Reflection on CFD/FX trading around and after Brexit

As the title suggests, this post is going to be about my reflection on 2 weeks of trading around and post the Brexit. Yup, I have decided to venture into trading to build up my income. Perhaps I do feel inpatient and feel the need to increase my monetary net worth at a fast pace as I feel that my share portfolio moves at a slow pace. Moreover, I do not have the vast amount of cash as Warren Buffet does to make a sizeable profit on. 20% of $1 billion is $200 million while 20% of $1k is only $200. For investing in shares, I think that size does matter, and it does works in the long run, but it needs to be scaled upwards. For now in the short run, I think that trading is the way to go to scale up. Of course, everybody knows that trading is difficult and depending on who you ask, 95%-99% of traders lose money. It is difficult to trade and I understand it at least intellectually until I started trading and experienced it personally. I have only read like 1-2 books on trading and got started as Brexit is a once in a life time event, and hard to come by. So my trading basis was mainly on my ideas of how events could unfold and rudimentary technical analysis of support and resistance based on what I read. To cut the long story short, I funded my account with $5k and within the span of 1 week, I made $1k+ with it and in the following week, within 2-3 days, I lost most of it. Quite a humbling experience frankly, and I realize the need to really study the various techniques out there before committing into trading further. It was an exhilarating experience to trade too. Felt like I was on a high when my trading thesis was correct and it was quite exciting. The highlight for the month of June for me actually, the only thing that kept me looking forward to each day. At the same time, I knew it was difficult to preserve capital and little did I know that losses could mount up so quickly as well. Guess I need to work on my risk management on trading. So in short, to summarize the learning points from this trading session:

  • Forex trading is too volatile. Best is to start by scalping and to initiate positions of 10,000 denominated currency. I don’t quite have the stomach to take swing or position trades base on my own analysis yet. Many a times, I took a position, see it go against me and hours or a day later to an ITM position after I close out at a loss.
  • Limit margin usage to approximately $500 per trade with an account of $5k or limit to maximum $1k per trading position
  • Start out with CFD share trading to practise reading the charts and indicators
  • For Forex, using clean charts and learn about flow order trading first
  • For Forex, take note of the release timings of economic data as it causes forex trading to be volatile. Forex definitely need to monitor closely, and not open the position for long
  • It is okay to trade on news or especially massive events, but on a day to day basis, need to stick to good old technical analysis
  • Keep in mind the risk-reward ratio, however it seems for forex scalping, the risk-reward ratio is skewed towards higher risk and volatility

Going forward, I will really read up and try to understand more first before entering trades. It is going to be difficult as I have a gambler’s mentality and my fingers always itching to enter trades but I need to build up discipline to do so and to strive for capital preservation as much as possible. Hopefully I will be able to start trading soon and earn some profits by the end of 2016. Will need to prepare to top up my account with another $5k in the near future. Of course, there is no guarantee that I will make money but I will see this as a learning points in life as I see this as necessary to build an alternative cash-flow apart from my monthly income and investing capital gains/dividends. This is a dream but part of me still hope that I can do well in trading and maybe become a full-time retail trader, but the eventual hope is not to trade forever, but to use the profit to invest into shares or some other worthy ventures.