How to Become a Successful Forex Trader
If you are reading this article then you are either a beginner Forex trader or one of many that have busted their account. Whatever category you fall in, actually you are on the right track! What makes us tell this? We know every failure is a necessary step to success. If you wonder how to become a successful trader, know, that you are already on track: You took action. You did not give up. And you are seeking new ways to succeed.
Some measure Forex success in pips, some by trade win rate. Essentially, success is to stay present on the market, to see what another day will bring us and to use those opportunities.
We believe, every Forex trader has to take these five steps to become successful:
1. Trading Psychology – How to be a ready successful trader
Many beginners fail to trade Forex or stock market successfully. To be precise, 90% of traders lose money. The first test you need to pass if you want to become a successful Forex trader is to resist the lure of profits and the FOMO (Fear of Missing Out).
You win 10 trades in a row. The very next trade cuts half or all of your balance. This is the quickest way to bust an account.
The second time, you may approach carefully. You realize that you lose patience, change directions, open too many trades, you stop sleeping regularly…
Trading like this sooner or later will bust your account, your health and will probably break you to never come back. Forex market is going to test your tenacity like nothing before.
Stop looking for a quick fix! Stick to your Money Management and your trading strategy.
And this leads us to step two…
2. Money management – How to trade rationally trader
The key here is to stop doing reckless amounts of trading. You have probably heard the expression “never put all of your eggs in one basket”. Financial experts call this portfolio diversification.
When you follow an efficient Money Management, even if you flip a coin on whether to go short or long, you will still be a successful trader (still, please do not use coin flip indicator).
Successful traders never risk more than 2 to 5% of their balance on a single trade.
Additionally, they never overleverage. This means they expose 2 to 5% maximum on one currency.
Keep your total exposure below 20%. This way you become resilient and you can endure losses.
Another thing common to successful traders is the use of Stop Loss and Take Profit orders. And in such a way that they are not determined by feeling or eyeballing.
You do not want your head messing with these again. Use indicators or simple math for setting SL and TP levels.
Read more on Take Profit and Stop Loss orders
Some currency pairs are more volatile. If you wonder how to set proper exposure to volatility, you may use the already built-in (MT4) Average True Range indicator.
All the Money Management rules you set need to be incorporated into your strategy. This will be your trading bible and will lead you eventually to become a successful Forex trader.
The next step will put your Money Management and psychology rules to work.
3. Trading strategy – How to be a Forex artisan
Depending on your availability to trade, you may choose to become a day trader, who trades on the daily, hourly (H1, H4) and lower timeframes.
Investors trade mostly on weekly and monthly timeframes and have strategies based on the long-term fundamental analysis.
There are hundreds of developed strategies out there. So you can easily find the one suitable for your risk level and availability.
Successful day trader uses a set of technical indicators that show:
- If the conditions for trading are adequate – is the market ranging, trending or too volatile for the chosen strategy?
- Indicators that tell us the general sentiment or the baseline filter (could be a higher period simple Moving Average.
- Indicators that confirm trade entry.
- Indicators that tell us to exit a trade.
Now you can apply your Money Management rules and strictly follow them!
Successful Forex or stock day traders are the best decision-makers in the world. They make a firm decision and are confident in their strategy set. No exceptions!
4. Forex market dynamics – How to be ever vigilant
How many times have you tried to wait for the CPI, NFP or some other news event results to trade in the direction of logical consequence on the currency? How many times did it work? Not enough to be successful.
Big financial institutions move the Forex market. They react to our day trading. In the moment of major calendar events, they devour a lot of Buy or Sell orders of the retail traders. That is why you see so many illogical price movements.
People that use the same indicators and strategies make Stop Loss clusters which financial institutions like to trigger. If you want to always see those clusters use this indicator.
You do not want to be their regular “customer”. Sometimes it is best to avoid news trading after all.
Now that you know how to become a successful Forex trader, we move on. The next step will tell you how to improve your day trading:
5. Demo accounts and testing – How to be a step ahead
A demo account is your risk-free testing ground. This is where you will spend many hours testing your ideas, indicators, settings, strategies, Money Management, and your discipline. Trade like it is real.
It is very important to know how to do the proper back and forward tests. To those who are not familiar with these, backtesting means you measure the performance of your setup historically trough charts.
Forward testing is a bit harder and you measure real-time performance. You will need some time and the right mindset for the latter.
First, have a spreadsheet where you will record the pip performance of your trading strategies to different scenarios (timeframes, currency pairs…). This is how you will know what works properly. Avoid eyeballing until you get some experience.
Then, when you are happy with your strategy pip performance you may go to a live account. However, remember that a successful Forex trader never stops improving! Your demo account will serve you to find better indicators, strategies, etc. It will remain one of the most important tools for you to stay on top of this game.
We hope, these five steps will help you become successful and improve your trading skills. Good luck!