You can generate enormous profits in Forex trading. 12 helpful recommendations will make you closer to this goal. A solid trading plan and awareness about typical errors will contribute to your success.
The below list provides you with basic recommendations in this task.
1. Develop your trading plan
When a trader expects upraise of market, he usually says something like: “I think than EUR/USD will reach $1.3000. On which level shall I buy?” My reply is - “What is your risk in a trade?" In other words, “Where will you leave if you are not right?” Often a trader is taken aback with the reply. It never occurred him that he could be wrong or at which level he must place Stop.
Most part of traders never have a plan. It means they do not know what to do if they are found to be wrong or right. Big profit on paper turns into big loss in real life because they do not know when to leave.
Crucial point is to develop your trading plan before you enter a trade. This plan accounts for the following:
2. Use money management strategy
Money management is the risk control through protective Stops either hedging which balances profit and loss.
You are supposed to have target profit and know your chances to be right or wrong as well as to control risk through protective Stops. It is better to trade with the order in which you can lose 1000 $ if you turn to be wrong and make a profit in the amount of 500 $ when a trade brings profit 8 times from 10 than to make a profit in the amount of 1 000 $ or lose only 500 $ in the trade which works only in 1 case in 3.
Develop and test your money management strategy to solve this issue. It is a wide topic, but the key thing you must know is to know your chances for profit as well as a proper profit/loss ratio.
3. Put protective Stop Loss orders
This error is caused by a poor trading plan and bad money management strategy. Once you enter a trade, put protective Stop orders – and they must be real, not imaginable. Too often, traders use imaginable orders just because such orders worked in past, whereupon they saw market moves in their direction. If you put Stop order in a wrong place, it means you conduct a fallacious technical analysis.
4. Close profit-making trades on time.
A widely spread mistake among Forex traders is that they take minor profits and let their loss grow. It is a usual result when you've no plan. After 1-2 loss trades you will probably take minor profit on the next order even if this order could bring you a big profit that would make up for your past damage.
Traders allowing their loss to grow are met even among professionals. You enter a trade and do not know when to leave it. Once you start to lose, you let this damage grow in your hope that market will roll back – a rare case.
Use protective Stop Loss orders you define prior to making a trade.
5. Hold position for a reasonable period of time
If a trader is not able to take profit on the level defined before, this mistake is often made. Market allows to take profit before it takes more profit back.
Nevertheless, if you already have the profit on your balance, you still try to make out the last cent of it. If market reaches your target and you still stay in the market, you just overhold your position. That's it!
The only exception is when price strongly moves to your direction. Move your Stop to the target or use Trailing Stop.
6. Exclude averaging from your strategies
It is a throwback of futures and stock market. Averaging may destruct your Forex trade with its leverage 1:100 or even higher. You enter the long position, it moves lower. You justify averaging down expecting to have a lower average Enter. Unfortunately, if market moves against you, you will lose twice as much – usually it happens this way.
Never average your loss and your strictly developed plan won't require averaging if market moves against.
7. Keep the same rate of risk if you get successful
Having closed several trades in succession, you may start to risk with a big amount per trade just because this trade now has a bigger balance. Success makes you confident and probably you will now take more risk. It is not a surprise that this error kills more traders than loss-making trades do.
8. Trade with reasonable amount
An excessive trading is when you risk with a too high per cent from your remains on balance either trade with too many lots/trading pairs in one single trade.
To prevent this mistake, never risk more than a certain rate of your remains on balance no matter how attractive the outcome is.
Over-trading is a sure and the quickest way to lose capital on your account.
9. Take profit from your account on time
It is almost inevitable that, for a certain period of time, Forex will let you earn much money and later you will need to start paying back. It seems that not more than 1% of traders follow the rule to take profit from account.
This problem may be solved if you define the level which needs to be reached to make you withdraw the part of your profit from account.
10. Keep the same trading plan
Within trading session, you are subject to fear and greed rather more than in calm market. Have you ever noticed that a slow Asian session lets you to figure out with your plans for a furious London session? But when London session opens, you do right the opposite to your plans.
With few exceptions, you'd better not to change your strategy within main trading hours if there are no force majeur events.
To cope with this mistake, have your plan drafted before rallies and be disciplined not to change your plan further.
11. Be patient
On average, Forex activity of one trader takes from 5 minutes to 9 months. Not all of them trade just because want to make money. Many traders want market action. Think about it: do you really need to trade every day or you can be patient enough to wait even if it means to stay out of market for weeks?
12. Be disciplined
The most often reason of loss is deficit of discipline required to stick to a trading plan, be patient, put up with damage, take profit and consistently apply money management strategy. For beginners, when they are done with education and deposit to account, one of the best ways to promote their self-discipline is to watch market during a whole day without making any trades. Even if you face a good chance, stay calm.
We have considered all major rules for a successful trader. Online trading is a profession and, as any other profession, requires a serious compliance with its principles. Invest not only money, but time, patience and efforts and you will definitely approach to the profit of your dream!
by Alexander Goryachev
Alexander Goryachev is a Forex analyst with 7 years of trading experience, who advises beginners in the Forex market how to trade effectively. He works for FreshForex.