Summer is always a fascinating time in the UK, the (increasingly rare) sight of butterflies is a vision to behold, especially the rarer ones. Their beauty, fragility, perfect symmetry, ease of movement and gravity defying changes of direction, as they skip from flower to flower, are a wonder to behold. Sadly, many of us revel in the pursuit of butterfly spotting, knowing that their lives seem far too short. Unfortunately, the butterfly forex trader shares many of the same characteristics; fragility, gravity defying changes of direction and a short lived experience, that (unlike the butterfly), doesn’t even enjoy a spectacular short life.
Our butterfly trader is defined as a trader who can’t settle on a trading plan or strategy, they’re constantly flitting from strategy to strategy, changing from one method to another, desperately in search of a winning plan and a winning method, without allowing their method and strategy to be evaluated over a reasonable period of time and amount of trades. If this pattern of impatient behavior is not corrected, then it’s highly unlikely that trading success will be forthcoming.
As with much of our advice contained in these articles and on our blog, our intention is to get our clients trading successfully as quickly as possible; we need our clients to avoid the most obvious pitfalls, which our research and experience has identified as the main barriers to trading success. Some of the most negative experiences novice traders endure they’re unlikely to recover from and if they quickly form as bad habits, those early experiences can be so negative, so severe, that traders will give up on trading completely, never to return to it. This is evidenced by research illustrating that the majority of novice traders give up the pursuit of trading within four months and ultimately write it off as a bad experience.
Curing this impatience and short term butterfly attention span is easier than many traders would imagine, as it’s generally motivated by our two old enemies of greed and fear; those two negative trading influences that sit perched on either shoulder, during our early trading years. The impatience is driven by greed; setting far too ambitious targets for our profit targets. The fear is that we’ll miss out on an opportunity if we don’t immediately change and that we’ll lose too much of our account, if we stick with a strategy we’ve decided to experiment with.
Setting realistic and achievable targets will help alleviate issues of greed. Novice traders have no guidance on this and the responsibility lies with experienced and successful traders to advice on what’s realistic.
Far too many new traders are seduced by claims on trading forums, or through adverts they may see popping up on their web browser. However, the facts are sobering; only a small amount of retail traders may make a living out of trading forex and a 1-2% weekly return on your account size would represent an exceptional performance. Therefore, if you set out to make gains of 1% per week you’ll be making outstanding returns. But mention this to novice traders, at the beginning of their trader journey and they’ll be crestfallen that their typical €10,000 savings/account might only grow by €5,000 annually. But that’s the reality, and as previously mentioned an approximate 50% annual growth would be outstanding, compared to many other returns available.
Fear also needs be addressed, novice traders must park their fears and not abandon their trading strategies at the first sign of failure or weakness, strategies need to be evaluated over weeks or months, not hours, or a day. They must lose their fears of losing a small amount of money in the short term and focus on longer term aims. They must avoid being that short lived butterfly trader and aim to make their first foray into the world of forex trading an enjoyable experience and not be so costly initially, that it discourages a long term career.
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