There are a number of things that the top Forex traders in the world do in order to trade Forex successfully. Becoming a profitable Forex trader does not happen by accident. Quite surprisingly profitable Forex trading does not need to be difficult if you follow some simple guidelines.
What follows will be a list of those things which must be done, some must be done before you begin to trade Forex and some must be done after you begin to trade Forex.
Decide Why You Want To Trade Forex — It is important to understand why you want to trade Forex in the first place. You might say that quite obviously everyone wants to trade Forex in order to make money. You would not be wrong in that statement, but different people will have different reasons in addition to making money. Some of these reasons may include quitting your day job and trading Forex full time or earning a good living while traveling the world.
All the above are valid reasons as long as they are kept in perspective. For instance, it would be unrealistic to expect to earn a full-time living trading Forex after your first week of trading.
Have Realistic Expectations –This is one of the most important things that you can do in order to trade Forex successfully. It's easy for any of us to find products with exaggerated claims of making unbelievable amounts of money after only trading for a short period of time. Many beginning traders fall into the trap of thinking that these exaggerated, atypical earnings claims are the norm in Forex trading. As a result of this many beginning traders abandon may perfectly good Forex trading strategies because they may compare the returns with unrealistic returns they see elsewhere.
Have realistic expectations of your Forex trading and realize that much like Rome your Forex trading fortune will not be built in one day.
Have Adequate Working Capital — It is very inexpensive to open an account and begin to trade Forex. There are micro accounts available that can be opened for a minimum of $25. Forex mini accounts start at around a $400 minimum deposit level.
It makes perfect sense to open up a smaller account when you are honing your ideas and trading strategies. If your plan is to trade for a living then quite obviously starting off with a $25 account isn't going to cut it. There are a number of factors you'll need to consider in order to determine how much is necessary to fund your account. Here are a few things which must be considered:
You're trading profit goals — If you're planning on generating $100,000 in Forex trading profits and your trading method can generate 100% return annually then you will need $100,000 in initial working capital.
Maximum drawdown — Your Forex trading strategy's maximum drawdown must be factored in. Your maximum drawdown is the largest peak-to-valley dip in equity that your trading system has historically experienced. Here's a quick example:
If your trading strategy has a maximum historical drawdown of $25,000 you should not open a Forex trading account with only $25,000. The reason for this is that this leaves you absolutely no breathing room. If and when your $25,000 trading account experiences this level of drawdown you will no longer be able to trade. This means that you will not be able to take advantage of any trading opportunities after your drawdown level is reached.
Have a Forex trading plan — Every successful business creates a business plan before they open their doors for business. There is no reason that Forex trading should be any different. Planning is important in Forex trading because planning helps you to keep on track and minimize uncertainty. Your trading plan doesn't have to be complex for you to trade Forex effectively, but you must have one.
Have a good Forex trading system/Forex strategy — This may seem obvious, but you would be surprised how many people trade Forex on a whim. There may be a few gifted traders who have an uncanny knack for choosing the right market direction. For the rest of us who wish to trade successfully it's important that we use a good trading system already proven to yield positive results.
Test Your Trading System On A demo Account/Micro Account — Try hard to resist the sometimes overwhelming temptation to jump in and start trading with a large amount of real money. Practice and perfect your skills first using a Forex demo account. Your demo account will be your “acid test”. If you can't make your demo account grow then it is unlikely that the trading methods you are using will make you money in a real-money account.
It is recommended that you use a demo account to refine each new Forex trading strategy that you use. Remember, in Forex trading practice really does make perfect.
Learn Forex Trading — It may not be the most prudent thing to do to simply buy a Forex robot and let it start to trade for you. In the long run you will be a much more successful trader by learning to trade Forex yourself. Get your Forex education started by reading Forex books, taking a few Forex courses, and practicing what you've learned on a Forex demo account.
Trade Only With Risk Capital— Risk capital is also referred to as “money you can afford to lose”. This is money specifically set aside for speculation in the Forex market. Another way to look at this is that if you were to lose all the money in your Forex account that it will not affect your lifestyle in any way.
Trading with money that you cannot afford to lose is also referred to as trading with “scared money”. Scared money is money that you are afraid to lose and will agonize over even to the point of having sleepless nights.
If you can not afford to lose money in your Forex trading account you are treading on dangerous ground. Keep in mind that even a great Forex trading strategy may not deliver the exact profit that you need at the exact time that you need it.
Never Add To A Losing Trade — This is an easy trap to fall into. None of us is thrilled about taking a loss on a trade. We have to realize that losing trades are a natural part of Forex trading and every single one of the most successful Forex traders in the world has had losing trades.
New traders will often add another position to an already losing trade in order to “get a better average price”. They believe that they will at least be able to break even when it goes in their desired direction. Unfortunately what often happens is that the market moves further and further against them. Now what was once a small manageable loss has become a large catastrophic loss.
The moral of the story here is simple. To trade Forex profitably never add to a losing trade.
Control Your Risk — By controlling your risk you control your reward. Never trade a system if you don't know your risk level. Never enter a trade without setting a definite level to exit the trade if the market moves against you.
Risk control will allow you to “stay in the game” by preserving capital by not allowing for needless, out-of-control losses. Let's look at an example.
If we have a $5,000 Forex account and decide to risk $2,500 on each trade how many times can we lose? It doesn't take a rocket scientist to see that the above example was one of poor risk control.
Have Proper Trading Discipline — A lot has been written about Forex trading psychology and trading discipline. Successful Forex traders know that it is absolutely crucial to trade in a disciplined fashion. Without trading discipline and the mindset to maintain your discipline all Forex trading tools will be useless to you. Discipline helps you to stay focused and stick to your trading system. Sticking with a good trading system helps you to profit and eventually create wealth. By keeping your emotions in check you will be able to trade forex without guesswork, anxiety, or frustration.
We've covered some of the basic things you must do to trade Forex successfully. Each of these are important trading rules which continue to withstand the test of time. Refer to this list from time to time and apply the rules to your own trading. You will find that they will help keep you on the right path to successful Forex trading.