9 Forex Trading Tips
The best traders hone their skills through practice and discipline. They
also perform self-analysis to see what drives their trades and learn
how to keep fear and greed out of the equation. These are the skills any
forex trader should practice.
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8 Tricks Of The Successful Forex Trader
Define Goals and Trading Style
Before you set out on any journey, it is imperative to have some idea of
your destination and how you will get there. Consequently, it is
imperative to have clear goals in mind, then ensure your trading method
is capable of achieving these goals. Each trading style has a different risk profile,
which requires a certain attitude and approach to trade successfully.
For example, if you cannot stomach going to sleep with an open position
in the market, then you might consider day trading.
On the other hand, if you have funds you think will benefit from the
appreciation of a trade over a period of some months, you may be more
of a position trader.
Just be sure your personality fits the style of trading you undertake. A
personality mismatch will lead to stress and certain losses.
The Broker and Trading Platform
Choosing a reputable broker is of paramount importance and spending time
researching the differences between brokers will be very helpful. You
must know each broker's policies and how they go about making a market.
For example, trading in the over-the-counter market or
spot market is different from trading the exchange-driven markets.
Also, make sure your broker's trading platform is suitable for the
analysis you want to do. For example, if you like to trade off of Fibonacci numbers,
be sure the broker's platform can draw Fibonacci lines. A good broker
with a poor platform, or a good platform with a poor broker, can be a
problem. Make sure you get the best of both.
A Consistent Methodology
Before you enter any market as a trader, you need to have some idea of
how you will make decisions to execute your trades. You must know what
information you will need to make the appropriate decision on entering
or exiting a trade. Some people choose to look at the underlying
fundamentals of the economy as well as a chart to determine the best
time to execute the trade. Others use only technical analysis. Whichever
methodology you choose, be consistent and be sure your methodology is
adaptive. Your system should keep up with the changing dynamics of a
market.
(For related reading, see: Investment Strategies to Learn Before Trading.)
Determine Entry and Exit Points
Many traders get confused by conflicting information that occurs when
looking at charts in different timeframes. What shows up as a buying
opportunity on a weekly chart could, in fact, show up as a sell signal on an intraday chart. Therefore, if you are taking your basic trading direction from a weekly chart and using a daily chartto
time entry, be sure to synchronize the two. In other words, if the
weekly chart is giving you a buy signal, wait until the daily chart also
confirms a buy signal. Keep your timing in sync.
Calculate Your Expectancy
Expectancy is the formula you use to determine how reliable your system
is. You should go back in time and measure all your trades that were
winners versus losers, then determine how profitable your winning trades
were versus how much your losing trades lost.
Take a look at your last 10 trades. If you haven't made actual trades
yet, go back on your chart to where your system would have indicated
that you should enter and exit a trade. Determine if you would have made
a profit or a loss. Write these results down. Total all your winning
trades and divide the answer by the number of winning trades you made.
Here is the formula:
Example:
If you made 10 trades, six of which were winning trades and four of
which were losing trades, your percentage win ratio would be 6/10 or
60%. If your six trades made $2,400, then your average win would be
$2,400/6 = $400.
If your losses were $1,200, then your average loss would be $1,200/4 =
$300. Apply these results to the formula and you get E= [1+ (400/300)] x
0.6 - 1 = 0.40, or 40%. A positive 40% expectancy means your system
will return you 40 cents per dollar over the long term.
Focus and Small Losses
Once you have funded your account, the most important thing to remember
is your money is at risk. Therefore, your money should not be needed for
regular living expenses. Think of your trading money like vacation
money. Once the vacation is over, your money is spent. Have the same
attitude toward trading. This will psychologically prepare you to accept
small losses, which is key to managing your risk.
By focusing on your trades and accepting small losses rather than
constantly counting your equity, you will be much more successful.
(For related reading, see: The Art of Cutting Your Losses.)
Positive Feedback Loops
A positive feedback loop is created as a result of a well-executed trade
in accordance with your plan. When you plan a trade and execute it
well, you form a positive feedback pattern. Success breeds success,
which in turn breeds confidence, especially if the trade is profitable.
Even if you take a small loss but do so in accordance with a planned
trade, then you will be building a positive feedback loop.
Perform Weekend Analysis
On the weekend, when the markets are closed, study weekly charts to look
for patterns or news that could affect your trade. Perhaps a pattern is
making a double top and
the pundits and the news are suggesting a market reversal. This is a
kind of reflexivity where the pattern could be prompting the pundits,
who then reinforce the pattern. In the cool light of objectivity, you
will make your best plans. Wait for your setups and learn to be patient.
Keep a Printed Record
A printed record is a great learning tool. Print out a chart and list
all the reasons for the trade, including the fundamentals that sway your
decisions. Mark the chart with your entry and your exit points.
Make any relevant comments on the chart, including emotional reasons
for taking action. Did you panic? Were you too greedy? Were you full of
anxiety? It is only when you can objectify your trades that you will
develop the mental control and discipline to execute according to your
system instead of your habits or emotions.
The Bottom Line
The steps above will lead you to a structured approach to trading and
should help you become a more refined trader. Trading is an art, and the
only way to become increasingly proficient is through consistent and
disciplined practice.
(For related reading, see: Forex Trading: A Beginner's Guide.)
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