Every aspiring trader wants to know the secrets to trade successfully. With so many currency trading tips it can be daunting to work out which to focus on. In this week’s article we cover the main ones, which will set you on the right course to become that consistently profitable trader!
Currency trading tips involves habits to learn and follow. These will not turn every trade you enter into gold, but will stop you from developing bad habits which cost you money. Successful traders have learnt to control their emotions and prioritise discipline. New retail Forex traders will often act on hunches and react to events rather than using a cold calculated approach.
Every trader has to be a risk manager first. If you do not know your risk, you cannot quantify it. Would you borrow money without working out how much the interest will be? Unlikely. Using stop losses and a risk-reward ratio will ensure you calculate exactly how much risk you are taking. This will also help select trades where the profit versus risk is stacked in your favour. Selecting trades which are advantageous to you, where the prospective profit is 2 or 3 times the loss is a rule which should never be broken. Risk management should become your best friend!
Another currency trading tip is to trade at periods which are beneficial to you. For example, weekday afternoons have increased liquidity compared to other times of the day as UK, US and European traders are all trading at the same time. As you can imagine, the USD, EUR and GBP are among the most traded currencies in the world. More liquidity means tighter spreads, which in turn means cheaper prices for you!
Only trading 1% of your portfolio with 2% the absolute maximum should become automatic and non-negotiable. Currency trading tips means learning to take small risks and make regular incremental profits, which will turn you into a consistently profitable trader. The all or nothing approach a film such as ‘The Big Short’ encourages, is for those will deep pockets and not someone who is looking to build a steady income stream, as well as developing their capital through Forex markets.
If you don’t like running, would you enter a marathon? You should ask yourself the same question when learning to trade. What kind of trader are you? Many rookie traders will develop a scatter gun approach when applying currency trading tips. They will trade several currency trading pairs without learning a handful properly. This has the effect of placing too much emphasis on luck, rather than a disciplined approach backed by a clear trading plan.
When you first start trading, you should do so with small amount or even better in a demo FX account. This gives you the time to develop the trading strategy which works for you. We are all different. Some strategies such as day trading will work for some, whilst others will prefer to place a trade which takes several days to play out.
As part of being a disciplined trader you should also learn to allow your success to take hold. Once you have placed your trades, you should set and forget them. Setting your trades and letting them play out can be as difficult as closing a losing trade. A key habit is detaching yourself from your trading screen. That means walking away. If you are someone who finds it hard to separate yourself from trading, you are at risk of over-trading. Over-trading is the death of any trader as it increases the risk of poor trades, cutting your winners too early and leads to increased commission cost. An old trading quote reads like this: ‘cut you losers and let your winners run’! If you are targeting a 10% gain then do not rush to close your trade after it creates a notional 4/5% profit!
You may wonder how ‘discipline’ and ‘Trump’ can be put in the same phrase, especially when it comes to the later’s Twitter use, but in trading, discipline is critical. Too many aspiring Forex traders start to see a trade go wrong and then double down. Before long they have blown up their account. The patient trader closes the position then and there. A disciplined trader knows they will lose money on some trades but make more on others. The risk-reward ratio is an excellent example of how a disciplined trader can lose more often than he wins and still make a profit.
In currency trading tips, the best trade is often the one you never actually placed! Staying out of the market if the risk-reward ratio is not in your favour or the trading opportunity does not fit with your strategy can help you avoid a loss. Consistent trading involves taking the emotion out of trading and repeating the same successful trading strategy.
Controlling your emotions is key. The high that some good news gives us can often lead us to having positive emotions and to take these into our trading. This can lead to poorly thought-through trades and losses. Learning to separate emotion from cold calculation is a key to trading. A good Forex trader will place a trade which meets the rules their trading plan has mandated. A poor trader will see half a chance and jump in, letting their emotions dictate their decision making.
The currency trading tips we have highlighted in this article will ensure that you cut out the basic mistakes that many new Forex traders make. They will also help you discover and refine your own profitable trading plan. There is a saying that trading is ‘an art and not a science’. We preach both, learn to ‘read’ the market but apply science through discipline and quantifying your risk, this ensures that your losses are smaller than your gains.