For all of its numbers, charts and ratios, forex trading is more art than it is science. It has caused large losses to many inexperienced and uneducated traders over the years. As with anything, talent is key to forex trading, but even this will only get you so far.
The top traders all hone their skills through the art of practice, discipline, self-analysis and their ability to keep greed out of the equation.
Here are a few things you need to understand if you want to succeed in forex trading:
Understand Your Risk Tolerance and Needs
It’s important that you know your risk tolerance if you want to make the most of your trading career. You cannot afford to be overly liberal nor overly conservative when it comes to allocating funds. Carefully determine what your personal goals are and proceed accordingly.
Plan Your Goals and Stick to Them
Before any journey begins you need to have some idea of where you’re going and how you’re going to get there. Whether it is aiming for financial independence or simply generating some additional income, it’s advised that you have a timeframe and plan laid out before you start your fx trading career. Setting clear goals is crucial.
Choosing a trading methods that will help reach these goals is the next important step. Each comes with a different approach and different risks. You may be hunting for a quick win, in which case day trading is for you. Those with patience wanting to benefit from a trade over a longer period then position trading is for you.
Selecting Your Broker
We cannot stress enough the importance of your broker selection. You trading goals and level of expertise need to match that of your broker. Finding one that suits you needs is vital before you make your first trade.
It’s important that you know what your broker’s polices are. Having a good platform but a poor broker for example, will cause problems in the long run.
The Correct Account Type
There are various types of accounts out there, but the general rule is that the lower the leverage, the better. Someone with a solid understanding of trading and leverage can get away with a standard account.
Growing Your Account
The ideal scenario for a rookie trader is to begin with small sums and low leverage and generate profits to begin growing your account. Do not think that a bigger account will yield you a greater profit. If you’re not growing your account through your trading decisions there’s no reason to pump money into your account.
Focus on a Single Currency Pair
Mastering all aspects of financial activity is virtually impossible. Avoid taking risks and instead restrict your trading to a single currency pair that you can learn to have a solid understanding of. Beginning with your own nation’s currency is a popular starting position.
Stick to What You Know
If you’re unsure of what you’re about to do, or you don’t feel you can justify the decision you’re about to make, do not make the trade. Ignoring this advice is often the downfall of many traders. Likewise, avoid trading on the basis of rumours and ensure you understand both the positive and adverse consequences that may result from your trade.
Don’t Add to a Losing Position
It’s difficult to know how a currency pairing is going to shift over the next few hours, days or even weeks. The best you can do is make an educated guess. If you happen to be in a losing position there’s no point pumping more into it. Move on.
The normal traits of a human being; excitement, greed, fear and panic should not be part of a traders’ calculation. These emotions need to be locked up when you’re trading.
Automate Your Trading
One way to reduce your emotions is to automate as much of the trading as possible. This doesn’t require technical software, but rather you ensure that your reactions to similar situations are themselves similar. In Layman’s terms: don’t improvise. Your reactions to market events should follow a studied and tested pattern.
Keep Things Simple
Believe it or not, forex trading is not rocket science. However, should you overcomplicate things it will make you feel like you’re performing brain surgery. You don’t need to be a maths guru to be a successful trader.
Avoid Going Against the Markets
Joining trends allows you a clear peace of mind. On the other hand, fight them is a one way street to stress and fear. So don’t go against the markets.
Advanced preparation is good for anything in life. Markets are closed on the weekend so this presents a perfect opportunity for you to study weekly charts. Doing this may help you find pattners or news that will affect your trade.
Keep a Record
Keep a record of all your trades and the reasons why you made them. Note down if you panicked, were greedy or anxious. This will help you develop your discipline to make you a better trader.