When I first started trading currencies I was fascinated by seemingly simple way of making money in Forex. What can be hard about buying a pair when price goes up, when price goes down you sell. After I lost quite a bit of money I realized that I know nothing about trading and it's not that easy as it seemed to be. After quite a long time of struggle I learned to trade with consistent profit. If you are a beginner trader I would like to give you a few tips to avoid my mistakes and become profitable faster.
1. You need a trading plan.
If you want to succeed in anything you need to plan it ahead. Do not haphazardly jump into Forex market taking random trades. Having a plan does not guarantee you profit but it can help you avoid situations like losing your entire account. Take you time to plan carefully your trading. Do not feel like having a plan restricts your freedom in trading. You don't complain about the roads to restrict your freedom of going anywhere you want do you? So a well thought plan is your road to success in Forex trading. Your trading plan should contain 1) trading system, 2) your trading schedule, 3) money management rules.
2. Test your trading system.
Now it's hard to believe that so many traders skip this step of backtesting of their trading system. If you ask me what's the one most important step for a trader to trade currencies I would name the backtesting. You perform backtesting in order to find out if your system is profitable on historical price data. Once you have the rules of your system apply them to the data on the platform of your broker. You may argue that result of backtesting do not guarantee a good performance in the future. It's true and you read it in disclaimers saying, "Past performance is not indicative of future results". But if you find out that your system is not profitable on historical data then you would be wasting your time and money trading it in real time. So this step is one of the most important ones. Do not skip it.
3. Importance of money management.
If you study habits of successful traders you will find one common thing they have is a sound money management system. It is not how much profit you make in your trading matters. It is how you manage it. You may be making 50% gain of your capital in a few trades but if it follows with 51% loss then you are on your way to lose your account. On the other hand if you make even 1% gain in a few trades but your risk is limited well below your gains you will steadily grow your account. So I advise you to study everything that related to money management such as mathematical expectation of your trading system etc.
These are just a few steps you must take towards your success in trading. They do not guarantee your success but without them your will sure to fail in trading currencies.
Albert Schmidt is a part-time currency trader. After quite a few months of struggle he learned to make consistent profit trading in Forex. Review a trading strategy he successfully uses in his trades. |
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