Chapter 5: Common misunderstandings and helpful tips for retail traders. - Mine Digital

Chapter 5: Common misunderstandings and helpful tips for retail traders.

Posted on: October 22, 2019

Matthew Starkey

Chief Operating Officer

Matt Starkey started in financial markets in 1996 at Schroders Australia Limited. During his career, he has held a number of positions at Royal Bank of Canada, JBWere and most notably he was a Director and Proprietary Trader at Goldman Sachs. Matt has worked at two macro hedge funds and more recently has been involved in the Retail FX space and in conjunction with his role at Mine will remain as a Responsible Manager to Everforex Financial.

What is core to trader’s success? A desire to be humble and submit to the markets. No one can outsmart markets, nor do they always make money. But if you know when to take your profits and remain calm during times when positions go against you, you will gain experience of how to wear losses and this makes the profits even sweeter.
  • I can rely on crypto trading for a night to get rich

No. Trading is not a get rich quick scheme. It can take years to develop a trading style that works for you individually.

  • Crypto trading is simply gambling

Crypto trading is complicated and is nothing like gambling. There are many ways to trade: macro, technical and systems are among them. And in each case, there are many different indicators you can use.

Crypto trading is not like gambling because your profit or loss changes as the market changes. Gambling is binary and you win or lose depending on that roll of the dice or hand of cards. A trader can enter and exit profit many different times on a single trade and can hold positions longer depending on how much margin they have.

  • Retail traders need to have a huge amount of money to participate in trading

No, you can participate in the global markets with as little as $500. With the benefit of leverage, you can trade larger in crypto markets than other markets that don’t offer margin or leverage.

  • The crypto market is being manipulated

No, this is highly unlikely in Bitcoin. The Bitcoin market is a large market, with a huge daily turnover. It cannot be manipulated because it is too big and has too many participants.

The vast liquidity of the FX market is also a big reason brokers can offer high leverage because even in fast moving markets traders can instantaneously enter and exit positions.

  • Formal regulation has no meaning

Incorrect. Australia has one of the strongest regulatory authorities in the world. ASIC have far reaching powers to prosecute people who do the wrong thing and the newly formed AFCA has an easily accessible complaint mechanism for clients who feel they have been wronged.

  • Does the everyday person on the street stand a chance trading forex?

Yes, they do. However, they often don’t give themselves a chance. The main reasons are because they don’t understand why markets move (properly) or how to manage risk. Overcoming these hurdles does take a bit of time and willingness to learn – again to touch upon my own beginnings. The choice facing everyone early on is to accept the learning curve in front of them and attack it or simply give up. Everyone can make mistakes in trading, so it is important to learn and try not to repeat those mistakes.

  • Can you learn and educate yourself in Crypto markets?

Yes, by filtering relevant information, taking a whole of market approach and understanding what makes the market move. It is important to also work on developing a trading plan and following it.

  • What are some common mistakes in trading?

Many traders make mistakes by putting on trades too early or too late. Timing is essential to making it as a trader.

The size of the risk is also a common mistake, putting too much risk on a trade which might move quickly against you.

For example, you believe that the Bitcoin is about to bounce and you decide to buy some on your Mine account. You have $1,200 AUD at your disposal, and you decide to buy $1,200 of Bitcoin without checking the daily chart.

15 minutes later the market hits a daily down-ward trend and the bottom falls out of the market. You have blown up your account.

This situation could have been avoided by 1) taking less risk, and 2) taking more time to judge the market before looking for an entry point.

  • Do you need a good mindset to become a successful trader?

Yes, this is very important. Finding a good work/life balance, being able to decompartmentalise your life away from trading or being able to recognise that you are not in the right frame of mind to trade are very important traits. You must be patient and realise that markets don’t work on your timeframe. You need to adjust your timeframe to fit markets. You must be able to sleep on risk. If you can’t go to sleep with a position on, you shouldn’t have the position on!

  • What’s the number one thing that traders can do to improve their performance?

Developing a process and following that process is the most important key to success.

Try to work backwards from a goal and list the steps you need to take to achieve it. How many hours do you need to spend learning each day about finance in the real world?

Are you advancing your knowledge every day? What happens if you skip a day? Double up the next? How many hours of live learning each day do I need to succeed in markets?

What happens if you don’t work in an environment that offers this? Go online and seek out help? Find a community to get involved in?

Define your trading philosophy. What is your skill set? Macro, technical, single name analysis…a blend of all?

Under what parameters do you enter a trade? How do you structure a trade profit/loss? What is your timeframe for trades to perform/cut?

To understand and trade complex markets you need to break them down into smaller manageable parts and begin chipping away at them each day. You can’t be sure a process will be successful, but you can be sure no process will be unsuccessful.

Being able to walk away from the screens and not micromanaging positions is important. One of my favourite quotes is from Keynes: Markets can remain irrational for longer than you can remain solvent.

I also like the saying: never go back to a well too often. I use it in situations to describe when people over-trade their ideas.

So, if you don’t control your risk effectively, you’ll end up losing your account, and every trader should take that very seriously.

  • What is core to trader’s success?

A desire to be humble and submit to the markets. No one can outsmart markets, nor do they always make money. But if you know when to take your profits and remain calm during times when positions go against you, you will gain experience of how to wear losses and this makes the profits even sweeter.

“The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading… I know this will sound like a cliché, but the single most important reason that people lose money in the financial markets is that they don’t cut their losses short.”

Victor Sperandeo. The legendary “Trader Vic” and financial commentator.