In this video we will go over 5 tips that will help you improve your forex trading skills, thus making you a much better trader.
Trading Forex is not as easy as many people might think. According to statistics , close to 90% of all Forex traders lose money. Learning and understanding how to trade the Forex market is challenging, but following certain rules and tips will definitely increase your success rate.
In this video we will go over those proven tips and analyze why they are so important. So without further ado let’s get to it:
Set Realistic Expectations
Before you even create an account and start trading forex, you need to set your expectations. For example if you have a 1000$ capital, and you expect that you will make 10x that money within a month, honestly it is not realistic, don’t get me wrong it is doable, I have seen traders do it, but they are very experienced traders with many years of trading behind them . For the average trader, that most likely is a false expectation.
Instead you should focus mostly, especially if you are a beginner in trading forex, on how to make your first steps by making sure you preserve your capital, what I mean by that is that your number one goal starting trading forex, should not be making huge profits but rather protecting the amount of funds you have in your account.
Because every day you are placing trades, you are gaining experience, and most likely you study forex, you get familiar with the market and at the same time, you have all your capital, that knowledge you have acquired by placing those traders is what will make you a successful trader, assuming you still have the capital to trade with.
So to recap tip number 1, set realistic expectations, you will not become rich trading forex on day one, it is a marathon not a sprint.
Define your trading Risk Profile
Having set your expectations, you should move forward and define your risk profile, and by that I mean you need to define what type of trader you want to become, conservative? Moderate or Aggressive. Each category has its benefits and drawbacks.
For new traders it would be wise to take a more conservative approach on trading, as explained on the previous tip, you lack experience and understanding the market, thus the possibilities of you closing your first trades in loss are substantial. And if your capital is lost, the ability to make a profit trading forex is lost as well.
So to preserve your capital and live long enough to see another day in forex trading, you will have to take an conservative approach, that doesn’t mean you can’t make substantial profits been conservative, not at all, actually as it happens I do know many traders that fit that profile that they are killing it on the market.
A moderate approach on the market could potentially suit you as well, if you have the discipline to follow through and place some aggressive traders while the majority of them are conservative, after all by trading you are taking a risk.
Lastly, the aggressive approach which as it happens has been preferred by the majority of the new traders coming in the market, and to be fair they do not choose it exactly, they just don’t know any better. They start placing high leverage trades that when they go sideways drain their capital and take them out of the game.
To recap, pick a risk profile that suits you best and stick to it. If you are newcomer to forex we strongly suggest a conservative approach.
Use Stop Loss and Take Profit
No matter the risk profile you decided to with, you should always and I mean always set a stop loss when you trade forex. This is one of those rules you need to follow if you ever want to become a successful forex trader.
Setting a stop loss with every trade you place can give you a peace of mind, because what you just defined is the max amount you are willing to lose entering on that trade.
If the market moves against you and the worst happens, which means your stop loss is hit, you will lose that defined amount, and you should be ok with that, as forex is risky and that will happen quite often. Remember rule number 1 when trading forex, which is to preserve your capital.
Now having set your stop loss you should also set a take profit position. Taking profit works exactly the same way as the stop loss does, but instead of you setting up the max loss you are willing to suffer in this trade, you are setting up how much you want to make out of this trade. Again be realistic on your expectations, if you are willing to lose lets say 15 pips on that trade I would assume you should be looking to atleast make 30 pips, that 2:1 ratio, and a good risk reward.
That will not only help you to become a better trader but as mentioned earlier it will give you an ease of mind which is extremely important when you are a trader. Instead of sitting in front of your screen or scrolling your phone to check the price, by setting your limits you can go for a walk if you like.
Of Course if a position moves to your favor you can move your stop loss in profitable territory, and chase the trade, but for many new traders the best way is to secure profits and build capital.
Pace your Trades
The less experienced traders make one fatal mistake and that is overtrading, out of excitement, out of eagerness to make profits, or because they just want to trade.
Forex traders who have no strategy will jump in and out of the market and trade multiple pairs per day, which will result in fees and commissions, because don’t forget that every time you open a trading position you start with a handicap. Unfortunately doing that will have as a result to drain your capital.
To become a successful Forex trader you don’t necessarily have to make a lot of trades, you just need to make the correct ones , and that can be 1-2 trades per day , and some days if the right set up does not appear or the circumstances are not right you don’t place any trades . Being a trader does not mean you need to trade every day.
When you will start trading you best have a strategy, that includes certain conditions and criteria, for you to enter a trade. If you do that and you stay disciplined on your criteria your chances of making it in the forex world will increase significantly!
Control your Emotions
As humans, we are vulnerable to emotions that accompany our trades, especially when we are on the losing side of a trade.
Becoming fearful, greedy or over-confident can lead you to exit a position too early for fear of losing money.
Once a position is open, you should allow either the take-profit or stop-loss level to be hit, this is the main reason you have placed them in the first place.
Unfortunately , the majority of the beginner traders tend to change their take-profit and stop-loss orders out of fear. If the market starts moving against the open position, then beginner traders generally shift their stop-loss orders and vice versa, resulting in most of the cases capital loss or profit loss.
The key is to find a medium where you can follow your strategy, no matter what your emotions are urging you to do, use a business approach to it, like you do that everyday and means nothing.
Never trade when you are in an upset or euphoric state, as this will cloud your judgment and lead to mistakes. Lastly you need to accept that sometimes you are wrong, it happens.
Be certain that managing to control your emotions while trading will definitely improve your success rate in trading forex.
Bonus: Pick the right Broker
A factor that many newcomers entering forex markets ignore is the Forex Broker they will trade on.
There are 100s of brokers in existence out there, some are great, some are decent and some are proven to be fraud, so you have to be very careful picking the right broker for you.
And once you do pick your broker you have to carefully consider your options on the account types they offer, there are spread accounts, commission accounts, copytrade accounts and so on. All these details will play a crucial role in you becoming a successful trader, because you could be doing all things right, but be in the wrong broker with the wrong account type.
Fortunately in our channel we have reviewed more than 30 of the best forex brokers in the market, and all the account types they offer, so if you are not certain on which broker to pick , head to our Youtube channel and browse around, we are certain you will find the right broker and account type.
Also watch: Top 5 Factors That Move The Forex Market and Forex Trading: A Beginners Guide On Forex Basics And Terminology