Most people who enter the forex market usually go in unprepared for what lies ahead. They open an account, invest a lot of money right from the get-go, lose it all and quit before even learning the basics.
When it comes to forex trading, experience is as important as possessing the right tools and mathematical skills. And the truth is, that experience can be gained only by trial and error. Practicing, analyzing what works and doesn’t will give you an edge over other traders. Without further ado, here are a few tips that will help you become extremely proficient in forex trading.
Risk and Money Management
In a market as volatile and complex as forex, money and risk management is essential if you want to get ahead. Various factors, such as shifting economic policies, political instability or a banal news article can influence currency rates in both directions.
As a result, you need to time your trades right, only when good opportunities arise. Simply throwing money at random will not yield the best results. Bruce Kovner, for example, borrowed $3,000 against his credit card early in his career and almost everything when his $40,000 growth dropped to $23,000. This experience taught him the importance of proper risk management.
When it comes to risk management, there are a few things you can do to manage it properly:
- Increasing the number of indicators. While this will lower risk, it will prevent you from taking riskier deals that might end up profitable.
- Mastering the leverage technique. Basically, you have to learn when, how much to borrow and internalize the market dynamics. Famously, Soros mastered leveraging and accumulated a massive fortune as a result.
- Studying liquidity. Make sure there are enough buyers and sellers to efficiently take your trade.
- Be aware of the odds. To use odds in your favor, you have to learn how to perform a technical analysis.
Develop Good Working Habits
Forex is as much about charts, currencies and confusing equations as it is about hard work, good instincts and a keen sense of market dynamics. As in life, there is no 100% guaranteed way to become a good forex trader. Nobody is perfect at it. But if you practice, you will get better each day. One might think you have to be a finance expert, but every guide that teaches forex trading for beginners will stress the mental and work discipline aspects.
Therefore, you have to develop good working habits. The first step is to never procrastinate. Even if it is ‘’a slow forex day’’ and nothing interesting is going on, even something simple as checking a chart, noting a few numbers down, doing some research or reading industry related news will keep you active. The idea is to keep working and not let the tedium overwhelm you.
The next step is to practice. If you feel like you have mastered the basics and are ready to get in with the big players, then you are not ready. In forex, self-awareness and a desire to constantly improve are key. Setting up a demo funding forex account and practicing on it is a good way to get a feel of this activity.
Note Everything in a Journal
As you are gaining experience and increase the number of tasks you are performing, it is easy to lose track of all past trades and results. That is why keeping a thorough journal is essential.
You can note down on everything, from daily currency and interest rates, charts, past trades, personal or technical observations of the market to tidbits of relevant news articles. As long as it is structured and sufficiently annotated, every piece of information deserves a spot in the journal. By doing this, it will help you get a clear image of your activity. Moreover, since self-awareness and a desire to improve oneself are essential for success, the journal could also serve as an effective tool for constructive self-criticism.
This takes us back to a previous entry, in which we discussed why good work habits are essential and how to develop them. When it comes to forex, even when the market is clearly against you, the truth is that you are your own worst enemy. Ego can stand between you and a good trade, leading to frustration and missed opportunities. That is why it is good to nip it in the bud by noting down every failure as objectively as possible.
Finally, a trading journal will help you keep a historical perspective of your activity. No trade is similar to another and you never know when that one little, specific thing that went differently will help you score a huge amount of cash in a future trade.
People who want to get into forex trading and make money need to have (or develop) a very specific subset of skills. While some people are naturally predisposed with a keen business sense, that does not mean they will have everything served on a silver platter. That is why patience, consistency and hard work will, in time, do wonders to your trading efficiency.