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Anyone who is interested in Forex trading or investing is probably already getting bombarded with a huge number of ads and promotions on a daily basis, promising huge returns over a short period of time.
Many brokers are using testimonials (most often fake) that show how some of their clients made 300% or 500% returns in a period of a few weeks. Even if the broker is not a scam, these kinds of promotions can mislead the ordinary Forex trader. Many may start comparing their results to the results they find online of other traders and if they didn’t make anything close to those returns, they then pressure themselves to trade more often and more aggressively.
Some may even be pressured by their friends or family by being asked simple questions like “how is trading going?” or “how much did you make this month?” etc. These can be very hard questions by the people we care about if things aren’t going well in trading, but it’s best to not worry about them or any of the above because it is all based on unrealistic and flawed expectations.
How much someone made is unimportant and how much other people expect you to make is also unimportant. In fact, if you’ve just started trading Forex (e.g. less than a year) then you should be happy if you are only at breakeven! And, everything above that is a bonus!
That’s what the people around you need to understand also. And, to avoid pressuring you into taking careless risks because, as you’ve probably heard, most traders lose everything in 3 – 6 months. So, just being able to stay above water in your first year sets you on a much better path to becoming successful in the long run.
In highly volatile and unpredictable markets, such as Forex, where additionally there is huge leverage offered, our first goal must be to preserve our capital, and only after that look to profit.
As one of Warren Buffet’s best-known principles of investment says:
- Rule number 1: Never lose money
- Rule number 2: Don’t forget rule number 1
Forgetting about preserving your capital can encourage excessive risk-taking, and that never ends well in this game. Things can turn against you in a second, even on the best-looking and the most convincing trades. Regardless of what the technical or fundamental analysis was saying, surprising, unexpected events happen all the time causing things to shift suddenly, and those traders who have heavily loaded positions will suffer badly.
It’s so easy to lose in Forex trading, but regaining the money you lost is progressively harder and harder. That’s because capital is one of the tools that a trader needs in order to be able to work, much like the woodworker needs his claw hammer and chisel. The less capital you have the fewer options you have and the more capital you have the more you can automatically achieve.
So, Buffet’s rule perfectly applies to Forex trading - Don’t lose money!
