What makes a successful forex trader?
Trading forex can be a daunting experience at first. The sheer quantity of information, trying to decide which strategy will be best. Add into the mix a couple of bad trades, which will inevitably happen, potentially wiping out your account if you haven’t paid sufficient attention to risk management and you will start to think how do you actually go about creating a strategy that will give you the best possible chances in the forex markets. Outlined below are three key factors which make a successful trader.
Perhaps the most sensible place to start on your forex trading journey, is knowing yourself. As the saying goes “know thyself” a simple saying, but so important. In order to even know where to start with creating a trading plan or strategy and setting trading goals you MUST know your own trading personality. Ask yourself:
1.Do you intend to sit all day in front of the computer all day or are you more drawn to the idea of setting up a trade and then forgetting about it? Once you know this you can start to narrow down your options.
- Day trader, positional trader, swing trader or scalper? If your answer to question 1 is that you like to set up a trade and forget about – then scalping is most definitely not for you!
- How risky are you?
After answering these questions, you can start to set your trading goals.
There is so much information available on the web regarding forex trading, that there really is no excuse here. Furthermore, you can find information in almost any format that suits you, videos, tutorials, webinars, e-books the options are endless. Look towards your broker as well. Most competent forex brokers offer comprehensive trading educational programmes. Education is an essential part of trading. Given the broad range of factors that can impact on a currency’s price it’s important that you know what these factors are and what their likely impact is. For example, how would an interest rate rise in the US impact on the EUR/USD?
Run profits & Cut your losses
As human, we appear to be wired to hang onto losing trades, believing that at some point the trade will turn around and pare the losses. On the other end of the scale it would appear that human nature means that when we see a profit, we naturally want to jump in a take it. This often leads to accounts which have lots of small gains, which are then followed by a big loss which wipes out all the small gains.
The most effective way to manage this behavior is to use limit and stop orders. This enable you to pre-determine what levels you are wanting your trade to close at and at the same time eliminates emotions from your trade. Obviously, a key point here is once you have placed your stop and limits don’t touch them mid trade, as this will mean that emotion is creeping into your trading.