Many people try forex trading, but not everyone becomes a forex trading mogul earning massive profits.
Why is it that some traders manage to be consistently profitable while others are flat broke within a few months? Why do some thrive on the challenges while others feel the pain of every loss?
There are no simple answers to this. However we can learn from some factors that successful traders have in common.
Some people fail to get the information and education they need to succeed, or they don’t get the right systems in place to help them. Many of these difficulties can be overcome simply by setting-off on the right foot early on.
Let’s take a look at what separates the best forex traders from those who give up on a loss.
The Right Attitude
It takes experience to become a truly exceptional forex trader. This is something you can only get if you approach forex with the right attitude from the very beginning. Having the right mental outlook is just as important as technical knowhow.
The internet is full of people who’ve made bad trading decisions, whining about their trading software when it was their lack of knowledge or judgment that caused them to fail.
Dedication: You need to be dedicated. At first, in learning the way the market operates and, subsequently, how you go about making successful trades. If you want to be able to make the most profitable trades you’ll need to be patient and follow a disciplined approach.
Too many people make rash forex trading decisions, especially if they think they’re on a roll.
Stay Up to Date
Keep informed Make it a habit to study the financial news so you know what is happening in currency markets and globally. While the forex market is often highly volatile, macro-economic conditions tend to drive long term trends in currencies (see here for a brief overview). Trends can be more predictable than inter-day price fluctuations. Day trading is notoriously difficult.
Most online brokerages provide news feeds as well as their own analysis. Setting up your own news alerts from the major financial publications (Reuters, Bloomberg, as well as specialized forex news sites) can be helpful.
Staying informed can give you an edge, but many beginners neglect this aspect of currency trading and focus almost entirely on charts and technical indicators. Whilst technical analysis is important in forex, the release of economic data can throw even the best technical strategies.
While personal trading styles may differ radically, the most successful traders have certain key traits in common:
A cool mental attitude: Many new traders are unprepared for the mental challenges they’ll face. Fostering the right mental attitude is key to success in any trading program.
A disciplined and methodical approach: Having the confidence to follow a strategy in a consistent manner.
Willingness to accept and learn from mistakes: Successful traders critically analyze any losses and revise their strategy where appropriate.
Thinking “out of the box”: Having a “follow-the-heard” mentality can make profits in the short-term. But the odds of this working out over the long-run are not good.
The Right Software
Forex software is powerful, but it should never be seen as a substitute for knowledge from an experienced trader.
Bots Some forex robots are inefficient and don’t keep up to date with the developing market. Some forex software will work as long as the trader controls it appropriately, setting the controls to match the market.
Automated tools can be very useful when used correctly. However the internet is full of people who’ve made bad trading decisions, whining about their trading software when it was their lack of knowledge or judgment that caused them to fail.
If you find yourself relying completely on your software to make trading decisions, ultimately you should ask yourself if you’d be better-off taking a hands-off approach and using a managed system such as copy trading.
While less exciting, this approach can be less stressful and time consuming.
Forex software is powerful, but it should never be seen as a substitute for good “know how” from an experienced trader. Getting to that point means starting from the basics while familiarizing yourself with the software.
Make sure you know how it works: No matter how experienced you are, you should make an effort to fully understand the trading system of the software you choose. Without doing this, you will increase your chances of failure and you will likely find your lack of understanding hits at the wrong time.
You also risk deploying a trading system that’s not suitable for your risk appetite and investment objects.
Timing is critical: Making sure you’re ready to make the trades, at the right time, is key. Market timing is difficult. Making trades at the wrong time is very common, and it’s easy for all traders to do. People tend to either delay too much, missing an opportunity, or get too carried away making rash trades which are rarely profitable.
To take the right action at the right time means being cool, calculated and rational. You should use your indicators and other tools to help in placing trades. But don’t forget the importance of the human mind.
Take responsibly for your actions: Remember that if you do make a mistake, it’s a powerful opportunity to learn. Use it as a chance to review your techniques, but don’t let it tear apart your confidence. Just make sure you don’t make the same mistakes time and time again. Don’t pass the buck. Accept it and move on.
Being an action taker is the key to success: Take action to learn the market and the patterns of trading, and you’ll develop that forex expertise that will drive you forward.
If you take these tips into account you will be well on your way to becoming a successful forex trader. There will still be plenty to learn. You never really stop learning. But you will have done more than the majority of people who consider starting currency trading.