Compare Forex with Stock Trading

by : Dean Whittingham

Trying to make money from the markets even armed with a set of rules is likely to be met with failure. Over 90% of traders fail to make consistent money in the markets because their expectations are beyond their skill levels and their resources. Ill-equipped they are easy prey for the trap that is the financial markets.

Skills include knowledge and knowledge starts with the basics, but it doesn't end there. Knowledge means understanding how the brokerage side of things works and how your trading platform works, your legal requirements, your method of analysis and process for trading and much more.

Then there is skill level. If you're hopeless at fixing a computer, what are you going to do if it crashes right at the point where you've placed a trade but haven't put your stop loss in yet?

What about your math skills? Can you quickly determine the exchange rate between your own currency and the currency the asset you want to trade is in, and determine the effect this will have on your own account?

Do you know how to calculate percentages for risk management (do you even know what that is)? This is highly important because it determines how quickly your account diminishes with a losing streak.

What about your emotional level? Are you quick tempered or do you beat yourself up easily? Maybe you're strong and resilient or have you come from a disciplined background. Either way, these emotions all have their place in the scheme of things.

Having a poor emotional habit (such as being impatient), doesn't mean you won't succeed at trading, but it does need to be addressed, however you must also look for your strengths, as these are pillars to your success.

It's also very important you understand what your resources are. These include your capital, and how much of that can you afford to lose? Why trade a system requiring a large capital base if all you have is $10,000.

Time is also a resource. How much can you allocate to trading, learning, back-testing, managing etc? Do you honestly think trading is just placing trades? The longer you are a trader, the less learning time will be required.

Skills, as mentioned before, these are resources too. Are you good at certain things but need help with others such as using a computer? Math is an obvious one, but there is also the writing of journals and logging your trades, keeping accounts and so on.

Strengths are resources. When you are strong at something such as being disciplined this will become one of your assets and one of your edges in trading. Know what you're strengths are.

Software and hardware are resources. Do you know how to use your trading platform? Is your internet speed and your computers processing power sufficient for your method of trading?

When you list your skills and resources, and everything you can think of that may contribute to and affect your trading business, you'll find choosing the right style and method of trading that is going to help you achieve your goals that much easier.

You won't spend good hard earned money on trading systems that can not possibly function with your list of resources. It is better you know yourself, your resources and what you can bring to the markets than trying to fit into something created by somebody else who has a completely different list of skills and resources.