To become a successful trader, you must think right, because how you trade is an extension of how you think. Wrong beliefs are your enemy number one, and the quickly you shed them, the sooner your Forex Trading track record will start shining.
Most beginner traders harbor wrong beliefs regarding what needs to be done to be successful at trading. If you think the way to it is through analyzing humungous amounts of data, checking many time frames, and looking at many currency pairs, you too are part of this list.
This post dispels some wrong beliefs that can hurt you most, paving way for you to jump to the lesser populated list of traders who know how to trade and, consequently, gain financial freedom over time.
Understand More Works Against You
Turn off your computer
You don’t have to analyze the market data for number of hours or trade more to be successful. In fact, more is a recipe for failure at Forex Trading.
Most beginners start off correctly by looking for what they want, but when they don’t find it, they hastily take a detour of the success formula. That is, they don’t step away from their screen.
Instead, they jump to another time frame in search of a favorable trade setup and then to another if the previous search was unsuccessful too and then to another and so on, until they finally start seeing something that isn’t there. The end result is a bad investment.
Don’t fall in this trap. If you have not started trading yet, you may think escaping it is easy, but mind you, it is not. One unconsciously starts a frantic search for a favorable trade setup in multiple time frames when it’s not present in the selected time frame, especially if a few days have passed since the last trade, and then convinces himself of a trade of being just that, even when all evidence point otherwise.
You may have to forcefully tear away yourself from your computer screen in the beginning. But if that’s what it takes, do it. Don’t force your will on the market, because it is unforgiving when you try to dictate terms. Instead watch it the way you’ve learned while perfecting the selected price action setup. Then, it is a gentle friend, who will tell you itself when you should trade.
Use the daily charts
Use the daily chart when you start trading. Check them for those price action setups you’ve mastered for 20-30 minutes daily. If you see something good, go ahead with the trade. But, more importantly, if you see nothing that’s favorable, get away from the screen till the next morning and repeat the process. Do not continue perusing the daily chart and invent a way to start a trade, even after the chart has showed that there’s nothing worth trading today.
Use Trading Plans and Trading Journals
Accept Forex trading is a business
Majority of traders approach trading like an amateur gambler approaches a casino—with greed and hope. That’s the worst way one can do Forex Trading.
You can avoid becoming such a trader by accepting Forex Trading is a business, and so must be run with the same discipline and diligence. Maintain a Forex Trading journal and it will help prevent you becoming a gambler.
List each and every trade parameter and trade you make in your trade journal. Design a neat spreadsheet and update it every time you start and stop a trade. This way at a glance the trading journal will show you your track record and whether you traded within the listed parameters or not. In other words, it will help you do trading as one runs a business—with reason and accountability, not emotions.
Maintaining a trading journal requires discipline and conscious effort. The longer you keep it and the longer you see that you are trading within your trading parameters, the stronger your confidence as a disciplined trader will be and the lesser the urge to do emotional trading. In other words, over time it will develop as a quality check, deterring you to take any step that may mar your neat track record achieved through much discipline, patience, and hard work.
Create Predefined trading plans
The trading journal is but just one part of the trading plan. The other part includes listing predetermined trading plans, plans which tell your course of action in different situations.
The term ‘predetermined’ does not mean your plans shouldn’t have any room for flexibility, because they should. What the word does state, on the other hand, is that you’ve devised a way to know your course of action in the market before you actually take it.
Don’t Take On More Than You Can Handle
Stick to only a few currency pairs
Here’s a secret that you know but might not consciously remember: the professionals who make most money are specialists in their field.
Here’s another secret that you know but might not practice: you can’t be a specialist of many things.
So, how does these two apply to Forex Trading? Well… your aim should be to become a specialist to a few currency pairs, not more than 5. Study the selected major currency pairs and learn the maximum you can about the selected pairs. Also, don’t refer to any charts other than daily charts when you begin trading.
Focus on one setup at one time
The way to becoming a successful Forex Trader is by looking at and mastering one setup at one time. Pick up the one you like better than others and put all your energy into mastering the chosen one on the charts. After you’ve made demo money on the selected setup continuously for 3-4 months, start live trading. And after you’ve made real money on the selected setup continuously for 3-4 months, return to demo trading and perfect another setup. Repeat this very process till you’ve perfected 3-5 setups.
Set Realistic Goals
Accept trading is not a short cut to life’s riches
How much money you make and how consistently depends on what you think trading is—a sprint or marathon?
Those who think of it as a sprint either suffer losses immediately or go downhill after a few lucky breaks. On the other hand, the second types are likely to make consistent profits and reach their time of making lots of money through Forex Trading over time.
Become a good risk manager
Trading is a lesson in risk management. Your success in it depends on how well you manage risks. The better your risk management, the more profitable trading will be.
Learn to see setup as a risk to reward equation. On each trade setup, fix an amount that you can lose without worrying about it. A good risk specialist focuses on mastering setups and trading strategy and applying it correctly, rather than worrying over the performance of individual trade setups. Such a risk manager knows if he trades his price action setups correctly, he will earn money over long term, one of two current losses notwithstanding.
If a temporary loss is causing your sleepless nights, it means you are not trading correctly and should go back to the drawing board and master the fundamentals first.