Ten Tips To Make You A Better Forex Trader
Becoming an online forex trader can be an attractive career option for many because of the earning potential it offers. You surely get a lot of opportunities to explore the currency market, but you are also exposed to the risk of losses. Those who step into the volatile market without enough preparation are more likely to encounter losses in an attempt to make a profit. In fact, only a small percentage of traders are able to overcome the challenges. The reason behind this low success rate of traders is either their ignorance or impulsiveness. You need a good amount of knowledge and skills to get past the beginner phase. It is also important to use trading tools before entering a position to determine the right spot and values, which, if done manually, would take a lot of time.
Today, I will be sharing ten tips that can empower you as a forex trader and increase your odds of success in the forex world.
1. Define Your Goals and Find a Suitable Strategy
A definite goal will make your trading journey easier as you have a clear idea about the destination you want to reach in the long run. So, you need to start by defining your trading goals, including long-term and short-term objectives. The long-term goals give you a sense of direction, while the short-term goals will be the milestones in your trading career that tell you how far you have come. Once you have identified the goals, you can move on to the means for achieving these goals, which is a trading strategy in this case.
Your forex strategy should be well-aligned with the goals that you have set. After that, you can start the process of building your trading system with close attention to the details. Do you prefer to follow or go against the market trend with counter-trend strategies? Are you comfortable holding your trades for extended periods, or do you like to make quick profits through scalping or day trading? Additionally, consider how much time you’re willing to devote to analysing the charts and use all the simple and advanced trading tools to assess your strategy’s potential.
2. Choose a Reliable Broker
Trading with a reliable broker is just as essential as trading with a solid strategy. Your skills and strategy determine how you will perform as a trader, and the broker you choose is in charge of providing a supportive environment for trading. The platform, functionality, trading conditions and customer support offered by the broker will play a key role in your overall trading experience. The broker’s pricing will impact the amount you spend on trading costs and the trading results you get.
Choosing a trusted broker allows you to ensure the safety of your funds, and regulated brokers are considered the most dependable in this aspect.
3. Deciding Your Entry and Exit Points
The ultimate goal of all traders is to make profits at the end of a trade. The amount of profit you can make in a trade depends on the prices at which you open and close a trade position. Hence, determining optimal entry and exit points is essential for getting the desired outcome. You need to consider pip movement and pip value while deciding your entry and exit points, as the pip difference between the entry and exit price will be your profits/losses in monetary terms. Hence, pip calculators can come in handy for making informed decisions about the best prices for entering and exiting a trade.
4. Preserve Your Capital With Risk Management
It is nearly impossible to win all the trades you enter, and when you lose a trade, you lose money. You won’t be able to make profits unless you learn to keep these losses in limit. For this, you must preserve your trading capital with a sound risk management plan. Determining your risk tolerance, setting an ideal risk/reward ratio, calculating risk per trade, paying attention to position sizing and placing stop loss for every trade is important for minimising your exposure to risk. A forex profit calculator can be a useful tool for risk management as it can help estimate the potential losses, allowing you to adjust the stop loss for better results.
5. Avoiding Emotional Trading
Making decisions under the influence of emotions will never yield good results in forex trading. It is normal to experience a lot of feelings while trading as the expectations and uncertainty stimulate our brain, evoking many emotional responses. All traders can go through periods of stress and excitement while trading, which can often negatively impact their performance and trading results. Placing trades without logic or rational thinking is what we refer to as emotional trading, and beginners are at a higher risk of falling into the trap of their feelings.
When we get overwhelmed by our emotions, we make poor trading decisions or even engage in overtrading. If you deviate from your original plan and don’t pay attention to risk management, then those are the signs of emotional trading. This can lead to huge losses and wipe out all of your capital within a short span of time. Hence, you need to keep your emotions in check and follow a disciplined approach.
6. Using Trailing Stop Loss
Using Take Profit and Stop Loss orders allows us to let our trades run freely, as you don’t have to sit there monitoring the positions until the exit. However, not moving your take profit or stop loss can be just as bad as not placing one. Because the market can often change its direction, and you always have a chance to get better results if you are able to adjust the SL in time. Using a trailing SL would be the best course of action in this situation, as your SL will be moved to adjust to the market situation. This allows you to manage your trades better without having to monitor them all the time.
7.Use Fewer Indicators for Analysis
Technical indicators always add more detail and precision to your analysis, but sometimes traders tend to add too many indicators to their charts. This can lead to an information overload, resulting in a lot of confusion. Hence, you need to keep it simple and use fewer indicators for technical analysis. You need to make sure that the chosen indicators are suitable and relevant to your strategy. Because adding a complex indicator for a simple strategy often provides contradictory information. This stops us from making quick decisions, and you might miss out on good trading opportunities. So, you don’t need to complicate anything, as simplicity holds a lot of power in the trading process.
8. Keep an Eye on the News While Trading
The currency pairs you trade in the forex market can become highly volatile during a news release or an important economic event. Key economic data releases and Central bank decisions can influence market sentiments along with the exchange rates. So, you need to keep an eye on the news to make informed trading decisions. You must pay special attention to the news related to your currency pair. I suggest you use an economic calendar so that you don’t miss out on any important news updates.
9. Focus on Trading One or Two Pairs in the Initial Phase
Many beginners tend to trade with multiple pairs to make more profits and are eager to explore all the trading opportunities they come across. However, the best approach for a novice trader is to focus on just one or two pairs at a time. Because you will get enough time to study the pair, and the chances of overtrading will be less when you only trade with one or two pairs. Starting with a major pair would be perfect for an inexperienced trader as they are more stable and less risky in comparison. The most popular pair that many beginners start with is EUR/USD, which is considered a safe haven for traders.
10. Reviewing and Revising
The last tip that I want to share here is to conduct periodic reviews of your performance and evaluate the results to see if your strategy is working well. By doing so, you will be able to find the shortcomings of your trading system and make necessary adjustments to make it better. Sometimes, the changes in market situations can lead to a strategy performing poorly. And you will have to revise the strategy as a whole or switch to a newer one to adapt to the changes. So, periodic reviews and revisions allow you to improve and remain consistent.
In conclusion, becoming a skilled trader takes time, and you must follow a cautious approach during the initial phase. Being a beginner in the forex market is surely not easy, but you can reach your goals by focusing on continuous learning and improvement.