Financial markets can be a gold mine or a minefield, depending on how you go about your trading. The same goes for the forex market as well. Clearly, it is a tough day’s work for forex traders in a fast and highly competitive industry.
As a trader you would have to negotiate daily, even minute to minute, challenges that the trading floor poses. To take these on, you have to combine high levels of knowledge, the required soft skills and some smart strategies to stay ahead.
In this article, we present the best practices adopted and explore the 4 things successful forex traders do to stay ahead.
1. Find the Right Trading Style
Trading can be serious business and the need for identifying the domain that suits your ability and temperament cannot be stressed enough. Assess your goals and the strengths you possess to attain them. As an aspiring trader, it is also important to recognise which sector is right for you. For instance, if you feel your strength and passion lies in forex, prepare yourself suitably for that.
Additionally, the following steps will be useful in preparing you in finding the right trading plan.
Setting aside time to trade: Trading is demanding on your time and anyone taking it up seriously must be prepared to give it undivided attention. You would need to devote time and attention and sit in front of your screen all day and meticulously analyse the market and plan your trades.
Depending on what suits your temperament and risk appetite, you can choose between short term and medium term trading. If you are comfortable taking an overnight position, you could work off weekly charts. There are also five minute charts that suit those who want to settle positions the same day. Another type of trade – scalping might be right for the trader who is ready to persist all day shaving off small profits across multiple trades all day.
Choosing a methodology: There are many ways to do trading and you should pick the methodology that suits you best. You could go with indicators like the Moving Average Convergence Divergence or Crossovers. These indicators work on available data. Or you could be more market driven and buy upon finding support or, conversely, encounter resistance. Breakouts are another methodology where support or resistance levels can get breached.
Try out these methodologies and find the one that suits you most.
Selecting the instrument: Ultimately, testing your preferred methodology over a period of time can get you comfortable. But, in the process, you would have tried trading across multiple instruments. Some traders prefer stable instruments over more volatile ones.
Analyse the results of how your chosen methodology fares on different instruments and see which ones complement each other best.
Read More: Can You Get Rich By Trading Forex?
3. The Right Attributes
As we know, trading can be a tough profession and is not for everyone, in a purely behavioural sense. There are some attributes that work best for traders who are successful.
Being patient: Trading requires dogged persistence, a level of patience that can help you wait out the time till the results projected by your system bear fruit. Whether it is looking out for the right time to enter or exit, you will need to be patient.
Having discipline: Trading demands you to be methodical and disciplined enough to go by your decided playbook. Delays in getting to the projected price will require a commitment to the strategy and not deviate from it. Trusting the system and adhering to its advice, especially when having to exit during a stop loss situation, requires discipline on the trader’s part.
Being objective: Pushing the above point, a trader must develop objectivity with regard to the buy and sell decisions. He needs to stay away from taking an emotional stand and must place all the trust in the system and its recommendations. Gut feel is all right but it’s important to not have an ego or attachment to a stock or its movement.
Having realistic goals: Finally, a trader needs to be grounded and not allow his ambition to get the better of himself. The forex market is a volatile and unpredictable one and it is best to set goals that are realistic and achievable. The risk to reward relationship should be respected and the trading style must have the required restraint in its aggression.
3. Aligning to the Requirement
In forex trading, the way the major player’s trade directly influences the market structure. So, if you can understand how the big players think, it will provide you with insight into why the market ranges and breaks out, and why key levels act as support and resistance. And you can easily build a strategy that works around it.
Try to find an alignment within your system. Choose a few currencies, stocks, and commodities and chart them in different timeframes. Later implement your methodology to find which instrument and timeframe align with your system.
4. Executing it Correctly
To be a successful trader with a huge potential for profit, you would need to learn the art of managing and executing the trade. You need to have a strategy for your trading system which requires a certain approach to trade successfully and move in the right direction. Get the right information to make suitable decisions on when to enter or exit a trade. Do not forget to keep up with the changing dynamics of a market.
Are you a beginner in the world of forex trading? To learn the features of a trading platform before placing trades live, you could open a demo account. Instead of investing real money in an account, you can first familiarise yourself with the trading practices. You can buy and sell stocks in real market situations. Once you have practised enough on your demo account, you can open a live account and start trading.
The above-mentioned points will help you form a structured approach to trading and help you become a successful forex trader.
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