If you are someone planning to pursue forex trading or already in the process of learning to trade on your own, you might be curious about the success secrets of professional traders. Read More
Collecting the relevant information from different sources would take a lot of time and effort. But this write-up can save you the legwork as this guide includes some of the most valuable tips to succeed in forex trading as a novice trader.
- Start learning from basics and study about the market
As you may already know, a forex trader engages in the buying and selling of currencies or in other words, open trade positions with the expectation of a favourable fluctuation in the exchange rate of the chosen currencies (currency pair). But what determines the prices of currency pairs and how different currency pairs are traded? Which strategy and trading style can help you in reaching your profit targets? All of these questions can only be answered once you start learning the basics of forex trading.
What does a pip stand for and why pip calculations are relevant? How do the lot size and leverage impact your trading results? What kind of analysis can aid you in making sound trading decisions? What would be the ideal approach for navigating the volatile and dynamic currency market? How does technical analysis work and how do fundamental forces influence the prices? Which indicators can help you in confirming trends and breakouts? You should not get into trading until you gather enough knowledge about all these aspects.
Not to forget the fact that the market risk is always there in trading and no one can make profits without learning to deal with the risk in a way that they are rewarded at the end. Now where does this risk come from and how can you manage this risk? How much risk should be taken for optimising the profit potential of your trades? These questions can be intimidating for a beginner since risk management is a complicated aspect of trading. However, tools like trading calculators make the task easier by simplifying the calculation processes and giving trading numbers with a high degree of accuracy.
- Follow a systematic approach to trading
Many of us lack confidence and they don’t think that they have the potential to become successful traders over time. Perhaps, you are afraid of losing money in the process and thus procrastinate a lot about whether to enter a trade or not and even doubt if you can really deal with the complexity of trading. It is true that trading will never be an easy thing to do, but it does get easier once you devote your time and efforts to develop the relevant skills and devise a solid strategy.
All the successful forex traders that we see today have also gone through the very same phase that you are experiencing as a beginner. They were also confused and overwhelmed by the constant market fluctuations at first. Even the best traders may have encountered a series of losses before cracking the code to profitable trading. What helped them to survive as an amateur was sheer dedication and a systematic approach towards trading.
You should not treat trading as a game or hobby. It can be your part-time job or passion before you can think about becoming a full-time forex trader. Don’t rush the learning process and make the best use of demo trading accounts for practising without any risk. Demo accounts give you a wonderful opportunity to indulge in practical learning without being worried about the losses you could make due to beginner mistakes.
- Be disciplined
Lack of discipline is a major reason behind the failure of many traders. Hence, being disciplined and sticking with your plan is important to improve your chances of success. You should not expect to make profits from day one as it will take some time to understand the intricacies of trading. Practising on a demo account does help to a certain extent but the live market is different and you will also be dealing with various emotions when you are trading with real funds. It is normal to feel anxious or excited while placing your very first trade in the live market.
But you should not let these emotions overpower your rational thinking abilities in any situation. Being disciplined is about being firm and decisive without deviating from your strategy just because you are stressed or greedy. There is a common term that we come across in the world of trading and it is FOMO which is the fear of missing out on an opportunity. The FOMO can lead to many trading mistakes as you become frustrated, impulsive and restless for a win.
You don’t need to beat yourself up for not performing well in the initial phase of your trading career. Be patient and just follow the rules you have set for yourself when it comes to limiting the risk and number of trades you plan to take in a session. Don’t get into overtrading or emotional trading as they can be detrimental to your trading account causing huge losses that are above your level of risk tolerance. So, start with a smaller amount of capital or even open a micro account to trade comfortably. You can add more funds or open a standard account once you feel confident as a trader.
- Adapt to different market situations to make consistent profits
Being disciplined and following the rules to avoid deviating from strategy does not mean that you should never change your trading methodology. The currency market is quite unpredictable at times and the fundamental factors can cause major shifts in the market situation. Hence, one egy may not work in all market scenarios. In fact, strategies can stop working after a while and you will have to revise it or come up with a new one that resonates with the current market situation. Professional traders have a refined trading system that combines distincttrading strat strategies to get the best possible results.
You don’t need to complicate the process by mixing multiple strategies as you may end up getting confused. But it is recommended to have at least 2 different strategies as you can rely on the 2nd one if the first one does not give the expected results. It would be ideal to focus on longer timeframes at first as they are apt for learning about the market fluctuations that happen over time. To cite an example, a trend trading strategy will not work when the market is stuck within a range and range trading strategies are not meant for a trending market.
You need to pick the most suitable strategy based on what you see in the charts and execute it with perfection. Being adaptable is not about frequently switching your strategies or taking random trades just because you feel like that would work in the present market scenario. You still need to follow the rules and make trading decisions based on detailed technical analysis and logical calculations while also paying attention to risk management.
- Focus on money management
Money management is often an overlooked topic in the world of trading. We always talk about the importance of risk management but forget about money management which is a wider topic. Risk management is also a part of money management but here the goal is not just about limiting the potential losses but also making optimum use of your funds to generate profits. Money management also focuses on long-term objectives such as growing your trading account or what you wish to do with your profits.
Some traders prefer to withdraw their profits right away while others accumulate their gains in order to gradually increase the position size and thereby maximise the profit potential. How you plan to use the leverage also comes under money management and optimal position sizing along with a favourable risk/reward ratio is crucial for attaining your profit targets with minimal risk. You should also calculate the trading cost to keep it to a minimum so that the spreads, commission or rollover fee does not reduce your profitability and for this, you need to select a low-cost broker.
Wrap Up
Forex trading is all about strategic planning, careful analysis and precise calculations. But emotional control is essential for attaining success with any strategy and novice traders need to learn about all these aspects and follow a cautious approach at the beginning of their trading journey.