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With the advent of technology, trading has become accessible to everyone. If you have an internet-enabled device, you can trade from any part of the world. Forex trading has managed to charm many people as it is not as demanding in terms of investment as traditional trading. It proves to be an educational experience for many and comes with a lot of opportunities.
Yes, Forex trading is accessible, but not many turn out to be successful traders. Some people try but fail to make considerable profits in this market. Not achieving good results has nothing to do with luck but with how you react and how open you are to learning new things.
Reports show that more people in Forex trading are facing losses. There are many reasons for the same. Some traditional traders try to apply the same techniques in Forex trading and face failure. The other reason is that since you are not required to make a huge investment as an equity deposit, many people jump into the market with not enough knowledge.
Best way to become a trader
So, how to trade forex successfully? In the first step, traders need to define their goals, their future education plans. In the next step, traders start trading, make mistakes, learn from mistakes, improve portfolio gain percentage each year.
Who is a Trader?
We all have heard of the term ‘trader,’ but can we define it accurately? A trader is a person who does not create but operates on behalf of a financial institution like a big bank, investment funds, and hedge funds or behalf of other traders or a team of traders. They can be referred to as the representatives of others, purchasing and/or selling stocks for their clients. They can do so in their name or the name of their client.
‘Trader’ is a broader term. There is a trading market for several commodities in today’s world. A trader’s category depends on the market they are trading in – foreign exchange (forex), metals, equities, coffee, bonds, meat, etc. The most exciting contracts are settled in foreign currency.
Different Types of Traders
To become a successful trader, one must understand the different kinds of traders as well. Broadly, there are two types of traders:
Those who operate on behalf of clients: these traders trade on behalf of financial institutions or brokers. They buy and sell shares for their clients. These traders do not invest their money in the market. Since these traders don’t have their money in the market, any profit or loss doesn’t affect them. They get a regular salary from their clients. Any risk that is involved is borne by the client and not by the trader. The trader, in this case, is virtually safe in the market.
Those who operate on a personal account: these traders use their money to earn profits in the market. They are there for their personal gain and not on behalf of any other trader or financial institution. Their personal wealth funds all the accounts that they make. These types of traders are not protected. The trader bears any losses or gains. Traders execute transactions through online trading platforms. Many online brokers offer leverage, though the amounts traded by home traders are less than those of a professional trader.
How to Become a Successful Trader?
Understanding the term ‘trader’ is the first step towards understanding how to become a greater trader? How to trade forex successfully?
How to trade Forex successfully? To answer this question, we need to define the terms ‘success’. A trader must be clear about what they want to achieve in the entire process.
A trader must create their own meaning of success. There is this given factor in earning more money. This is an undeniable part of success for any Forex trader, but how much money? What would be the acceptable deposit and leverage? All these factors vary from trader to trader.
Success for you should be a mix of hope and reality. Your goals should be quantifiable; else, you will end up with a sour face. For example, setting the goal of achieving a 20% annual return on your investment or something similar. Along with making it achievable, get your goal in a way that can be measured and compared as well. Never set your goals for the short term. Forex trading is a long-term thing. Instead of making monthly goals, make annual goals. Monthly goals will discourage you, while annual goals will tell you the reality.
Once you have set your yearly goals, it is time to comprehend how you can realize them. A goal with no planning is just wishful thinking. Once everything is set, start learning the methods of achieving your goals. First, identify the resources that you can use in the process. Your resources could the size of the deposit, the amount of time you will be spending in trading, and the funds that you can invest in purchasing trade-related items like software, device, and WiFi.
All of the above points will allow you to have a clear vision. Now, it’s time to make an action plan. The most crucial thing that you need to decide now is to select your currency pair. Forex trading is done in currency pairs where one currency is the base currency, and the other currency is the counter currency. For example, JPY/USD currency pair, JPY will be the base currency, and USD will be the counter currency. You are also required to decide on the number of trades that you will be making.
New traders might find this confusing and overwhelming. You must take your time. You can even take the help of online brokers. Our tips on how to become a successful trader will be your guide as well.
10 Tips for beginners on How to Become a Successful Trader
1. Don’t Expect Too Much
New traders often face failure when they become preoccupied with chasing profits. They become anxious in the process and end up making mistakes which can lead them towards losses. To avoid such a situation, you must make realistic goals. This is true for every trader, but more so for the new ones. Being overambitious is often the cause of the downfall of many. Short-term gains are doubtful in Forex trading. If you are looking for quick gains, you should turn your steering towards day-trading.
By setting higher goals, you create unnecessary pressure for yourself. This can urge you to trade more than you first anticipated. Excessive actions and overtrading are messengers of failure. New traders must learn from this tip from the veteran traders’ handbook; Earn the money you need and don’t stress about earning more.
Your success in stocks doesn’t translate into success in Forex. Don’t operate in an overconfident manner. You must focus your attention on learning a practical trading strategy. Find out all the tools within your reach that could facilitate in achieving your goal. Device a lasting approach to become a successful trader.
