By Giles Coghlan, Chief Currency Analyst at HYCM

Every market is a stage and every player gets exposed

Apologies to William Shakespeare for adulterating his famous line from As You Like It, when the mournful Jacques utters these famous words, “all the world’s a stage and all the men and women merely players; They have their exits and their entrances, And one man in his time plays many parts, His acts being seven ages’. I was thinking this week about the different stages of FX growth. I remembered back to when I first entered the world of FX and I wanted to give a brief outline of the different stages of a trader by drawing on my own experience. Very few people talk about their development as a trader, and yet everybody must learn. Starting from the ‘birth’ of a trader, through to ‘adulthood’ and beyond, this two-part series will elaborate on the five stages of growth identified for all aspiring FX traders. Let’s start with birth; it’s rarely pretty…

Birth: The reality of the rookie

Being an FX rookie anywhere is hard, but being a retail FX rookie is nearly impossible. Breaking through the rookie stage is challenging and approximately 90% of retail FX traders give up. Typically, you enter the world of FX eager and enthusiastic; you may have seen a video, demoed the MT4 platform or known a friend who ‘made a lot trading’ and you decided to take the plunge. You can do this, you say.

For me, back around 2002-03, I was working for a charity for the time and my wages were very low. In fact, at the charity, we worked at we were grateful that we received any wages. Prior to my joining, a salary was not a standard thing each month. Hard to believe, perhaps, but true! Well, one day our charity had conferences and one of the conference speakers was a pensions adviser. I had a wife and thought ‘ok, I had better sort out a pension’. So, off I went to the advisor’s seminar. However, there was a problem! The advisor was recommending that I saved what to me was a ridiculously high amount of money.

So, being a creative thinker, I thought there must be a way of doing this more efficiently. Then it occurred to me. So, I said to the advisor, ‘If I save my money in GBP but exchange it into USD when the exchange rate is in my favour and then do the opposite when the exchange rate changes again, I can make my pot grow faster’. It was what the pensions adviser said to me next that led me to FX. He just said, ‘then you will be doing what I am doing’.

You quickly realize when you are learning FX that you have a lot to learn. FX robots, technicals or fundamentals, Google is awash with trading gurus, and there are so many ways to go wrong. That’s not even mentioning the internet forums, who are full of people who are frankly quite odd. You can witness some so-called ‘expert’ hammering a guy for being an ‘idiot’ and a ‘trading loser’, followed by huge ego-driven arguments. Not the easiest learning environment. So, if you found yourself in this position right now, what should you do?

What to do as a rookie

Focus on learning the basics. Check out an educational site like babypips.com. Work through it. It takes time to learn the concepts and jargon. You don’t need to know it all, of course, but put the time in to learn. Don’t get an FX mentor at this stage, spend time learning the basics on your own.

Realise that you need to use fundamentals to decide your instrument to trade and then technicals to time your entry and exits. Work on understanding what this last sentence means.

Finding your feet as a toddler

You are now trading and getting mixed results. You have worked out that some news events have a big impact on price, and you are prepared for it. You know about key support and resistance levels, and you can see that some places are technically great for entries. You may have backtested a system – or a dozen of systems – and you are confident and ready. You are not a beginner anymore, but you still have gaps in your knowledge. You may not understand the role of the bond and equity market in FX and options, and the language used by central banks is still a bit of a mystery. You know what a ‘spike in cable’ means, but you don’t understand what is moving the currency pairs.

When I was at this stage of learning to trade, I discovered the beauty of a ‘sell on stop’ in combination with a market maker broker. Market maker brokers get caught by surprise when you ‘sell on stop’ out of a big market event. Because the market maker has an artificial market the fills you get tend to be quite good (depending on the broker obviously). They honour the trade on the hope that next time you will mess it up, over-leverage and hand all your money over to them. However, what frustrated me during this time was yes, I was making money, but I didn’t know why or which direction the market was heading. I had constant insecurity as I only understood the technicals of trading. This stage ended for me when I got an e-mail closing my account. I only worked out many months later why they had shut my account (because I was exposing their market-making model). This made me assess where I was at and decide that I wanted to, not just trade the markets, but have an understanding of them. If you are here, with a desire to understand the market and why it moves then here is what you need to do:

What to do

Get a mentor. Pay for training from a professional. You will save years of frustration. I mean imagine trying to learn any skill without guidance. Yes, you can do it, but it doesn’t mean you should. Only the most persistent and able will persevere through this incredible frustration.

What to avoid

Do not use high leverage at this stage. There is a phrase that gets bandied around that ’90% of new traders lose 90% of their capital in the first 90 days’. I personally recommend that during this stage you do two things:

1. Don’t use leverage. If you have invested 1000 units of currency only trade 0.01 micro lots; this is trading without leverage. If you leverage up and lose your balance, you will create mental barriers to your success in the future.

2. If you lose 10% of your account, stop trading. Something is wrong and you need to re-evaluate. Demo trade until profitable and then get back on the bike.

By following this advice, you will almost certainly learn to trade before blowing out your account. You will also avoid losing a painful amount of money that you most probably need. Oh, and by the way, learn to trade with as little money as possible. You may very well lose it at first, so whatever you do don’t invest a lot. Finally, if you do lose a lot. Don’t worry. You can rebuild and re-start. Just don’t do it twice.

The next article will be on the Adolescent and Adult stages of trading. I hope that this has helped some people out there and please share it with anyone you think might benefit from it. Remember trading takes a long time to learn, despite what you may have been told. However, the biggest factor to success is perseverance, so it is a skill that you must master.


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.