The
best traders who make money in forex trading sharpen their skills through
practice and discipline. In addition, they carry out self-analysis to find out
what actually drive their trades and learn how to keep their greed and panic
out of the equation.
Actually,
nobody will ever reveal the exact strategies and secrets he uses for making
money in forex trading, but I will expose some of the secrets you can use to
succeed.
These
are the skills any forex trader who want to make money trading forex should
practice.
1. Describe Trading Style and
Objectives
It
is important for you to have an idea of your destination and how you will reach
there, even before you embark on a journey. As a result, having clear goals in
mind is very important, and make sure the trading method you are using will
accomplish these objectives if you want to be a successful forex trader.
With every trading style, there
is always risk profile associated with it and it necessitates a certain approach
and mind-set to trade successfully. For instance, you may have to think about
day trading, if it is impossible for you to go to bed with an open position in
the market.
Moreover, you may be more of a
position trader in a situation where you have funds you believe will gain from
the positive reception of a trade for some months. Just make sure that your traits
fit the trading style you carry out. A personality divergence will cause stress
and some losses.
2. The Broker and Forex Trading
Platform
If you want to be successful in
this trade, then it is of great importance for you to choose a broker of good
reputation. In addition, spending ample time comparing different brokers will
be very handy. It is also important for you to know the policy of each broker and
the way they make a market.
Furthermore, make sure the
trading platform of your broker is appropriate enough for your intended
analysis. A good broker that has a poor trading
platform or an excellent platform with a bad broker can constitute a problem.
Make sure you balance the two and get the best of them.
3. Use a Consistent Methodology
As a trader, you ought to have
some ideas of how you will make decision in order to execute your trades before
you enter any market. Hence, you must know the type of information needed to
make the right decision when you are entering or exiting a trade.
In order to determine the best
time to carry out a trade, quite a number of people prefer looking at the
underlying basics of the economy and a chart. However, other
traders make use of the technical analysis alone.
Make sure are consistent, irrespective
of the methodology you use, and make sure that methodology is adaptive. Your
system should follow the changing dynamics of a market.
4. Establish Your Entry and Exit
Points
A lot of forex traders are
confused by contradictory information that happens when looking at charts
in diverse time frames. But it is noteworthy that what shows up as a buying
opportunity on a weekly chart could actually show up as a sell signal when it
comes to an intraday chart.
Consequently, make sure you
synchronize both your daily chart and time entry, if you are taking your basic
trading direction from a weekly chart. In other words, if the weekly chart is
providing you with a buy signal, make sure you wait until the daily chart too
confirms a buy signal. Sync your timing.
5. Work out Your Expectancy
The expectancy is simply the
formula you use to establish how dependable and consistent your system is. You
should go back in time to measure all your winning trades and losing trades,
and find out how profitable your winning trades were versus the amount that
your losing trades lost. Consider your last ten trades.
However, revert to your chart
where your system would have shown that you should enter and exit a trade, if
you have not made real trades yet. Find out if you would have actually made a
profit or a loss. Write down these results.
Sum up all your winning trades and divide what
you get by the number of winning trades you made.
Below is the formula:
E= [1+(LW)]×P−1
Where:
E= Expectancy
W= Average Winning Trade
L= Average Losing Trade
P= Percentage Win Ratio
For Instance:
Assuming you made 10 trades of
which 6 were winning trades and 4 were losing trades, it means that your
percentage win ratio would be 6/10 or 60%. If the 6 trades made was $2,400,
then your average win would be $2,400/6 = $400.
But if your losses were $1,200,
it means your average loss would be $1,200/4 = $300. Apply these results to the
formula above and you get E= [1+ (400/300)] x 0.6 - 1 = 0.40, or 40%. A
positive 40% expectancy means that your system will return you 40 cents per
dollar over the long term.
6. Small Losses and Focus on Your
Trades
It is noteworthy that as soon
as you have funded your forex account, your money is at risk. As a result, you
must not use your money for normal living expenses. The key to managing your
risk in forex trading is to learn to accept small losses.
You will be much more
successful when you focus on your trades and accept small losses instead of counting
your equity continuously.
7. Positive Feedback Loops
As a result of a well executed
trade in accordance with your plan, a positive feedback loop is created. You form
a positive feedback pattern when you plan a trade and execute it well.
Success they say breeds
success, which will further breed confidence, particularly if the trade is
profitable. You will be building a positive feedback loop, even if you take a
small loss but do so according to a planned trade.
8. Carry Out Weekend Analysis
Study weekly charts to look for
news or patterns that could affect your trade when the markets are closed on
weekend. Maybe a pattern is making a double top and the news and the
pundits are recommending a market reversal.
This is a type of reflexivity
where the pattern could be prompting the pundits,
who then reinforce the pattern. You will make your best plans in
the cool light of objectivity. Just wait for your setups and be patient.
9. Maintain a Printed Record
A great learning tool is a printed
record. Print out a chart and list all the reasons for the trade, such as the
basics that influence your decisions. Mark the chart with both your entry and exit
points. Make any significant comments on the chart, like emotional reasons
for taking action.
Are you afraid? Are you full
of anxiety? Are you too greedy? You can only develop the discipline and mental
control to execute according to your system rather than your emotions or
habits, only when you can objectify your trades.
Conclusion
The above steps will guide and
direct you to a well thought-out approach to forex trading and help you develop
into a more refined forex trader. Forex trading is an art, and disciplined and
consistent practice is the only way to become increasingly proficient.
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