3 Things Successful Forex Traders Do
Consider the market as a vast ocean, and yourself a pro diver. Being a diver requires exceptional patience, calmness, peace of mind as well as being aware of your surroundings. Would you really step into the water under harsh weather conditions, or if you know it is infested by sharks? You wouldn’t.
When trading in forex markets, your attitude should be the same. By analyzing market conditions, making informed decisions and utilizing your specific skill sets, you will be able to set yourself up for success.
Identifying An Approach
Your chances of success in any particular venture depend primarily on the degree of planning you put into it. The first step should always be identifying an approach. Here, you should point out specific characteristics of your temperament and match them with various financial instruments that fall right within your preferences. If you know a little something about trading currencies, it is a good idea to begin with them, instead of trading in retail stocks which you might not know about.
If you are more comfortable trading off a 5-minute chart, it means that you may not be comfortable when exposed to overnight risk. Similarly, if you are comfortable in dealing with overnight risk, you may be more interested in trading off weekly charts.
Now that you have identified the time frame, it is time to determine which methodology best suits your needs. Some traders like to buy or sell breakouts; others like to sell resistance and buy support.
Once you know the methodology, it is time to test it with a trial and error approach. If you find that your methodology is successful more than half the time—even if it helps you make small gains—you will definitely have an edge.
Chaotic trading instruments might make it difficult to come up with a winning system. You will also see that some financial instruments trade better than others. It is imperative to test your methodology across a large variety of instruments to see if your personality really matches with the instruments you are planning to trade full-fledge.
When it comes to developing the right attitude, most forex traders display these attributes:
If you have a reliable trading methodology in place, you can be at peace, and possibly control all emotional influences to take uninformed steps. Emotional detachment or objectivity is essential here.
Although the market can be a much bigger move than you expect, setting realistic expectations eventually sets you up for success and the ability to handle failure. Consider conducting a risk-reward analysis to identify your expectations.
Once you have a clear understanding of what you should expect from your methodology and how you should react according to market conditions, just like successful forex traders, you will develop patience.
Even if you lose, being patient and believing in the fact that there will always be another trade should be enough to keep you going.
Sitting on your hands and watching your methodology work is another factor that complements discipline in trading. You must know what to do, when to do it, and bear with it until it shows results.
No system ensures a 100% success rate. Even if your particular system is profitable, it will still have a small percentage of losing trades, let’s say 70%-30%. The art of streamlining profitability is in the execution of trade and management of risk.