Whether you are an experienced or beginner forex trader, you can’t overstate the importance of quality education. Reading tips from expert traders can change your trading results drastically, even if you are already doing great. It is for this reason that we sat down with some forex experts recently to glean these tips we have covered here. These 35 forex trading tips are bound to help you become a better trader.
Page Contents
- You Need a Trading Plan
- Risk Management is Important
- A Clear Mind is Vital
- Discipline Will Keep You in The Market
- Regular Market Research Will Help You
- Keep Trading Records
- Price Action is King
- No Substitute for Patience
- Losses Are Normal
- Have the Right Commitment
- Overtrading is a Killer
- Avoid Revenge Trading
- Learn from Experienced Traders
- Find a Partner
- Consistency is Key
- Choose the right trading Broker
- Don’t Trade Under Stress or Pressure
- Trading Psychology is not a Myth
- Practice Leads to Perfection
- Understand How to Quickly Read The Charts
- Greed Always Backfires
- Stop Losses are Important
- Cut The Experiments
- Summary
1. You Need a Trading Plan
In most endeavours in life, you are bound to fail if you do not plan appropriately. However, in forex trading, he failure comes swiftly and suddenly. This is why you need a forex trading system that you will stick to judiciously. There are many systems already online. All you need to do is to try out as many as possible, tweaking them to fit your personal trading style and then forward testing on demo trading accounts to be certain that your system actually works. When you generate consistent results for at least 3 months, you can deploy the strategy in a live trading environment.
2. Risk Management is Important
If you don’t have a carefully drafted money management plan, you are already on your way to a really short forex trading career. Expert forex traders treat every trade as a loss until it becomes a winner or at least until they break even. So why would you still enter traders without any thoughts about a potential loss?
Trading without a risk management plan also leads to trading with money you can’t afford to lose. In this scenario, you could end up losing anyway as the fear of losing the money will lead to exiting the trade at the wrong time or inability to sit through the trade. If you already have a reasonable risk exposure level, you can be more relaxed about positions and let the market play out.
How much should you risk? This depends on your trading strategy. 10% risk sounds ridiculous but expert traders that only take 3-5 trades a year can find this reasonable. If you are a day trader on the other hand, you will take dozens of trades monthly, making it dangerous to risk beyond 2% of your equity on a single trade.
3. A Clear Mind is Vital
If your trading psychology is below par, you are already on your way to failure. Before you get on your trading station, engage in activities that will help you maintain mental balance required for a trader. For some experts, it involves practicing Yoga. For others, it is simply reminding themselves of their trading goals and objectives.
4. Discipline Will Keep You in The Market
How many times have you had the urge to ditch your trading system and take a trading action based on what you read online or heard from TV “experts” about the condition of the market? How many times did it work for you? If you are not disciplined as a forex trader, you will get burned pretty quickly. You need to exercise strong discipline to block out the noise.
5. Regular Market Research Will Help You
Before you begin taking trades, you need to take a holistic look at the market. Many experts have a clear monthly view of activities that can move or shake the market. Then they remind themselves about these events at the start of the week by marking out what is scheduled at different days of the week. This way, they are not taken unawares by unexpected economic reports, election results and more. Some professionals prefer to stay away from the market during high impact events while others stay in the market, ready to exit positions if things don’t go their way. Either way, they have a plan and do not fly into the trading month, week or day, blindly.
6. Keep Trading Records
Expert traders are obsessed with records and for good reasons. It allows them to see where each winning or losing trade progressed and the reasons for the wins and losses. They pay attention to the losses more because it shows them if there is anything they could have done to avoid losing the trade and then take this into account for subsequent trades.
Thankfully, the days of writing down trade entries by hand are long gone. There are lots of analytical platforms that document your trades automatically such as MyFXBook and Forex Factory’s Trade Explorer function. Alternatively, traders on the Metatrader platform can download their trading history for any period. Documenting your trades monthly will show you lessons to be learnt but be mindful about tweaking your trading strategy needlessly in a bid to avoid losses.
7. Price Action is King
There is a lot of confusion when it comes to the topic of Price Action. However, it basically means relying on raw market movement than waiting for technical indicators to determine an entry. While some experts have had success with technical indicators and will not advise against them, many of them agree that simply analysing chart patterns and catching price swings where they start is a better way to stay profitable than relying on technical indicators. Technical indicators will mostly get you into a trade when the move is well on the way or nearing exhaustion while price action makes it easier to detect a change in sentiment. For the best results therefore, you need to stop ignoring price action as mere rhetoric.
8. No Substitute for Patience
Expert forex traders agree that their trading became more profitable when they became more willing to relax and let the market run. Over the course of a trading week, the market will not continuously move in one direction at full speed. Even when the signs are there for a sharp down or upward move, there could be days of lull before one major day of the expected move. Only traders patient enough to wait out the dull moments will succeed. Similarly, you need patience to be able wait for the right moment to enter or exit a trade. You can’t force the market to act.
