At first glance, trading in financial markets is something mystical, since there is no definite formula for success. It requires talent, the ability to balance, patience, proper equipment and attentiveness to events. Trading on the Forex market without proper training can be compared to swimming in a basin with sharks.
Learning to trade in the Forex market is no different from learning to surf. A good analysis and effective application of knowledge, combined with talent and hard work, significantly increases the chances of brokers clients to succeed. This article discusses 4 basic principles that allow you to create a successful strategy for any market.
Principle No. 1 - Preparation
Before embarking on a trade, you must properly prepare for it. The first thing to do is to choose the trading tools and markets that best suit your personal goals and temperament. For example, if you are familiar with retail sales, it is better to do stock trading than futures that you know nothing about. In the process of choosing a trading instrument, it is necessary to analyze the following 3 components.
A period of time
Choosing the right time period depends entirely on your nature. Trading on 5-minute charts is suitable for traders who do not want to leave trading positions at night. Weekly charts are suitable for traders who are able to take the risk of a position open at night and are ready to periodically observe movements against this position. In addition, you must decide whether you will sit in front of the monitor and watch the market, or prefer to calmly analyze the market situation during the weekend and pre-develop a trading plan for the coming week.
Remember that in order to make a significant profit in the market, you need to spend enough time. Short-term scalping, by definition, implies a small profit or loss and frequent trading.
After determining the time period, you need to find the system that suits you.
For example, some traders buy at support levels and sell at resistance levels. Others prefer to buy or sell on breakouts, while others use various indicators, such as MACD or the indicator crossing technique.
After choosing a trading system, you need to test the constancy of its performance and make sure that it is really useful for you. If the system generates the correct trading signals in more than 50% of cases, it is good enough for you, even if it is small.
Test the system on historical data, and if profit exceeds losses, it is likely that it is winning. Analyze several trading strategies, and when you find one that generates a steady income, test it in several ways at different time periods.
Price movements of some trading instruments may be more streamlined compared to price movements of other trading instruments. Trading instruments with random movement are the most difficult to make profit with. It is necessary to test the developed system with various tools in order to select the most suitable tool.
For example, for the USD / JPY currency pair, trading by Fibonacci support and resistance levels may be more profitable compared to other instruments. It is also necessary to test the system for different time periods and choose the one for which you are most satisfied with the results.
Principle No. 2 - Psychological Installation
The psychological attitude when trading on the Forex market should comply with the following 4 principles:
When working with the system, it is necessary to patiently wait for price levels at which signals to enter or exit the market will be generated. If your system points to an entry point that the market ultimately does not reach, wait for the next signal. You will always have other opportunities to enter the market. In other words, do not run after the bus that left, but wait for the next one.
Discipline is the ability to be patient and not take action until your system generates a signal. Sometimes the price of an instrument does not reach the expected values. It is at this moment that you must be disciplined enough to continue to believe in your system and not try to guess the direction of movement. It is also necessary to exit the market if the system generates an exit signal, especially if the exit should take place at a stop loss.
Objectivity or “emotional detachment” also depends on the reliability of the system or strategy. If your system is reliable enough and provides you with accurate entry and exit signals, you don’t need to worry or succumb to the influence of “experts” who monitor their trading levels, not yours. Your system should be so reliable that you can safely trust its signals.
Despite the fact that the market periodically shows quite large movements, it is necessary to realistically evaluate the possibilities and not expect to earn $ 1000 per deal, having $ 250 of initial capital. Short-term transactions provide fewer opportunities for significant profits, but the risk is significantly lower than long-term positions. To select the preferred duration of the transaction, you need to turn to the concept of the ratio of risk and reward.
Principle 3 - Difference in Trading Instruments
Each of the various trading instruments has its own distinctive features. These features are determined by market participants and their initial goals. Hedge funds have their own interests, which differ significantly from the interests of investment funds. The objectives of large banks trading in the foreign exchange market are significantly different from the goals of foreign exchange traders operating with futures contracts. If you understand the motivations of large players, you can repeat their actions and, accordingly, make a profit.
The choice of a trading instrument
Draw charts of several currency pairs, stocks or products for different time periods. After that, test your trading system on the received charts and select the most suitable trading tool for it. Repeat this procedure periodically to take account of constantly changing market conditions.
Principle No. 4 - Management (System Application)
Since it is impossible to trade without losses, no system is able to give 100% result. Even a profitable system with a profit / loss ratio of 65% makes 35% loss. Thus, profitable trade depends, first of all, on the correct management and execution of trading operations.
Management of risks
Profitable trading is possible only with proper risk control. You should not be afraid to take losses, even if this happens often enough. Try to immediately catch the trend, but if this did not happen, you can try again. Often, the right direction of the market is guessed from the second or third attempt. This practice requires patience and discipline. After you have guessed the direction of the market, you can use the trailing stop to fix the maximum profit, or just exit the market in case of unforeseen developments.
Almost every trader on the market uses his own trading system. There is no right or wrong trading system: trade can be either profitable or unprofitable. Warren Buffett mentioned 2 basic rules of trading: first – never lose money; second – remember the first rule.
Attach a note to your computer that will remind you that you must, without regret, part with small losing trades and not expect larger losses.
As you know, success in exchange trading largely depends on the psychological state of the trader. Therefore, the psychology of trade is the topic of many books and workshops. According to statistics, any profitable system is 80% dependent on the personal characteristics of the speculator, and only 20% on the rules and conditions of conducting trading operations.
Forex can be compared with one of the sports, and a trader, respectively, with an athlete who sets as his goal the achievement of the highest results. In the forex market, it is necessary to correctly analyze and choose the right strategy. But over time, this becomes insufficient – you have to attract additional investment, learn to restrain yourself from falls and prevent mental overload. But how to organize the work? What tips should be highlighted first?
Love your job
When a person shows a passion for his work and tries to improve the quality of tasks and increases the level of knowledge, then the result comes sooner or later. Moreover, a person begins to receive true pleasure from his fruitful work.
Believe in your strength and trust yourself
Remember that having confidence in your abilities and, of course, yourself is half the success. If a person sees the goal and goes to it, then he will certainly reach the highest peaks. In this case, you can not be afraid of troubles at work. Psychologists call self-confidence a great incentive to achieve results.
Focus on success
Another rule is to never be upset about failures and think only about a positive result. No need to think about competitors that supposedly catch up with you. All these are trifles. The main thing is concentration on your success, your prospects and goals.
Do not be afraid to set new goals and achieve them
You can develop only when a person sets himself new goals and realize them. To solve problems, you need to connect all your skills, talents and knowledge. It is advisable to always strive for new heights, not to be upset. Does not work? - Nothing wrong. Better to praise yourself than to criticize and be upset.
Be a flexible person
A good trader should have a flexible mind, because only in this case he will be able to solve several problems at the same time. In forex trading, you must be able to "swallow" your mistakes and move on, no longer remembering past problems.
Always move forward
Do not get hung up on any transaction, because it is able to complete independently in automatic mode. The main thing for any trader is to be able to organize their knowledge, try to show maximum calmness and skills. If you work in harmony, then the result will certainly come.
Learn to relax
Work is very good, money is even better. But if you do not relax in a timely manner, you may not see the result of your work. An overloaded brain stops working properly and can malfunction. That is why rest for a person should become a must.
Believe in yourself and your success, act, do not be afraid to learn and put knowledge into practice. Only this way work on forex will begin to bring pleasure and profit.
Author: Kate Solano, Forex-Ratings.com