through it or end up losing tons of money quickly if things move against you. Hence, risk management is critical.
And if you are not sure what risk management really entails, we think you should probably try avoid trading until you figure out what you should be doing on the risk management end.
(5) Get A Suitable Platform That Works For You
Getting a platform that is suitable for you is important to your success. For Mr Loh, the IG platform has served his needs well for many years. For starters, the platform is user friendly and easy to use. Other positive areas include enjoying a good spread and liquidity. These are the little areas that become important once you start trading more frequently at much bigger volume.
Of course, additional perks such as being taken on a helicopter ride by your platform provider helps as well. As a way of showing their appreciation to their valued clients, IG brought some of their clients recently on a helicopter sightseeing tour around Singapore as part of the celebration for their 10 year anniversary in Singapore.