9. Losses Are Normal
It is impossible to win on all trades continuously in forex trading. You need to be willing to take the occasional losses. Expert traders don’t care about an impressive winning percentage. They see the bigger picture by analysing details like win to loss ratios. So a trader with a great strategy that wins only 60% of the time but makes 3 times the risk amount on every winning trade will be more profitable than a trader with a 90% winning strategy where a loss takes away profits from 3 other previous winning trades. Learn to see losses as a part of the game instead of an anomaly and you are on your way to winning.
10. Have the Right Commitment
Even when you have the right trading strategy, you still need to be committed to seeing it through every trading session. This means being ready to wake up at odd hours to check for trading setups or update your positions in line with your trading strategy.
11. Overtrading is a Killer
Overtrading involves taking too many trades over a short period or risking too much money on one trade. Some traders make the mistake of doing both. If you are consistently doing this, your trading account will disappear in no time.
12. Avoid Revenge Trading
Expert traders do not try to get back at the market after a loss. Many struggling traders quickly rush back into a position after they lost a trade, sometimes doubling the stakes in order to recoup losses and turn a profit. This is called revenge trading and in many cases, it ends with even more losses.
13. Learn from Experienced Traders
Learning is compulsory for any struggling traders. It is, however, best for the learning process to be about learning from other traders in live trading conditions. This is a great way to cut down the learning process while removing the risk of losing money to inexperience.
14. Find a Partner
There is a reason why forex trading forums are some of the most populated online platforms. The journey to becoming a profitable trader is long and lonely. Expert traders agree that struggling traders will benefit from having trading partners as long as there is accountability and respect instead of unhealthy competition. Additionally, traders must ensure they are not easily swayed by external opinion or they can quickly get confused.
15. Consistency is Key
Consistency is important in the life of a forex trader. If you are not able to replicate your results consistently, you are bound to fail.
16. Choose the right trading Broker
Your trading systems and strategies will go out the window if you have a dubious broker that is more concerned about getting you to lose money. This is why you should find a broker that has a transparent process and one that doesn’t reject trade orders arbitrarily (known as requotes). The broker should also be honest about deposits and withdrawals while guaranteeing safety of your trading account. Read reviews and try out the broker conditions on demo accounts before committing real funds to them.
17. Don’t Trade Under Stress or Pressure
Expert traders agree that they became profitable traders from when they could mentally detach from their trading accounts. It is hard to think logically and follow a trading system when you are in the knowledge that the rent or the children’s school fees is dependent on your ability to meet trading targets for the month. If you are find yourself in such a situation, find an alternative source of income as you build your trading account and trading persona.
18. Trading Psychology is not a Myth
Mastering trading psychology is your best bet to staying safe from needless losses and sticking to a profitable trading path. What makes you trade or ignore a setup? Did you follow all your trading rules on that trade? Do you exhibit confirmation bias? These are all important questions that will help you decide your situation in terms of trading psychology.
19. Practice Leads to Perfection
Regardless of how great a strategy you might have, you will never be successful in your trading if you don’t practice extensively in live market conditions. With practice, you will be able to develop the psyche required to see through trading sessions week after week with capitulating.
20. Understand How to Quickly Read The Charts
The bulk of the decisions you will make in forex trading will depend on your ability to read a chart. To succeed, you need to be able to quickly analyse the charts for different instruments over the trading period and know what the market is doing at any given time. Below are two types of charts: a Japanese Candlestick Chart and a Line Chart.
The former is the most popular chart type in the market but you need to decide which one allows you to see a faster representation of the market. The two charts represent the same movement but in different ways.
21. Greed Always Backfires
The problem with greed in forex trading is that you could be lucky a few times but the one time you are unlucky, you can lose everything. This is why expert traders advise against it. Work out your best possible risk amount and your realistic profit target and stick with them on each trade. Risking 100% of your account on a “guaranteed” move may work once but the fact that the market is hard to predict means you will never know how that move will play out!
22. Stop Losses are Important
If you are trading without a stop loss, you are basically allowing the market to do what it wants with your capital. A stop loss is a clear boundary at which you must exit the position and accept a loss. Many traders preach against stop losses because the market tends to go back in their position after taking out their stop loss. However, experts agree that a better message to preach is proper stop loss placements. If you placed your stop loss in the right position, there won’t be the fear of the market taking out the position before proceeding in the originally envisaged direction. Tight and unrealistic stop losses are as bad as trading without one.
23. Cut The Experiments
When you have found a trading strategy and have traded it profitably for 6 months, there is no need to continually chop and change things. Some traders preach changing your strategy in line with the times but expert traders agree that the only time you should change your strategy is when you notice a continuous downward spiral in profitability.
Summary
At the end of the say, most experts agree that the key to success in forex strategy is the discipline and patience to find a trading edge and the consistency to follow through with the strategy at all times.