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Trade Currencies With Sufficient Capital
One of the worst blunders that forex traders can make is attempting to trade without sufficient capital. The trader with limited risk capital not only will be a worried trader, always looking to minimize losses beyond the point of realistic trading, but he will also frequently be taken out of the trading game before he can realize any sense of success trading his preferred system or strategy. Recommended trading capital to open a forex mini account is $2500.
Exercise Discipline
Discipline is probably one of the most overused words in trading education. However, despite the cliché, discipline continues to be the most important behavior one can master to become a profitable currency trader. Discipline is the ability to plan your work and work your plan. It's the ability to give your trade the time to develop without hastily taking yourself out of the forex market simply because you're uncomfortable with risk. Discipline is also the ability to continue to trade your system or strategy even after you've suffered a series of losses. Do your best to cultivate the degree of discipline required to become a world-class fx trader.
Be patient and Persistent
Many traders have become sorely disappointed when immediate success was not attained. Be consistent in allowing yourself sufficient time to achieve success. Persistence is one of the most important qualities a trader can possess. Those who quit too soon or haphazardly apply their trading system will not be trading in the market to allow their system to produce the wins they are looking for. In order to develop persistence you must force yourself initially to do everything according to the rules of your trading system or method. Follow through on this commitment, and you will find that after you have taken every trade according to your tested system or method, your consistency will have paid off and you will have profits to show your efforts.
Employ Risk-to-Reward Ratios
A risk-to-reward ratio compares the potential for reward against the potential for loss. A trader must view his trade as a business transaction. We identify risk by counting the pips between the forecasted entry price at which one would exit the market in a losing trade (stop loss). We identify reward by counting the pips between the forecasted entry price and the forecasted price at which one would exit the market in a winning trade. To effectively manage risk, we look to find high probability trades that have a 1 to 1 or greater risk-to-reward ratio. Most professional traders look for positive RTR ratio's between 1-3. For example risking 50 pips to gain 150 pips (RTR = 3).
Follow Trading Rules
The proper execution of trades is a very important aspect of becoming a profitable currency trader and one of the most difficult to learn. The problem comes with the initial analysis of the market. When you are studying examples of past trades, it is much easier to recognize direction, entries, and exits that if you were live trading. Recognizing opportunities in the "now" is much more difficult to do. To develop this important skill, one must pay very close attention to specific price patterns and the chart positions of technical indicators. Following trading rules and a trading system is no small matter. It requires the trader to obey rule after rule, even when their initial response to markets is not to trade, end a trade or get into a trade, based on emotion? Trading should only occur when the right setups are present and when confidence is high.
Accept Losses
Since no trading system or method is 100% accurate, losses will happen sooner or later. Develop the ability to admit to your losses. Sometimes traders will remove their stops and let their losses run in the hope the trade will come back. They do this because they are unwilling to admit that their forecast of market direction or their timing of entry into the forex was incorrect. Losses can occur primarily for two reasons. The first reason is when the trader fails to follow established tested rules and guidelines of a trading system or proven method. The second reason is when the trading system or method fails to encompass unexpected changes in the market conditions. In either case, by anticipating the reasons for most of the losses you're going to take, you can put precautions into place beforehand to help reduce losses in the future.
Always Use Stops
Stops are orders in the market placed a distance from your entry price, in the event market prices turn and move opposite from the anticipated direction. The idea behind a stop is to prevent a loss from "running" too far and thereby consuming excessive capital in one single trade. Too often traders are so convinced of where they believe market prices are headed, they lose their sense of reality and begin to trade on hope. They choose not to trade with a stop, or remove their original stop, simply hoping that market direction will eventually turn (again) their way and their loss will turn into a win. However, by the time they finally realize that such will not be the case, and that their hope was an illusion, they have risked far more that they wanted to at the outset of their trade, and the result is a devastating, excessive loss, eventually wiping out their entire trading account.
Keep a Trading Log
Keeping a log of trades is like taking a snapshot in time. You'll find that after making your first analysis, market conditions develop so rapidly that it can be difficult to remember exactly what you saw in the beginning that caused you to enter the market. By recording just a few notes about each trade you make and the technical picture you see, you will sharpen your skills in recognizing strong trade setups. |
