Forex trading can be a very profitable business in today’s world, provided you know what you are doing. Like anything worthwhile, it involves some pain. You will almost certainly lose money in the early stages. In fact, you will continue to have losses even when you are an expert. A successful Forex trader is one for whom the total amount of profit eventually outweighs the amount of loss. At the end of the day, Forex trading is based on speculation, which always involves some amount of risk. The key is to ensure that you control those losses. Below, I have discussed 4 tips to become a successful Forex trader.
Having enough capital
Only a small percentage of Forex Traders are actually successful. The exact figure might be difficult to ascertain, but think along the lines of 1 in 10. The successful ones avoid some mistakes that other Forex traders make and try to follow some basic rules. One very important rule you need to remember is to have enough capital in your account when you start trading. Also, it would be wise not to invest money that you cannot afford to lose. There’s no point risking your life savings, if you have them, in trading Forex. On a smaller scale, don’t risk your rent or grocery money. Remember, at the start the chances of some losses are high. Take that into account when funding your account.
Choosing the appropriate currency pairs
Selecting the appropriate Currency Pair to trade is also crucial for a successful Forex trader. Some currency pairs are more volatile in certain conditions while others are stable. Select a pair that is in line with your trading strategy, long term or short term. If your strategy calls for a short-term investment, then you can try more volatile pairs. However, if you are in it for the long haul, or are uncomfortable with rapid changes in prices, then you can choose a pair that is relatively stable. You have to do some research on Currency pairs and their performances in various climates to help make this choice.
Having entry and exit strategies
Every Forex Trading Operation has basic components: the selected currency pair you wish to trade, the required period, an entry point, and exit point. Your Forex Plan should include sound entry and exit strategies in order to minimize the losses and maximize your return on investment. You could also learn to use stop loss and take profit orders placed to your broker as your exit points.
A stop loss is an excellent exit strategy in case the market moves against you. Stop loss orders are placed to the brokers by the Forex traders to withdraw from the market if the market moves against them and they stand to lose a specific amount of money. A stop loss order protects you from huge losses in case something goes wrong. Similarly, in case of a take profit, you will exit the market after making a certain amount of profit. Both of these involve you as a trader setting a target and sticking with it. Sometimes, when in an actual trade, it might be difficult for you to make the required exit from a trade, even when your target has been met. Emotions could come into play, or you might even suddenly have trouble accessing your Software. Pre-setting Stop losses and take Profit orders allow and even force you to keep to your plan.
Sticking to your own strategy
There are numerous articles, e-books, trading systems available in the market that will claim to make you rich, almost overnight. Most of them sound downright convincing and will tell you that you can make a lot of money using their strategies without taking any risk at all. While a few of them may be genuinely good, most of these strategies will only confuse you initially. So, before you try any out on your Account, do the smart thing: test it on a demo account. Be sure of it. Then you can trade with it. Remember, there is no simple short-cut to becoming a successful Forex trader.