Sometimes, having a profitable strategy isn't enough. There are many things you need to consider if you want to develop an edge in Forex trading. Many new traders ask me how to make a return on their investment while trading the Forex market.
The first step is to find a good trading system, a simple method, or a proven technique. If you don't have a good trading system, find one. If you can't find one, create one! Whatever it takes, do not attempt to trade without a systematic approach. Ideally, your system will give you an edge. When you have it, you should be ready to take the following steps in order to help make yourself a profitable trader.
Understand The Price Action
In order to understand the market, it's not enough to simply rely on a bunch of different indicators to tell you where the price might go. Remember, you want to trade like the big banks and institutional traders do. No matter which indicators traders use, almost all of them are looking at charts with Japanese candlesticks, bar charts, maybe even line charts.
Once you learn to read the price action, you'll see the one thing common for all trading systems. Knowing how to make decisions based on the price action will leave you rest assured that other traders see the exactly same thing.
Thus, if everyone else can see the price and wants it to go in a certain direction – e.g., market makers, big banks, institutions, prop and even retail traders – the odds are that the price will be pushed in the right direction simply because many traders will be trading to push it that way. You've got all the chances to win!
The Mental Edge: Accept Your Losses
No matter how good your system might be, the market is always ahead. Trust me, you want to follow it, not chase it. In trading, you can do everything right with every single element of your system in place and still have losing trades. As it is with every business, you need to accept losses. Accept them. This is one of the best strategies for consistent profits as it helps eliminate the gambler inside you.
This concept may sound easy, but it's not. Forex trading profits are difficult to make. As a kid, you were told that if you did everything right and studied hard, you'd do 100% on your test. Well, it's not the case when it comes to trading. You have to re-program your brain to embrace how trading really works.
Truth is, there is no ultimate way of trading that would allow you to win on every trade. However, you can win often enough to make real profit. I have seen traders abandon their accounts over and over again in an attempt not to lose.
They just keep thinking that it's coming back. When it doesn't, they blow their account up, which is a huge mistake. It's just a waste of time and money. Make sure to appreciate a stop loss if it hits, then move on.
Use The Compounding
Proper risk management is another crucial part of skilful trade management. You never want to risk more than 2% of your account on any trade. If you risk more, it will much harder to come back from a loss.
In addition, traders can't take the heat of too much money being on the line at a time. As a rule, a person can't handle the pressure of what would be a big loss if the full loss was taken. They also can't hold for the full win just capturing the win they already have in order not to take any loss.
This may mess everything up and basically doesn't allow you to stick to a proper risk/reward plan you now know is extremely important to succeed. Compounding is one of the strategies you can use to make money in Forex currency trading.
Compounding is the process of capitalising the amount of gains on the initial investible fund. In the process of compounding, the first profit taken is added to the account balance to create a new, higher account balance; the next profit is based on and added to a new higher balance, etc. The result is the exponential growth of a sum of money by continuously re-investing profits. See the example below.
Before you start trading, please consider the following:
- What time of day are you going to trade?
- How much time will you need to set aside to successfully trade your system?
- How many pairs do you plan to track?
- How will you track those pairs to make sure you don't miss your entries?
- How much lead time do you need to be completely prepared for your entries?
Your trading plan is how you execute your trades from the beginning to the end of the process.
Attend Professional Trading Webinars
Whether you are a novice or experienced trader, I invite you to attend my live trading webinars with Admiral Markets. Many of the so-called pro-traders are nothing but marketeers trying to sell you their systems and grab your money. Have you actually seen them trading live? Have they ever traded live in front of an audience to really buy their systems? There are exceptions to the general rule, but, unfortunately, the majority of them don't trade at all.
By attending live trading webinars and reading daily analyses, you should be able to better understand the price action trading. I invite all of you, beginners and experienced traders, to day-trade with me and hopefully start collecting pips.
Cheers and safe trading,