Forex trading tips - Things to know to be a successful forex trader
When it comes to trading forex, every beginner dreams of making it big. Indeed, the lure of trading the world of currencies and the potential rewards the markets can give often blinds potential traders from the glaring potholes that are filled in the journey.
Somewhere down the line, traders end up realizing that trading forex is not that easy as it seems. This is where traders start looking for short cuts that could help put them back on the right direction of success. And so, the search for the Holy Grail of trading systems, trading signals and automated trading services begins.
While the results may vary from one trade to another, the fact remains that there is no considerable proof or statistics to back up the fact that taking such short cuts will help one to turn around their success in forex trading.
However, when traders start focusing on the right elements of trading instead of taking a quicker route, there are higher chances that the traders can expect a higher level of success. Of course, there is no quick and easy way and at times rewards may be far and few between. But with the right mindset, there is no doubt that traders be successful as a forex trader.
If you are one such trader who wants to make it big in trading then start with these simple forex trading tips that will help you in your journey as a successful trader.
Know the markets that you trade
Knowing what you are dealing with is the starting point in just about any endeavor and forex isn’t an exception. Many traders do not pay attention to the markets they are trading and instead focus straight on the profits, which is by all means not the right approach.
You can expect bigger success when you first understand how the forex markets work and more importantly the reasons why the markets behave the way they do. There also needs to be a balance as traders often end up paying too much attention on the technical aspects of trading.
Sure, a moving average crossover might be the right signal, but do not expect much success by blindly following a trading strategy without knowing the reasons behind the move in the prices in the first place. Having an understanding on the basics such as the economic factors and the central banks’ interest rates can help you in the long run.
Focus on a select few currency pairs
If you look at institutional traders at some of the major banks, you will notice that in a majority of cases, these institutional traders often focus on a particular market or a currency. From a trading perspective, you will have a trader who specializes in the euro cross currencies, or the yen currency pairs.
The reason behind focusing on just a few assets is that helps you to get acclimatized to the behavior of the currency pair in question. This will also help you in the long term to get better familiarized with the way a certain currency behaves.
Going further, focusing on a select few currency pairs can also help you to get a handle on the macro-economic factors which can give you insights into the markets that most others will tend to miss.
Learn to manage risk
One of the biggest forex trading tips is in knowing how to manage risk. Good traders manage risk, bad traders chase profits. This might sound clichéd but it is a fact that is quite often missed out as traders start chasing the wrong goals.
Risk is an integral part of trading and the sooner traders realize this, the better they are in a position to manage their risks, which in turn helps to improve their long term success.
Many times you will find traders asking questions on how to set profits in a trade, but very rarely do you find someone asking how to manage their risks.
Risk management is a concept and a vast field that spans across traders, psychologists and academicians. For a topic that is so serious, many traders, especially beginners do not prioritize risk management but instead focus on finding trading systems that they think will make them rich.
The truth about forex trading is that without risk management, even a good trading system will not help a trader to find success in the long run. In most cases, a trading system with just a 40% win rate but a good risk management approach can often outperform a trading system with a 60% win rate.
Manage your emotions
Managing emotions is an aspect that every trader needs to learn to control. Greed and fear are two of the biggest emotions that can ruin a perfectly good trading system. These emotions play such a big role in trading that in the pursuit to eliminate emotions, traders have turned to automation and software to build mechanical trading systems where emotions are not part of the equation.
To control one’s emotions while trading requires a lot of practice and this is something that you will not be able to master overnight or in a few months. Therefore, only traders who are very serious about their trading careers often dedicate time towards managing their emotions, just as a professional athlete would.
The forex trading tips mentioned above in this article are merely some of the key starting points that can help not just a beginner in forex trading but also intermediate traders who are struggling with their trading.
Trading forex is not as simple and easy as the advertisements and many forex trading websites claim to be. In fact forex trading is just the same as pursuing a career. And as with any career where you want to make it a success, it takes a lot of time, dedication and hard work.
While the above might be a deterrent to some traders who firmly believe in making a second income trading forex, for the more sincere trader who is in for the long run, trading forex and the journey in learning to trade forex can be quite rewarding in the long run.