To create a continuous flow of profits in forex trading, you also need to apply the best practices observed by successful forex traders. These practices were developed to help increase the rate of success with an aim to maximize profits and minimize losses.
Research
When you deal with the forex market, doing research will go a long way. In fact, it is your research that will give the direction of the overall trade, since you will use the information in your research to come up with a trading decision. Therefore, your research plays a critical role in every trade.
Make sure that you do sufficient research. Take note that just because you have spent five hours researching in one day does not mean that it is already enough. When you are an FX trader, research should be a normal part of your day-to-day activity as a trader.
The more that you know about the currencies being traded, the higher is the chance of being able to identify the best currency to invest in and trade. Also, do not forget to research the different factors that can affect the prices of currencies in the market. Although it is virtually impossible to analyze every detail when you trade foreign currencies, it is still worth studying since having more knowledge and understanding will allow you to make the right trading decisions.
Of course, the information that you get from your research will not dictate or directly show you the right decisions to make. Therefore, you also need to dedicate some time to analyze the information that you have. This is another crucial part since your analysis will be the one that will lead to your trading decision. This is also a tricky part since you will most probably have several conclusions on what may be profitable currencies to trade, and some of them may even conflict with one another. Of course, you are free to make multiple trades at once; however, for a beginner, it is recommended that you only do one trade at a time to monitor your progress more easily.
Also, doing multiple trades when you are just starting out is also too aggressive for a beginner. Do not worry; the more that you get used to trading in a real and live FX market situation, the more trades you can make. But, for now, as a beginner, focus on making one trade at a time and strive to increase your rate of success.
Money Management
Even if you use a winning strategy, there is still a chance that you may lose all your money if you do not manage your money properly. This is true not only when you deal with forex but also in any investment or business. You have to manage your money properly.
Pay attention to how much you spend and the money that comes in. Of course, to make a profit, the money that comes in must be higher than your overall expenses. It is also worth noting that a good way to manage your money is to manage the trades that you make.
After all, the money that you will come or will be spent for trading. Hence, your trading activities are closely connected to the money that you need to manage. And, having a plan is the best way to do that. Have a short-term and a long-term plan even before you initiate any trade. Be sure that your objectives for entering a transaction are clear.
Of course, part of money management is to only invest the money that you can afford to lose. Therefore, do not use the money that you need to pay for your household bills and other obligations. Keep in mind that forex trading still has its risks even if you do all the necessary research. Just like any other business or investment, there is a chance that you can lose your money. Also, by not using the “important” money, it will be easy for you to stay calm and just enjoy the process of trading.
Another issue to discuss is if you should use OPM or other people’s money. Some people say that you do not need to spend money to be a trader since you can always use OPM once you can develop a winning strategy. However, this book does not recommend this practice. Yes, you can use OPM and probably be successful, but you should also consider what can happen in case your trades do not work out the way you would want them to be.
And, take note that this is a common scenario when you deal with the forex market. In case the worst happens, then you risk being drowned in debt. So, instead of taking such a risk, you should only use any extra money that you have and work on your strategy to grow it without having to worry that you will be in debt if your trades do not work out.
Part of money management is time management. You should also pay attention to how much time you spend on things that are related to the FX market. If you spend too many hours a day but only earn a little, then perhaps you are not productive. It is not just a matter of earning a profit but also how much profit you can earn.
Right Mindset
Having the right trading mindset is important to success. Your mindset can influence your analysis, as well as the decisions that you make. Without the right mindset, there is even a chance that you may miss out on opportunities. There are many things that can characterize the right trading mindset, such as:
- Always calm and thinks clearly
- Not greedy
- Objective
- From an emotional standpoint, it is not affected by the outcome of a trade
- Patient
- Knows how to take benefits of opportunities whenever they appear
- Thinks positively yet remains practical and reasonable
- Remains full of enthusiasm
- Willing to research and analyze various information on a regular basis
- Has a strong will
- Learns from mistakes
- Applies tested strategies and does not rely on luck
- Seeks more knowledge and understanding
- Strives for continuous development
Many things can be said about the right trading mindset. If, while reading the short list above, you feel like it is yourself that is being described, then you are probably on the right track to achieving the right trading mindset.
Take note that no matter how much you want to have this mindset, you cannot expect to achieve it overnight. After all, it takes time to break old habits and be able to learn new and more effective habits as a trader. The good news is that it is possible. If you persist and practice enough, then soon enough you will achieve the right mindset that is the optimum mindset for trading currencies.
It takes lots of practice and studies to acquire the optimum practice for trading. It is not really composed of complicated steps or features, but rather a strong habit of the best practices and rich experience.
Forex Trading Journal
Do you really need to keep a journal to trade currencies? The answer is no. However, it is worth noting that having a journal can be very helpful, especially in the long run. A journal will allow you to:
- View yourself from a different and unbiased perspective
- Find things that can be improved which you would otherwise overlook
- Have a better view of your trading journey
- Learn new things
- Remind yourself of your goals and objectives for trading
Do not worry; you do not have to be a professional writer to keep a trading journal. However, you do need to do two things: You have to update your journal on a regular basis, and you have to be completely honest with everything that you write in your trading journal.
You can write your experiences and goals in any notebook. Other traders do not use a notebook but make use of technology. They keep a file in any writing software like Microsoft Word or King soft office. You can also use your mobile phone instead of a traditional notebook. The important thing is to be able to keep a record easily. Of course, you should also make sure that you do not lose such a record easily. Writing trading may not seem that helpful the appreciate its value and importance to you as a currency trader.