2. Understand the Concept of Risk Management
An inescapable part of trading is a risk. No matter how safe you play, there is always some kind of risk involved. Experienced traders always inspect the risk involved in any kind of trading before humankind any substantial commitment.
Look at the currency pairs that you wish to deal in, read testimonials from different traders, research the markets, and most importantly, assess the capital in your hand. If any particular aspect of a market makes you feel uncomfortable, don’t invest in forex even if you are convinced that you will make profits.
Invest only if you think that your trading approach and the forex market are in line. However, do keep the following in mind:
- Your investment should be the amount that you’re willing to lose. The idea is to be realistic, not idealistic. Don’t treat it like gambling.
- Never invest more than 20% of your entire investment fund in one market. Diversify your investment because putting all the eggs in one market is never a smart thing to do.
- Identify your risk profile. Is it moderate, aggressive, or conservative?
- Be ready to lose. You are right for the Forex market if you have the courage to go on after a couple of bad trades and losses.
3. Choose Your Trade Strategy
While many traders have similar trading strategies, they all have certain secrets up their sleeves. When devising your individual trade strategy, you must look at all the different situations that you might encounter in this market. Then, come up with strategies that will guide you in those situations. These trade strategies are highly subjective.
Your trade strategies must change with the currency pairs, as well as every currency pair behaves differently.
Harmonize your risk profile and your online trading strategy. Read about the techniques that other traders are using and apply the ones that feel logical to you. Try to incorporate them into your strategy.
Never forget to do ample tests by backtesting your favorite markets. You must feel secure because you jump in the real game.
4. Separate Your Emotions from Trade
This is easier said than done, but trading has no room for your emotions. This is a brutal place. Your disappointments or excitement should not cloud your judgment. Many traders feel overwhelmed by their emotions and make investments that are not ideal or profitable.
This isn’t a game where there’s a winner or loser. It is a financial activity that requires you to be disciplined and analytical. Your competition is not with anyone but with yourself. Never blame the market or any other trader for your losses.
Irrespective of what you are feeling, always follow the strategy you made before the emotions took over. If you think that you cannot keep your emotions aside, it is better to take a small break than to do something that will cost you in the future. Pay attention to your mental health first.
5. Define Your Limits
One should never trade without defining a stop loss and take profit. This means that you must know in advance how many losses can you bear without affecting your lifestyle. It will allow you to assess the closing price of your trade. You must know when to stop and respect that limit even if your gut says that one more trade will fetch you the desired results. It will also keep you mentally healthy, as at no given point will you be losing what you can afford.
You must also make room for variations for when the market behaves eccentrically and presents a price gap in such situations. In such situations, the stop losses will not be executed at the level presumed earlier. Once the prices reach such levels, the phenomenon is known as slippage.
You need to determine the take profit as well. Your trade will automatically close a position once you have reached a predefined level.
6. Stay Updated with market Trends
The Forex market includes fundamental analysis. Thus, traders have to stay updated with the news. Any economic indicator that is released is important. Central bank announcements, reports by financial institutions, political events, financial reports, and even independent financial studies have the power to influence the market. To become a successful trader, you must keep up with all of the above.
If you choose to be a technical trader and follow chart analysis as your trading instrument, you must still acknowledge the power of these fundamentals. These indicators and news prove to be pivotal in deciding the market movements.
For example, if your technical indicators and chart forecast a long trade, cross-check the Forex calendar before making any commitment. Your trade strategy must match the current market events. The fundamental news can still change the market even if the technical indicators are in favor.
7. Steer Clear of Overtrading
New traders often fail to realize that they are overtrading. It is a situation where a trader sees the opportunity of making money even when there is none. Some traders end up overtrading to reach their annual goal only to end up with losses. You must always operate within your means and trade when it is profitable.
There are two common types of overtrading:
Trading too frequently: every trader makes an annual strategy before they start trading. It includes the number of trades that they are going to make. Anything beyond this falls in the category of overtrading. A trader is sure to lose money in this situation. You must have strict discipline while investing. Don’t let anything tempt you.
Warren Buffet explains:
“In investments, you have to wait until the opportunity is clear because the markets are not a game. In baseball, sometimes you have to swing at many balls that you don’t expect to hit, but this is unnecessary for the financial markets.
There is no harm in waiting for more than a day for an opportunity to arise. You can simply wait until favorable price action arrives, and this shows that you really know what you are doing, and that is when you enter the game. You just need a couple of trades.”
In a nutshell, the number of trades does not make you a successful trader. It is all about the correct ones.
Trading with too much volume: your trading strategy also guides you on entering and exiting a trade. It is all about discipline in Forex. If you want to be successful, you must adhere to your initial strategy. Don’t be impulsive. Trading with too much volume. It harms leverage.
Forex brokers are CFDs that offer significant leverage in their trading accounts. This allows traders to earn more with small investments. This attracts more people to invest in Forex and CFDs.
Traders who are just starting try to abuse this practice offered by Forex and CFDs and trade with high leverage with the hope of maximizing their profits. In reality, they are maximizing their loss.
