6 Tips To Become A Successful Forex Trader
Making money on the forex market is not easy. It requires patience and discipline. To succeed in this highly competitive field, it is absolutely essential that you devise a well thought out plan and stick to it.
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Remember that trading involves both winning and losing. You should know how much of your capital you are willing to lose in a single day. Additionally, you should set a limit on the amount that you are willing to risk on every individual trade that you make.
In fact, you have to make a careful study of the currency pairs that you plan to trade in and come up with a set of rules that you will follow. If your strategy is sound and you implement it consistently, there is no reason why you should not be able to make a decent amount of returns in the long run.
Here are a few points that may help you trade forex successfully. See if you can use some of this advice to increase the returns from your trading activity.
1. Learn how to set a stop-loss
Every experienced trader knows that there are two parts to a profitable trading strategy. The first, of course, is to maximise your winning trades. But exiting a losing trade at an early stage is equally important.
When a trade goes against you, there is a great temptation to wait it out till it turns in your favour. But this is a high-risk strategy. Your reluctance to accept a loss may prove to be very costly.
What should you do? Every time that you enter a trade, you should be aware of the level at which you will exit. The most effective way of limiting your losses is to use a pre-determined stop order. This stop order, which is referred to as a “stop-loss,” will automatically kick in and close the trade when your loss reaches a certain level.
Equip yourself with the right knowledge even before you start forex trading. Sign up for Phillip Futures’ “If You Fail to Plan, You Plan to Fail – Creating a Powerful Forex Trading Plan” seminar now.
2. Don’t be too focused on a pair
Many traders, especially those who have entered the market recently, think that it is a good idea to limit themselves to a single currency pair. They reason that adopting this strategy will allow them to familiarise themselves with price movements in their chosen currencies.
While this approach has some logic to it, it could limit your trading activity and could even expose you to a greater degree of risk.
Why should sticking with a single currency pair be riskier? Forex markets usually trend in an upward or downward direction. But there also could be times when a particular currency pair is in a consolidation pattern.
During this period, prices may move in a relatively small range. If this happens, trading opportunities may be very restricted and you may be tempted to enter into highly risky trades.
A better approach would be to specialise in several currency pairs. This will allow you to trade actively and increase the potential for making gains.
Of course, you should not overextend yourself. Between five and 10 pairs should be enough to give you ample trading opportunities. More than that may be too much to handle.
3. A well-designed and sophisticated platform is a must
There are several factors that will play a role in your success as a forex trader. Among these, one of the most critical is the trading platform that you use. A multi-functional platform that offers a wide range of technical analysis tools is essential if you want to capitalise on the opportunities in the spot trading market.
The MetaTrader5 could be an ideal choice. It is available on desktops, laptops or even on your mobile smart phone and tablets.
MetaTrader 5 offers several features that make it the most suitable forex trading platform that you can use. It has flexible stop loss and take profit options that allow you to keep your losses in check and manage your profits.
There is also an algorithmic feature that the platform offers. This facility allows you to use automated trading robots to analyse the market and perform trading operations on your behalf.
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4. Let the winners run
There are two mistakes that many forex traders make. The first is that they delay getting out of a losing trade. They find it simply too painful to accept that they have made a loss.
The other mistake is to close a winning position early. The reason why traders cash out prematurely is that they are afraid that the profits that they have made will vanish if they wait any longer.
The only way to maximise your profits in the long run is to adhere strictly to your pre-decided strategy. Don’t lose your nerve and exit a winning trade prematurely. Stay the course, even if it proves to be wrong in some cases. Changing your strategy midway is highly inadvisable. It will only lead to confusion and losses.
5. Use both technical analysis and fundamental analysis
There are different schools of thought about the information that you should use to make a trade. Some traders are adherents of fundamental analysis. They take a stand that the movement in currency values is the result of the latest economic data, including GDP growth, a country’s export volume, and employment statistics.
Technical analysis, on the other hand, assumes that all this information is already built into the value of a currency. A trader who prefers to use technical analysis holds the view that the number of participants in the market is very large and that all the relevant information is widely available.
Price charts are used to identify patterns and future price movements. By using technical analysis, a trader looks for trends and uses this information to make a trade.
Which system is better? The best approach is to use both fundamental analysis and technical analysis to plot your trading strategy. While the latter can predict price movements fairly accurately if you are able to correctly identify a trend, you should not ignore fundamental analysis entirely.
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6. Use your risk capital for forex trading
Forex trading can be highly risky. The markets are volatile and a leveraged trade can result in large losses even when currency movements are small. Traders should use their risk capital – the funds that you utilise for speculative activity and which you can afford to lose – for forex trading.
But this form of investment has a great upside as well. If you are successful, your profits can be phenomenally high. There are very few other investment opportunities that can provide you with returns that can match those available in the forex market.
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