Whilst there are millions of traders all over the world from different backgrounds that engage in forex trading, there are only a very small percentage of traders that actually succeed in the forex market. It is a widely known fact that a large percentage of retail traders lose. In this article we will briefly touch upon some of the important things to consider if you are to make it as a forex trader.
Practice forex trading
It goes without saying that the more you practice something, the better you get at it. Do not expect to just fire up your trading platform and start making perfect trades. Just like anything else, mastering the art of forex trading takes time. Therefore, it is imperative that you have patience, discpline and practice trading until you find a way that works for you. Each individual will have their own trading style so it is important to find yours.
Most online forex brokers will offer demo trading accounts so that you can practice trading with virtual funds until you familiarize yourself with a trading strategy and continuously produce good results. As the old saying goes, practice makes perfect! Try not to give up after a few bad trades, it is all part of the learning process and what can help to make you a better trader in the long run provided you learn from your mistakes.
Successful traders engage in trading over a long period of time and they are willing to learn all they need to master the art of trade and learn forex trading skills.
Develop a forex trading strategy
It is important to have a solid forex trading strategy in place that you understand and which gives you confidence. What works for one trader will not necessarily work for another. You may choose to use an already established forex strategy or you may take inspiration from others to form your own unique strategy. You wouldn’t want to trade randomly and should know exactly why you entered and exit each position.
It may be a matter of trial and error to find a strategy that works for you but it is imperative to understand that the process can take time. I see too many aspiring forex traders who jump from one strategy to another without actually taking the time to give any a real chance. Be realistic with your goals and do not waste time looking for a no loss holy grail system that just does not exist.
Have a forex trading plan
Successful traders have a forex trading plan that they stick to long term. Trading with a well thought out plan can ensure that you stay on the right track and helps traders to avoid bad discipline and poor money management. Some traders also find it beneficial to keep a forex trading journal where they keep track of their trading activity. In the words of Benjamin Franklin — ‘If you fail to plan, you are planning to fail!’
Have good money management
I believe that too many traders use poor money management which causes unnecessary risks and large losses. I always try to use a risk to reward ratio of at least 1:3 so that a winning trade will be at least 3 times greater than a losing trade. Nothing is more frustrating than 1 losing trade wiping out consecutive winners. With a good risk to reward ratio, you could be wrong more than half the time and still make profit in the long term. I would avoid any dangerous money management techniques such as martingale and grid trading. In my opinion these always end in disaster.
Successful forex traders have a solid money management strategy that implements a sensible stop loss and take profit levels according to their own individual trading style and goals. Some will lock in trades at breakeven once in profit and utilize a trailing stop in order to try and maximize profits.
A commonly used phrased in the trading world is to “let you winners run and cut your losers short”. Of course, you should always use a money management strategy that you feel comfortable with as every trader is different. Always try to plan your money management in advance and never risk more than you can afford.
Combine market analysis
There are a few types of market analysis that can be used when trading forex that includes:
- Technical analysis
- Fundamental analysis
- Price action analysis
- Sentiment analysis
I know that many traders use just one of the above and do not give consideration to any of the others. I would compare this to making a dish with a range of ingredients but only focusing on one. In order to increase the quality of your market analysis, you should take into consideration different types of market analysis and aim to incorporate all of them within your trading strategy.
A technical indicator may tell you that the currency pair in question is on a steep uptrend but the price action may indicate the current price is falling. A news release may be pending that forecasts the market will be going in an opposite direction to the sentiment. Thus, successful forex traders combine multiple analysis for the strongest trading signals possible.
Be a disciplined trader
One of the most overlooked aspects of forex trading in my opinion is trading discipline and psychology. I have seen the exact same forex system give different results to different traders due to a lack of discipline. Successful traders make sure that they always maintain their discipline and do not let negative emotions get in the way such as fear, anger and greed.
If you are feeling undisciplined then perhaps take some time away from trading to reflect on why and make sure you have a trading plan in place to follow which can help to ensure that you stay on track.
Use a good forex broker
With so many forex brokers to choose from, it is imperative to trade online with a good forex broker that provides suitable trading conditions for your trading style. I always prefer to use an ECN forex broker as I find that they have some of the tightest spreads and reliable execution speeds with minimal slippage. This can ensure I get trades placed at the prices that I want and can save in trading costs over the long term.
Successful forex traders don’t relent. They as well take premeditated risks. They as well maintain their trading strategy irrespective of whether the other traders are doing the same thing or not. They are confident that they will follow their trading strategy and they do everything to stay away from impulsive trading.
This combined along with a well thought out trading strategy, trading plan, good money management, discipline and multiple market analysis, can help improve your chances of becoming a successful forex trader in the mid-long term.
If you are looking to trade forex online, you will need an account with a forex broker. If you are looking for some inspiration, please feel free to browse my best forex brokers. I have spent many years testing and reviewing forex brokers. IC Markets are my top choice as I find they have tight spreads, low commission fees, quick execution speeds and excellent customer support.
Self-confessed Forex Geek spending my days researching and testing everything forex related. I have many years of experience in the forex industry having reviewed thousands of forex robots, brokers, strategies, courses and more. I share my knowledge with you for free to help you learn more about the crazy world of forex trading! Read more about me.