Are you looking to be a successful Forex trader? Rumors have it that there is a secret to forex trading. I would say no! Trading in the financial markets has no formula to success. Take the market as being like the ocean and the trader as the surfer. A surfer needs talent, balance, patience, necessary tools, and mindfulness of the environment. You wouldn’t go into the water when there are dangerous rip-tides. The approach to trading in the forex market ain’t no different.
Just like many skills, good trading is a result of blending talent and hard work. When you combine excellent market analysis with effective implementation of your results, you won’t believe the improvement of your success rate. Discussed below are some strategies to help you improve your career in forex trading, specifically on the market:
Approaching Forex Trading
Before you start the journey, acknowledge the importance of proper preparation. Aligning your individual goals with relatable instruments and markets is key. For instance, if you have a clear understanding of the retail markets, then it would be advisable to trade retail stocks instead of trading something like oil futures which you may know little about. It’s vital to assess the following three elements.
The time frame shows the type of trade that fits your nature. Choosing to trade off a fifteen-minute chart indicates that you are comfortable taking a position without exposure to prolonged risk. On the other hand, choosing a weekly chart suggests that you are willing to see some days with an open position. Also, you may need to decide if you have time to sit in front of a screen all day monitoring a trade or if you prefer researching over the weekend and make a decision for the week ahead or even a month. Keep in mind that chances of making substantial cash in the Forex markets need time. Short-term trading, referred to as scalping, means making small profits or losses and would mean trading more frequently.
After choosing a time frame, look for a consistent methodology. For instance, you may choose to buy support and sell resistance. You can also decide to trade using indicators like crossover. Once you decide on the methodology, test it to see if it works. Test several systems, and select one that gives consistently good results.
You will realize that some instruments work much more orderly than others. Therefore, it’s important to test your strategy on different markets to determine that your system matches the traded market.
Your attitude and mindset play an important role in the trading process. You should have the following attributes;
Once you know what to expect from your system, have the patience to wait for the price to hit the levels that your strategy indicates, either for the entry point or exit. If your system shows an entry at a particular point, but the market never hits it, then move on to the next trade. There is always another opportunity in forex trading.
Discipline is the ability to sit and wait until your system triggers an action level. At times, the price action won’t reach your target price point. At this time, you must have the patience to trust and believe in your system and avoid the second guess. Discipline is also the ability to take a trade when your system indicates to do so.
Your system should be reliable enough so you can be confident in responding to its signals. If you generate a reliable methodology that can provide accurate entry and exit points, you don’t become emotional or get influenced by the opinion of pundits.
Sometimes the market is unpredictable and can make a significant move contrary to your expectations. It’s essential to be realistic. For example, you cannot expect to invest $500 and earn a $5,000 profit in one trade. Whereas there is no “safe” trading time frame, a short-term trade may have smaller risks if the trader has discipline in choosing trades. This is commonly referred to as the trade-off between risk and reward.
Motivating Forex Trading Factors
Markets behave differently depending on the leading players and purpose. For instance, hedge funds differ in strategy and are motivated differently compared to mutual funds. Large banks trading in the spot currency markets typically have a distinct objective than currency traders who buy and sell futures contracts. If you can identify what motivates the large players, you can always match that knowledge to your advantage.
Executing a Trading Methodology
In forex trading, there is nothing like 100% profitable trades. There has to be losing trades. Therefore, profitability is in the management and implementation of the trade. It’s all about risk control if you want a successful trade. Evaluate your trading methodology, make changes, and keep trying. Usually, it is the second or third attempt that will take the correct direction. The practice needs patience and discipline for success.