Forex trading provides some of the most exciting opportunities to individuals globally. Due to the liquidity of the market, forex traders can benefit from tight spreads. Despite this, forex has caused huge losses to many inexperienced and undisciplined traders.
To become a successful forex trader, you have to sharpen your skills through discipline and practice. This will help you keep fear and greed, the TWO big enemies of forex trade, out of the equation.
Just like with any other investment, how you trade forex will depend on how well you know the market, the information that you’ve gathered through research, and the overall goals of your trading strategy. In this article, I will be giving you some trading tips that I’ve gathered during my 20 years of trading.
Here is tip number 1
#1: THERE IS NO BEST TRADING STRATEGY
Most traders, especially newbies, ask me this question…
“Which is the best trading strategy?”
Let me be honest with you. There is nothing like the best trading strategy as it is difficult to define what “best” means. “Best” in this case can mean many things like highest returns, least time required, low capital requirements, least drawdown, etc. So, what might seem “best” to you may be terrible to another trader.
However , if you want to make money trading any financial market but you still don’t know which one to use, i highly recommend to use my own strategy . “The Bank Breakout Trap “
Hence, instead of finding the best trading strategy, you should first know your trading goals. After that, you can choose the “best” trading strategy that can help you to meet your trading goals.
#2: THERE IS NO ONE-SIZE-FITS-ALL TRADING STRATEGY
The purpose of trading strategies is to exploit particular “patterns” in the markets. For a particular trading strategy to work all the time, the conditions in the market must remain the same.
But the question is…
Is it possible? Certainly not. The forex market is very volatile. It can move from low volatility to high volatility, uptrend to downtrend, and so on.
And since the markets are always changing, it means that there is no trading strategy that will work all the time.
So, you cannot use a single trading strategy to make money every single day. That’s not how trading works.
Instead, trading involves cycles of ups and downs. The goal is to make profits during the good times so as to pay for losses during bad times. So, you’ve to play a good defense so as to survive and experience the good times again.
#3: TRADING IS A GET-RICH-SLOW PROCESS
Many people get into trade with an intention of becoming overnight millionaires, but trading is a get-rich-slow process.
It’s possible to make money fast, but you can also lose it fast, or even faster. Hence, if you want to stay for long in your trading career, treat it as a business rather than a get-rich-quick scheme.
It works as follows:
If you start with an account worth $10,000, and you manage to make 20% yearly, the same account will be worth $383,376 after 20 years.
Let’s take it a step further. Suppose you add $10,000 to the same account every year. It means that if you make an average of 20% each year, the account will be worth $2,623,632 after 20 years.
So, how “quick” you become rich depends on two factors, your account size and percentage return. To increase your return, you’ve to risk more, but the drawdown risk is larger, and you risk wiping out your trading account.
Here is my advice…
Risk small, add more funds from time to time, and compound your way to becoming a millionaire. Although it will take time to get there, you’ll greatly reduce the risk of ruin.
#4: DON’T FORGET YOUR DOWNSIDE
According to Paul Tudor Jones, The most important rule of trading is to play great defense, not great offence.
The thing is…
You can have a great trading strategy, but without proper risk management skills, chances of wiping out your trading account will be high.
Consider the following example…
Let’s say there are two traders, Tom and Mary.
Tom is a very aggressive trader, and he risks 30% of his account on every trade.
On the other hand, Mary is a conservative trader, and she only risks 3% of her account in every trade.
The two are using the same trading strategy that wins 50% of the time with a risk-to-reward ratio of 1:2.
The outcomes of the next 8 trades are lose, lose, lose, lose, win, win, win, and win.
From the above, Tom’s outcome will be as follows:
-30% -30% -30% -30%, which translates to a blow up before even the fourth trade .
Mary’s outcome will be as follows:
-3% -3% -3% -3% +6% +6% +6% +6% = +12%, which is a win.
That’s how important it is!
Your risk management skills will determine whether you become a successful trader or a losing trader.
Always know this
Your trading strategy may be the best in the world, but poor risk management skills will wipe out your trading account. It’s not a matter of if but when
#5: Do LESS and get MORE
Doing much has seen made traders fail. They research too much, read too much, think too much about trading, watch the trade charts too much, and trade too much in general.
As a trader, you must know that there is POWER in doing nothing. Times will come when doing nothing is the most profitable thing that you can choose to do.
The reason for this is…
There is no month that provides good trade signals in the markets. I mean that there are not many high-probability entry signals on any particular week or month. The reason is that most of the price action that happens in the market is simply random, meaningless noise.
Your goal as a price action trader should be to differentiate the good trade signals from the bad ones by learning to read the footprint of the market, which is the price action. After mastering this, you’ll come to realize that the good trades that are worth risking your money don’t occur frequently. This also means that you don’t have to trade much so as to make much money in the financial markets.
Those are some of the most important tips that I’ve learned during my 20 years of trading. By putting them into practice, you’ll increase chances of becoming a successful trader.
I can help you via my articles here on my blog and even more in my professional trading courses . but success or failure is up to you , you have to learn , practice ,and take action to make it happen .