The difference between beginner and professional traders

Starting to trade from a retail perspective is like entering a profession as an amateur. So, for example, imagine starting life as a practicing lawyer before taking a law degree. How about starting as a doctor before you attend medical school? If you follow that analogy, starting trading without any advanced knowledge is very similar to the examples outlined above. So, to trade FX professionally, you must first understand that you are not a professional. That is step 1. At this stage of your trading, you are not the next hot thing in the hedge fund world. You are a beginner trader prone to all the mistakes that beginner traders are prone to.

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

Beginner traders often need help understanding 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 lead to huge losses as overtrading kicks in the following week.

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. A professional trader who overuses leverage can waste weeks, months, or years of solid performance. Even when using leverage in the right situations, the professional trader 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 attractive as a haven. They will enter the market, unwittingly, before a central bank decision. The beginner trader has yet to learn what sentiment is, let alone that it changes session by session.
The professional trader would only consider trading with an understanding of the prevailing market sentiment. They realize it is pointless to do so. They are locked onto the overall market sentiment and are ready to pounce on any sentiment changes. They are tuned in to a news squawk service and keep up with 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 insufficient data leads to price rises. The fact that price reacts strongly to specific 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 discussing 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 technical

As a beginner trader, you will think that if you can 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, and a moving average there.

The professional trader realizes that technicals are essential but best used with fundamentals. Granted, there are times when the market relies more on the technicals, but a pro-trader realizes when the fundamentals are crucial. For example, gold was bid throughout 2019 on safe-haven demand, low-interest rates from central banks, central solid bank buying, and a source of alpha in a pretty low-return environment, all making a strong case for gold buying. The good news for the beginner trader is that this time is well-spent, and having various systems for market conditions can be helpful. However, the endless backtesting is making life unnecessarily complicated.

5. Beginner traders ignore trading psychology

Beginner traders often need to pay more attention to trading psychology. You may think, 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. Please 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 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 willing to persevere.

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