There may be many things to do to become one successful trader in Forex Market.
Here are some tips for you.
Use a Stop Loss
Prior to entering into any trade, make a decision on the maximum amount you are willing to lose on this particular trade and set this as your stop loss; once you have done so stick to it. The stop loss should be set either within the trading platform itself or written down elsewhere where it will not be changed.
Don’t forget that stop losses are guaranteed so that you cannot lose more than what you have originally decided as long as it is entered in to the trading platform. If you are in a losing trade do not change your stop loss there was a reason you set it where you set it before you entered the trade, when you had a cool head.
Set a trailing stop
This does not necessarily mean setting an actual trailing stop it may mean setting a virtual trailing stop. The idea is to cut your losses and let your profits run. Do not be emotional about a trade, you will lose some and win some – just know it. Keep a log if it helps, but remember why you entered into a trade and stick to your game plan.
The less emotional you are the more successful you will be. If the market moves in your favor move your stop loss until such time as your stop loss represents a profit and on the other hand let your profits run.
Don’t be influenced
If you have a strategy than just stick to it, if you are influenced by others once you’re inside a trade, you will constantly end up changing your mind. If you want to discuss a trade with someone do so before you enter not during.
You will always find someone who will give you a logical reason to do the opposite of what you have already done – and the chances of them being right is no more than the chances of you being right, stick to your guns.
Money Management
Successful traders know that in order to profit you trade for the long term. Your trade sizes should be influenced by the equity you have at hand. Trading is a game of probabilities, and over the long run as long as you adhere and implement sound strategies and stay consistent – success is much more likely to come.
To be a successful trader you should never take a position that puts a substantial amount of your capital in jeopardy. In actuality you will rarely find successful traders who risk more than 10% of their account in any trade. For instance, if you deposit USD 10,000 your maximum loss should be USD 1,000 on a margin of 5% (i.e.: 20:1) and on a standard lot in EUR/USD or EUR 100,000 that works out at being 100 pips as a maximum, that also represents a margin of 7.5% (at a EUR/USD 1.5000 exchange rate). You might want to start small and increase your trade sizes as your confidence grows.
Know your risk vs. reward ratio
The minimum ratio you should be using is 1:1, so if you are successful on 50% of your trades you are at least breaking even. Than if you are able to succeed even 55% of the time as opposed to 45% against you because of positive strategies and your knowledge of the market, you can actually do very well.
For instance say you succeed 55% of the time and you trade one 100,000 trade a day on a risk vs. return ratio of 1:1 and your stop loss is set at 100 pips on a $10,000 initial deposit as in the example below. Over a 20 day period (one month) you will have 11 successful trades and 9 unsuccessful, which means that over the month you have mad 200 pips net, or $2,000 profit. On an initial deposit of $10,000 that’s a 20% increase in one month alone. If you want to use a different risk vs. reward ratio that’s fine but keep in mind the necessary statistics for success over time.
Risk only what you can afford
You should never trade with money that you cannot afford to lose; it’s that simple. There is a great opportunity to gain in the FX market but one can also lose, so never risk money that is essential.
This is a very personal decision for one trader maybe $1,000 is a big deal and another $100,000 is not. Do not compare yourself to others, know your limitations. A good question to ask yourself would be, “if I were to lose 50% of my initial balance in 6 months will I still be able to afford to trade?” Only if the answer is yes should you start trading or alternatively trade in smaller trade sizes. One of the keys to successful trading is mental independence, which means your trading must not be overly influenced by your fear of losing.
Range bound or Trending
Learn to analyze the market; the very first question is whether you are in a trending or range bound market. The strategy is different for both. You must first decide on what time frame you are using, you can use more than one to help confirm your theory. If you decide the market is range bound then buy on dips and sell on highs and if it is a trending market than go in the direction of the market; either way use your stop losses to control your risk.
Don’t go against the trend
Don’t try the range bound strategy on a trending market, the old saying “the trend is your friend” is a good one, treat the trend like a wave you never know when its going to end so why not just ride it
Averaging you’ve had better ideas
One of the most common and most deadly mistakes a trader can make is averaging. The biggest problem with this method is that it usually works, until of course it doesn’t. If you’re in a losing position do not double up, unless of course that was your strategy before you entered the trade, and even then you should limit the number of times you are willing to double up.
Averaging will be the death of short-term trades. For short-term trades, preserving capital is the most important thing, and putting too much capital at risk will jeopardize success. In short term trading, if a strategy is right the market should move in the correct direction within a relatively short period of time, however if it’s wrong, the short-term traders should realize that they traded incorrectly, they should take the loss and move on. There is not much room for pride in short term trading. You should never add to a losing position.
Chasing missed opportunities
This happens to everyone, you see a potential trade – decide to wait until later to see if it pans out, then it does exactly like you thought, then you enter the trade late and of course it turns. Before entering the trade, take time to see if the original reasoning for doing so the trade in the first place still exists, if it does then fine, if it doesn’t then wait for another time. Trades are like buses, there is always another one approaching, wait, bide your time, see the opportunity and strike.
Keep up to date and Study
The price of a cross is the markets point of view of the value of the currency pair at that given moment. You should understand that all the information (except for newly released information which the market adjusts too within a short moment) is already built into the price of the currency pair. Keep well informed, know what indicators are about to be released, what their anticipated data is, and what is their expected reaction to the market price will be. Learn new ideas, keep up to date, and don’t trade other people’s ideas, you should always know why you’re in the trade.
Learn from Experience
At least initially keep a trading log, and write down why you entered a trade. Study which strategies work for you and which don’t, check to see if you need to set yourself new rules.
Be calm and calculative, have a plan, don’t be impulsive. If trading before or after releases don’t work for you than try something else. If the reason you entered the trade disappears then so does your reason to remain in the trade. If you think you’re at a low and it breaks through, get out, then reevaluate and decide once more.
Have a maximum run
If you have 4 or 5 bad trades in a row, take a break, something isn’t working, go away regroup, don’t be afraid to take a break.
Have Fun
The most important thing about trading is to have fun, when the enjoyment goes your success will likely follow, enjoy what you do, keep calm, stay as unemotional as possible – you will be more successful.
