The difference between beginner and professional traders

When you start trading from a retail perspective it is a bit like entering a profession as an amateur. So, for example, imagine starting life out as a practising lawyer, but before taking a law degree. Or how about starting as a doctor, but before you’ve attended medical school. Now, if you follow that analogy, starting trading without any advance knowledge is very similar to the examples outlined above. So, in order to trade FX professionally, you have to first understand that you are not a professional. That is step 1. You are not, at this stage of your trading, the next hot thing in the hedge fund world. You are a beginner trader and are prone to all the mistakes that beginner traders are prone to.

1. Beginner traders take enormous risks (and don’t realise it)

Beginner traders often don’t even understand leverage before starting to trade and are just focused on how much money they can make. Enormous risks are par for the course. Losing and making 20-40% of the account in a week or two is not uncommon. When huge gains are made, euphoria and overconfidence tend to lead to huge losses the following week as overtrading kicks in.

The professional trader knows that leverage is like an opiate; powerful, addictive and able to destroy you. Pro traders will use leverage at certain times and with respect. Even a professional trader who overuses leverage can destroy weeks, months or even years of solid performance. The professional trader, even when using leverage in the right situations, knows that unexpected events can, and do, occur in the market and always has an exit plan.

2. Beginner traders are confused by sentiment

The beginner trader will sell the yen on a risk-off day. They will sell gold when it is clearly attractive as a safe haven. They will enter the market, unwittingly, before a central bank decision. The beginner trader has no idea what sentiment is, let alone that it changes session by session.

The professional trader would not consider trading without understanding the prevailing market sentiment. They realise it is pointless to do so. They are locked onto the prevailing market sentiment and are ready to pounce on any sentiment changes. They are tuned in to a news squawk service and keep on top of all the latest news stories, central bank meetings and data releases.

3. Beginner traders ignore fundamentals

The beginner trader mantra is that, ‘all news is already priced into the markets’ and that fundamental trading is ‘senseless’ as sometimes good data leads to price falling and bad data leads to price rising. The fact that price reacts strongly to certain news events never occurs to them as they have trusted a ‘guru’ (self-appointed) who has never traded for a prop firm or a bank and told them that ‘all news is priced in’. The ‘guru’ may even have a trading room where they have banned talking about fundamentals. The beginner trader agrees with this and is happy that they can ignore fundamentals. Charts, charts, and charts all the way.

The professional trader embraces fundamentals and always knows what the central banks are doing.

4. Beginner traders pursue the holy grail of technicals

As a beginner trader, you will think that if you can just find the perfect technical system you will have ‘cracked it’. You scour the internet for systems. Try to make your own. Tweak a system here, add an RSI here, and a moving average there.

The professional trader realises that technicals are important, but that they are best used in conjunction with fundamentals. Granted, there are times when the market relies more on the technicals, but a pro-trader realises when the fundamentals are really important. For example, gold was bid throughout 2019 on safe-haven demand, low-interest rates from central banks, strong central bank buying, and a source of alpha in a pretty low-return environment all made a strong case for gold buying. The good news for the beginner trader is that this time is not wasted and having a variety of different systems for market conditions can be helpful. However, the endless backtesting is making life unnecessarily hard.

5. Beginner traders ignore trading psychology

Beginner traders often ignore trading psychology. You may think, oh so foolishly, ‘I’m a strong naturally disciplined guy. I don’t need ‘psychological’ help!’ How wrong you are! Trading psychology is critical for traders and should be considered daily. Don’t ignore it.

One key lesson a beginner trader would be wise to grasp is that no one is ‘born to win’ in their trading. One of the  really annoying aspects of learning to trade is the trolls that appear on public forums who humiliate beginner traders and make them feel something is ‘wrong’ with them. It is utter nonsense, trading is simply a matter of technique and is achievable by anyone who is willing to persevere.

Pro traders have a good grasp on their trading psychology. They are in tune with their emotions. They respond in their trading and have learnt not to overreact. They diligently work on their psychology and many top traders employ a trading coach to help them.

HYCM Lab is a financial analysis source that provides regular insights on how global news affects the markets including forex, commodities, stocks, indices, and cryptocurrencies*. Run by the HYCM team, it equips traders with everything needed to make informed trading decisions.