Top 10 tips for successful currency (Forex) trading
Last Updated: 20/03/2021
The process of becoming a successful Forex Trader can be best described using a golf analogy. Someone that has never played golf and is not familiar with the sport will watch a PGA Golf Tournament and be astounded with how much a professional golfer earns for simply “chasing a little white ball into a hole with a stick.” And then taking it out of the hole and doing it again, eighteen times. This person will invariably ask “how hard can it be.” They’ll then read all the books, watch all the videos, take all the lessons, and then go out on the course expecting to shoot par their first time out.
They will then experience the frustration of completely failing to play anywhere near par, much less at a level of competency that warrants any kind of monetary income. Only then will this person realize that there is “a lot more than meets the eye” when it comes to playing golf.
Trading the forex market is seen by many in much the same way. Many aspiring traders will say: “How difficult can it be, you buy low, sell high, and get rich.” Then they open their first account, and just like the golfer, after they lose all their capital they realize that there is “a lot more than meets the eye.” All successful Traders go through this process. For most professions it’s called a “Learning Curve.” Unfortunately, for the Trading profession it’s referred to as the “Losing Curve.” The following 10 tips are for aspiring Forex Traders that are currently negotiating the aforementioned curve. Theses tips can be universally applied to all markets.
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Control Your Emotions
Every successful trader will attest to the fact that emotions are a trader’s nemesis. Successful trading requires that you effectively process large amounts of statistical data very quickly in order to make RATIONAL decisions. When a trader is putting large amounts of capital at risk, the manifestation of very powerful emotions including greed and fear can become overwhelming if not checked. Once emotion takes over, all RATIONAL thinking goes “right out the window.” In most cases, a trader’s capital will follow (right out the window). A trader must learn to recognize and check emotions.
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Manage Expectations
Know and understand that becoming a successful trader is a process that takes time. New traders should not expect to make consistent profits right out of the gate. The learning/losing curve must be overcome. Don’t become frustrated and quit at the first sign of failure. Successful traders are successful because they did not quit despite their frustrations in the early part of their careers.
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Capital
If personal capital is to be used for trading, only use capital that you can afford to lose. Do not use next month’s mortgage payment or the kid’s college fund. Don’t rely on trading gains as a source of income until such time that trading mastery has been achieved, and consistency and scale of profits allows for withdrawals without curtailing growth of capital accounts.
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Knowledge
A trader’s success is positively correlated with the amount of knowledge about markets that is attained. A successful trader is constantly learning as much as possible about the markets. Read as many books, attend as many seminars/classes, and watch as many videos as time permits, and obtain as many professional credentials as possible.
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Experience
The same way that the golfer in the analogy mentioned above needs to spend time on a course practicing before mastering golf skills, an aspiring trader needs to spend time and gain experience in the markets before achieving trading mastery. Fortunately, most forex brokers allow traders to open a demo account on a very realistic trading simulator. A trader can very accurately test and hone their skills, and run a trial on a trading strategy. A new trader should stay on the simulator until such time that consistent profits (simulated) are made. If you can’t make profits on a simulator, you absolutely will not make profits trading real markets.
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Always Have a Trading Strategy
Never enter into the forex market without a strategy. The strategy should be sufficiently back-tested and walk-forward tested to ensure that it is sound and robust. A trial should be run on a simulator for a period long enough to ensure that the strategy works in all different market conditions including uptrends, downtrends, and when the market is trading within a range. When a strategy is ready for trading in real markets, start off with small trade size, and then scale up slowly.
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Keep it Simple and Consistent
A strategy should always be as simple as possible. Over complicating a strategy will burden a trader with information overload. Remember that when a trader starts trading large amounts of capital, emotion will have a tendency to creep in to a trader’s thought process and inhibit the ability to make optimal decisions. Information overload will exacerbate this problem.
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Execution of Strategy
A trading strategy should be executed exactly as it was traded on the simulator during the trial phase. If the strategy generated profits in the trial, it should generate profits in real markets, but only if it is executed in the exact same manner. Any deviation in the execution will most likely result in losses.
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Protect Your Capital
Always practice sound and disciplined capital management. Never enter into a trade without immediately placing a pre-determined stop-loss and profit target. The stop-loss and profit target should always be commensurate with strategy’s risk profile. Never risk too much capital on a single trade. This amount should be determined during the trial phase on a simulator.
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Don’t Chase Your Tail
Never change your strategy in the middle of a trading day or week as a result of have a string of consecutive losing trades. If you experienced a string of losing trades on the simulator during the trial phase, then you should expect to experience the same in real markets. Don’t be the proverbial “dog that chases it’s tail” and abandon a strategy every time the strategy experiences a few losing trades. This happens with every strategy
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