It is not illegal to operate with high leverages, but it does make your account susceptible to margin calls. Beginners must learn to avoid overtrading and understand leverage.
8. Accept that Losses Will be a Part of Your Journey
Whether you are a successful trader or not is not calculated by taking into account individual transactions. Forex trading is all about averages. This is why we suggested that you make an annual plan. It is all about getting ready for the long-term trades. If your account shows a positive balance at the end of the year, you are a successful trader. Fretting about each transaction will lead you nowhere.
You cannot expect to close every trade with a profit. This is simply impossible. If you think that the veteran traders have never seen losses, then you are mistaken. O one will have a 100% positive training sheet. Some experienced traders have confessed that approximately 40% of all trades are successful.
To maintain a positive account, ensure that your profits are enough to cover your losses while leaving a substantial margin. You must always keep a positive attitude and learn from your mistakes.
9. Make a Trading Plan
Along with being disciplined, you need to be organized as well to be successful. To reduce any risk from the unforeseen shifts in the market, you must make a strict trading plan that covers all your trading activities.
A strict trading plan will keep you from forming bad trading habits like overtrading. It will also stop you from taking risks based on ‘luck.’ Forex is a very calculated market, and luck has no place here. If this happens to a trader, they get encouraged, and they start trading more. This can happen once or twice, but it will affect your account negatively if you do not follow a strict trading plan.
Even if your ‘luck’ has favored you once or twice, it will run out eventually. It would be too late to realize anything by this time because you wouldn’t have gained any viable knowledge. Therefore, make a trading plan not to get trapped in the circle of bad habits.
10. Find a Broker that Complements your Risk Profile
Your Forex broker is more like your guide and partner in the Forex market. You will focus on the actual trade only when you have a trusting relationship with him. Having any apprehension towards your broker will make you anxious, which can cloud your judgment.
Before you commit to anyone, you must do your research. Read the reviews and look for a trader who can work with you for a long time. You want someone who can improve your odds in this competitive market.
Who is an ideal broker?
Just like every trader has a different strategy, their definition of an ideal broker is also subjective. Broadly speaking, your broker must be able to satisfy the following:
- A government entity must regulate them.
- They must provide some protection or insurance for your money.
- They must be with you after you have opened an account.
- They must be a good broker for beginners.
- They must have a trading platform.
There are ample reviews on Forex brokers that can help you find the best one for you. You can also look at their rankings. You can even ask around to know more. You should always trust your judgment while choosing an online broker and CFD trading; you should always trust yourself.
Why you need to Educate Yourself
Just like the world of medicine, the Forex market is constantly changing. Doctors keep reading new papers, theories, and other things to make sure they are up-to-date with the new treatments. Similarly, you must continuously educate yourself about the changing trends of the market. The more you read, the more you would predict the ups and downs of the market. Trading never comes with a fixed rule book. Nothing can guarantee success. You can combine various tested methods with new trends to maintain a positive account.
Understanding the unpredictable nature of the Forex trading market is the first step in learning. There are various titles available in the market that will be useful for you. Not only will they brush up your basics, but they will also help you in understanding the ever-changing nature of Forex. Many titles are available online for free.
Before you start trading, you must know how to talk about ratios, charts, indexes, and trading. These are the must-haves. No matter how cumbersome a book may feel, it is always good to be thorough and invest time in adjudicating oneself than face losses later on. Constantly evaluate your performance and refer to the book to work on yourself. You cannot get results in the Forex market in the short run. So, it will be better if you prepare yourself for the long run.
What was my plan to achieve trading success?
1. Try to make 10% till 20% portfolio gain if the maximal drawdown is less than 5%.
2. Read the whole John Murphy book “Technical Analysis of the Financial Markets: A Comprehensive Guide to Trading Methods and Applications (New York Institute of Finance).”
3. Learn trading from trading experts free of charge using trading youtube channels. Monitor youtube channels that own trading prop companies. The trading strategy that companies use is very trustworthy than other YouTubers.
Everyone wants to be a Forex trader and become a millionaire overnight. The dream of living the dream is so prominent and but let us warn you that nothing great comes easy. We do not deny you the right to become the best trader, but that will not happen overnight for sure.
- Pay attention to the following points, and we are sure that your future in the Forex market will be bright.
- Develop your own trading strategy and stick to it no matter how much the ‘luck’ favors you.
- Set stop-losses for every trade and protect yourself from losing more than you can afford.
- Never risk more than 2% of your margin per single trade.
- Never mix your emotions with your trade. Take a step back, reset, and then make any commitment.
- Never be afraid of the losses.
- Do not overtrade to compensate for a loss.
- Think long term and try to maintain a positive account and attitude.
- Have a trustworthy broker on your team.
- Never stop educating yourself.
He is an expert in financial niche, long-term trading, and weekly technical levels.
The primary field of Igor's research is the application of machine learning in algorithmic trading.
Education: Computer Engineering and Ph.D. in machine learning.
Igor regularly publishes trading-related videos on the Fxigor Youtube channel.
To contact Igor write on:
igor@forex.in.rs
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