Tips to successful Forex trading
Forex trading is accessible, exciting, educational, and offers traders lots of opportunities. Despite all this, many traders fail to learn how to become successful traders, and don’t achieve good results in this market. In fact, a high percentage of Forex traders are losing money..
What is a Trader?
A trader is someone who places orders on the market, sometimes on behalf of financial institutions (big banks, investment funds, hedge funds), or other times, as an independent trader.
There are several categories of traders depending on the traded markets: foreign exchange (forex), equities, bonds, metals, coffee, meat, etc. In today’s world, there is a trading market for almost all goods (meat, coffee, etc.) and commodities. Most existing contracts are settled in foreign currency, and do not deal with physical delivery.
Types of Successful Traders
There are two general types of traders:
- Those who trade on behalf of clients- Traders who work for financial institutions or brokers buy and sell shares on behalf of their employer’s clients, and not with their own money. This means that rather than making a profit or a loss on the trading itself, they earn a salary as a trader.
- Those who trade on a personal account – Those who trade on their own personal account are using their own money to earn profit for themselves on each individual trade, and not through a salary. These accounts are funded with their personal funds, and trades are executed through online trading platforms. Even though online brokers offer leverage, the amounts traded by home traders are much smaller than those of a professional trader. Since online trading is often done on the OTC (Over the Counter) market, the success of traders in their own accounts are only estimates.
How to Become a Trader: Defining Success
- The first thing that you need to do when it comes to trading Forex is to understand what you want to achieve, and how you define success. What do you want to achieve?In deciding what you want, you have to be realistic. Set yourself a realistic and quantifiable goal. This could be something like: achieve 20% annual return on investment, earn 5000 USD of profit, get a total of 100 pips per month or something similar
- Once you have set your main trading goal for the year, it is now time to start learning how to achieve it. The best way is to identify which resources are available to you. This may include the size of your deposit, the amount of time you are willing to spend on trading, and the amount of available funds you are willing to spend on trading-related matters (software, etc.).
- Once you have a clear vision here, it is time to make an action plan. This action plan should include the currency pairs you are planning to trade and the number of trades you are going to commit to.
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10 Steps to Become a Forex Trader
- Set aside expectations- Problems arise when new traders become obsessed with chasing profits, and this anxiety can lead to mistakes that cause losses. So the first rule to become a trader is to forget unrealistic goals and objectives. The prospect of earning money in Forex with just a few quick trades is extremely unlikely. Operating in a risky and overconfident way can lead you to lose your initial investment. By setting a high profit objective, you create great emotional pressure, which could result in one of the biggest errors people make when trying to become traders: falling into excessive actions or overtrading.
- Define your trading risk profile- Before making any substantial commitments, get a good understanding of the fundamental aspects of the market. Assess your capital at hand, read trader testimonials so you have realistic expectations of returns, and research the markets and currency pairs you’re interested in. If you don’t feel comfortable with the dynamics, don’t invest in forex, even if it’s profitable. This applies to any market. If, on the contrary, you think that your investment approach is in line with the Forex market, go ahead! Invest only what you can afford to lose without affecting your standard of living.
- Choose a trading strategy- Once you’ve chosen to become a trader, the next step is to come up with a general strategy. There is no right or wrong way to trade, what really matters is that you define the strategy you will use in different situations. Sometimes you will see that one trading strategy works well for a currency pair in a given market, while another strategy is more suitable for the same pair in a different market, or in other market conditions.To become a successful Forex trader, try to focus on harmonising your online trading strategy with your risk profile. Research all the trading tools that are within your reach. Study the techniques that seem logical, and think about how they can be used in your strategy. In addition, you can study how markets behave and learn how the industry works.
- Set aside your emotions- This may sound very simple, but it is necessary. Emotions are the worst enemy of people who want to become traders. Some traders try to see trading as a game where they try to beat the market, and then when they start losing, they feel overcome with disappointment. Forex trading is a financial activity that is a mix of analysis and discipline. You should not blame the market, or worry about your losing trades. To become a successful trader, you must understand the mechanics of forex, trust your analysis, and follow the rules and strategy you set. This is the definitive key to reaping the benefits of forex. Emotions can ruin a trader’s experience, so it is vital to set them aside and not involve them in trading. Excessive trading confidence can cause great losses. One of the best ways to prepare yourself for the emotions of trading is by testing your skills on a free demo account. Open one Here Free Forex Demo Trading Account
- Set your stop loss and take profit.. No matter what your trading strategy is, you should always set a stop loss. This type of order allows you to define the closing price of your trade. Your trade will close once it reaches that level, even when you are not present. In other words, setting a stop loss will give you the peace of mind of not losing more than the limit you defined. Stop Loss and Take Profit- earn money in Forex. The take profit is the most frequently used order in the forex market. This order allows the trader to close a position automatically when prices reach a predefined level.
- Keep up with the markets- Staying up to date with market news is vital. Many market movements are driven by news, central bank announcements, political events, or the expectation of any of these. This is what’s called fundamental trading. For example, if you have a reliable trading strategy and several technical indicators that indicate a long trade, check the forex calendar anyway to make sure your order matches current events. Even if your technical trading strategy works perfectly, the fundamental news can change everything.
- Avoid overtrading- Overtrading is the result of seeing opportunities to make money in forex where there really aren’t any. There are two common types of overtrading: Trading too frequently, and Trading with too much volume. Trading too frequently, outside of scalping strategies, is a sure way to lose more money than can be made. There is no harm in waiting for more than a day for an opportunity to arise. You can simply wait until favourable price action arrives, and this shows that you really know what you are doing, and that is when you enter the game. You just need a couple of trades.” The other context for overtrading is to operate with too much volume. For many people, leverage is the culprit. Trading with excessively high volume makes an account more susceptible to margin calls. The important thing is to learn to avoid overtrading and understand leverage. You can learn more about leverage, you can read all about it in this article, and empower your trading knowledge.
- Losing is part of forex trading – Every trader wants to become a success. In reality, ‘success’ does not mean that you always win in each trade, but that the average across all your trades end up with a positive balance. Closing each and every one of your trades with a profit is simply impossible. Some professional traders may be consistently profitable on a daily basis, but none can show a trading statement that does not include a single losing trade. The trick to being a successful trader is for the winning trades to be profitable enough that they produce enough profit to cover their losses and maintain a net positive. Keep in mind that this is very common with traders who have participated in the markets for a long time. It takes a lot of mental strength to admit mistakes in decision making, and to close an order with a small early loss. On the contrary, it also takes a lot of strength to trust oneself and not close an operation with benefits too soon. You need to be patient and follow the trend.
- Develop a trading plan- There has been much talk about discipline in trading, but very little about being an organised trader. It all starts with your trading routine. You need to have a strict trading plan that covers most of your trading activity, which will help you reduce risk from unforeseen shifts in the market. Many beginning traders develop negative trading habits. One example is the aforementioned overtrading, in which once a trader starts getting lucky and they continue to trade until they overdraw their account. Many traders believe that luck will not abandon them, but as everyone knows, luck is not infinite and one it runs out, it will create consistent losses. Therefore, it is important to reinforce healthy trading habits, as these will help you achieve your goal of becoming a successful Forex trader.
- Choose a broker that matches your risk profile If you are worried about the financial security or reputation of your Forex broker, it can be difficult to focus on your trading. If, on the other hand, you have confidence in your Forex broker, this will free up mental space for you to devote more time and attention to analysis and developing FX strategies. Research prior to committing to a specific broker can go a long way, and can improve your odds of being a successful trader in the competitive foreign exchange market.
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