Investing 101: Q&A with Dragostin Kozhuharov
Hi everybody and welcome to the last article in the FX series. In the previous release Andreas gave us some insight into how fundamental factors affect the market. As promised, this time we have a Q&A with Dragostin, who will share some insight into psychological factors which affect traders, and how to overcome them in order to generate consistent gains. Let’s get into it!
Hi, could you tell us about yourself and your journey in the financial markets?
My journey started when I enrolled onto a Masters degree which focused on oil and gas trading. From there, I got my first experience in trading futures and doing a research project for a hedge fund, which focused on the pricing of derivatives correlated with oil prices. After that, I did the Career Trader Programme with Amplify Trading. I traded FX, Fixed Income, Commodities and Index futures. Following on from this, I traded my own account whilst I looked for a job in the industry. It proved difficult as I wasn’t willing to compromise and wanted to work in a front office role. I worked with a prop desk, trading stocks and ETFs for about a year. I wasn’t successful in the role, but it was a good experience to learn a new market and how it operates. Soon after, I joined a FCA regulated broker as a Junior Sales Trader. Within 2 years I rose through the ranks and by the time I left the company, I was their CF30 which meant that I was on the FCA register for approved persons. I was also managing their partnership desk and working on retention with the top English-speaking clients. Since I left, I have been trading full time and working on my blog (www.marketinsides.com) where I talk about trading and markets.
Psychology plays a big part in trading; some say it's even more important than the skill. What are your thoughts on this?
I would say that psychology is everything in trading. Anyone can build a strategy or put on a winning trade. It’s all about how you deal with wins and losses, as well as having the discipline to follow your plan. I have seen traders who were given a strategy which if applied correctly would generate 100% wins at the time. Furthermore, this strategy was being used live in front of them, so that they don’t get it wrong. They still lost money. This was due to the mindset - “I am very good, maybe I can try to use the strategy on a different market”. Some ditched the strategy altogether because they were confident that they would be successful on their own. This just shows that even if you have a profitable strategy, you can still find a way to lose money.
How should you approach the markets when you are first starting out?
I think the best approach when you start out is to open a demo account and play around with it. Try to learn things on your own. Read books on trading which are recognised as classics and must reads by other traders. For example, The Market Wizards series, Trading in the Zone, Reminiscence of a Stock Operator, Steidlmayer on Markets: Trading with Market Profile, or any book by Michael Lewis. Don’t go down the route of learning a strategy or buying a course which teaches you one. Learn enough about markets and trading to the point where you will be able to build your own. This is the harder route, but it will pay off in the long run.
From your experience, what are some key mistakes novices make in trading?
Cutting winning trades early and letting losses run. Learning to accept losses is a must. It’s possible to make money using strategies with a 30%-win ratio. It’s all about risk management. Novices lose money by not understanding the following: how markets function, leverage, margin and position sizing. A lot of people also confuse trading with investing. They are very different. The most obvious difference is the timeframe – traders can be in a trade for seconds only, whereas for investors holding times are usually years, sometimes decades. Depending on your trading role, sometimes you might have to be in a trade all the time. Speculators are also valuable market participants. What traders do is facilitate trading and provide liquidity. In doing so, they help the market find fair value and allow the other participants in the market to execute their strategies, whether it’s hedging or long-term investments. That is the case in theory. In practice, there are a lot of traders whose behaviour is toxic for markets and their trading provides little or no value for other participants.
Losses are part of the process. Any tips on how to deal with a streak of losing trades?
Define risk limits. Daily, weekly and for the account. I personally stop trading if I lose 10% of my initial capital. I take a break and try to not think about trading during that time. Before returning to the markets, I reflect on what I did wrong. Sometimes you might lose money even when you have done everything right, but reflecting on the experiences is key. It’s best to have a trading journal where you write your trading ideas and write the outcomes. You also need to write about how you felt during the whole process. Only then can you improve and make sure that you don’t repeat mistakes. It’s key to remember that not all winning trades are good trades, and not all losing trades are bad trades. A good trade is a trade for which you had a well-defined plan with good reasons for entry and exit. A bad trade is a trade for which you can’t explain why you did it. You shouldn’t get desperate after losses and you shouldn’t get over-excited over winning streaks. These emotions usually lead to bad decisions. Focus on the now and keep a stable mindset. You will find that working out and meditation are helpful to maintain the proper mindset.
There is a lot of representations out there portraying Forex as a get-rich-quick scheme. In your opinion, does Forex offer the potential to make a lot of money quickly?
Trading, as any other job requires time and dedication. As with any job, the top performers in the industry make a lot of money. There are plenty of people who can make a living out of trading. There are also a lot of people who fail and lose money. I would say that trading is one of the most difficult jobs and it requires a specific set of skills, which a lot of people would find difficult to obtain. In that respect, it’s very similar to professional sports. There are a lot of people who play football, but the ones who make millions from it as a career are a very small group. If you want to be part of that 1% of top performers in any industry, you need to do a lot of work and be mentally strong. This is why professional athletes, gamers and poker players are often a good fit for trading roles.
On average, how long do you think it takes to become profitable in the markets?
I think if you don’t land yourself a job in trading at a bank or a firm which pays you a salary and decide to go down the prop trading route or the self-funded trader route, you need to have a good financial cushion. I would say have enough savings to live on for at least a year. If you don’t make it within that year it might be time to consider other options. One thing you definitely don’t want to be doing is to start trading and having the burden of thinking that you need to make a certain sum per month in order to be able to pay your rent or feed your children. Although some people can deal with such pressure and be successful, I would say most times it will take a big toll on your psychology and you won’t be able to show your true skills as a trader.
Finally, there are a lot of academies, gurus and signal groups out there. How do you identify legitimate companies over scams?
Anything that features the word guaranteed should be avoided. Especially when it comes to performance and results. The ones which promise to make you a millionaire in a month. If someone states he is right 80% of the time – ask him for proof, or trading statements. Do your due diligence as you should with everything in life. In my view there are course providers and academies which provide a very good service and level of training. They are the ones which teach you about markets and give you the exposure to markets, without teaching you a specific strategy. They teach you the tools to develop your own. That being said, the fees for the good courses sometimes are more than a grand a month, so as I said, you need to make sure that you have sufficient finances to be able to live without a stable income for at least a year.
Hope our readers found this Q&A useful and managed to note down some pro-tips from someone who has retail and institutional trading experience. On this note, we are approaching the end of our series where we covered market basics to get anybody started on their FX journey. As much as we hope you found this useful, nothing compares to time spent on charts, so now it’s your turn! What can you teach us? Share what you’ve learnt below, and best of luck!