Follow On the News
The news usually reveals useful information that can help you predict the movement of the different currencies in the market. This is true, especially when you deal with the four major currency pairs. Therefore, it is important that you be updated with the latest news, especially concerning the factors that can affect the value of different foreign currencies. For example, all things being equal, if there is news that there is a problem of underemployment in the U.S., and it appears hard to solve immediately, then you can expect the value of the U.S. currency to drop. This, of course, will allow you to make the right trading decisions.
Be careful because the news can be tricky. Although it is advised that you follow the news, do not let it decide the course of your trade. Normally, when the news highlights or promotes a certain currency, the expected outcome is that the price of the said currency should increase. However, this is not always the case. Do not forget that many factors affect the price of currencies.
You should also consider how the market (people) responds to the news. After all, consumer behavior is one of the things that can influence the prices of the different currencies.
Stay Conservative
Be conservative and stay conservative. Whether regarding the investment that you make per trade or how you compute the likelihood or outcome of a trade, it is important to be conservative. The FX market is full of speculations. Although it is a given that you intend to make money, it is important that you keep your expectations and projections as conservative as possible. This will help minimize your risks and losses. Being conservative is important especially when you deal with an environment that is highly speculative such as the forex market.
Many professional and successful traders only spend around 1% of their total funds per trade. Hence, they can make at least 100 trades (minimum). After all, no matter what strategy that you use, even if it is highly effective, it is inevitable that it will also experience some negative outcomes. The best way to see just how effective a strategy is by applying it in the long run, which means that you will have to make multiple trades using the same strategy. This is another reason why it is helpful to be conservative. It will allow you to see the full potential of your strategy.
Develop Your Strategy
When you engage in the forex market, you need to work on a reliable strategy. Part of being a trader is to work on and develop your trading strategy continuously. Do not forget that the market continues to move and evolve. As such, your strategy must also be flexible enough to adapt to changes. Also, there are many things and variations that take place in the forex market. The best strategy today may not be as effective by next week. Hence, you need to develop your strategy on an ongoing basis.
It is worth noting that before you apply any strategy, you need to be sure to test it first multiple times. Some traders get too lazy and only run a single test. This is wrong. Be sure to test your strategy more than five times before you use it with real money involved. A good way to test your strategy is by using the demo account provided by your broker.
It is also common to make continuous adjustments or changes in your strategy. Remember that even a minor adjustment can have a big impact on the effectiveness of a strategy. Therefore, even if you only change a small part of your strategy, make it a point to test it several times before you use it with real money.
Professional traders continuously work on their strategies. It is also not uncommon to completely abandon a strategy that you have been working on for weeks and months. It is a never-ending test of trial and error. Strategies that perform well can be further developed, while those that fail should be abandoned. Of course, you will not be paid for testing and developing countless strategies, but this part is crucial to your success as a trader since the strategy that you use is the key to making continuous profits in the FX market.
Take Advantage of the Demo Account
It is common for brokers to provide you with a demo account. This is a good way to have an experience of actual trading in a live market environment without risking any money. This is also a good way to test the trading platform of your broker before you deposit real money in your account. Also, a demo account will be useful whenever you want to test your strategy, which is a regular thing for professional brokers. Do not worry; well-established brokers always offer a demo account, so this will not be a problem.
The problem is that many traders are too lazy to use their demo account. They just want to rush and participate in a real market using real money. After all, when you use a demo account, you still have to research and do all the things that you would do as a trader who wants to earn a profit. Hence, you might as well do it for real so that you can get paid for your efforts. Well, the problem is that this is not always the case.
It is not uncommon to find traders who lose a trade despite doing lots of research and analysis. What you need is to develop a reliable strategy. To do this, you can expect to encounter many failures or losing trades. These failures are the ones that will lead you to a more effective strategy. By using a demo account, you can come up with a better strategy without risking a dime. Do not worry; once you develop a winning strategy, then you can always back up your strategy with real money.
Take A Break
Allow yourself to take a break from time to time. Doing research and analysis can be tiring in the long run. Also, by giving yourself some break, you will be able to relax your body and clear your mind. This is important to allow you to come up with better ideas and make better decisions. It is also worth noting that it takes time to learn how to trade foreign currencies effectively. Take, for example, juggling. Even if you have the complete instructions on how you can juggle four balls, you will most like not to be able to do it right away. You need to practice more. The same applies to trading currencies.
Just because you have read good books on the subject does not mean that you can already make continuous profits with your knowledge. You also need to practice. Of course, exerting too much effort and time in practice is also not good for you. You also need to rest. Take note that with all the research and analysis that you do on a regular basis, you deserve to take a break from time to time.
A good way to take a break is not to think about anything that is related to the FX market. Some people commit the mistake of taking a break by spending time with the demo account or looking for new strategies. That is not taking a break. That is still considered as working. It is true that the FX market can be very addicting, but you need to control it.
Therefore, when you take a break, do something that will get your mind out of the things that are related to forex. Go to the beach or go on a vacation with your family somewhere. You can also watch a good movie or go for a run — anything fun and will not make you think and worry about forex and your pending trades if any. Just enjoy. Do not worry; you will go back to your life as a trader immediately right after the break. When that happens, be sure that you are more ready to face the evolving FX market.
