7 Tips of Successful Forex Trading
Through the birth of online forex brokers, currency trading has become accessible to anyone with a laptop or a smartphone. This has enabled people around the world to make money on the trillion-dollar global currency market, which has previously only been open to large institutional investors. However, currency trading is not easy. There are rules you need to follow to ensure that you will become a successful forex trader.
1. Have clear targets
Before you start trading forex, you need to have clear targets in mind in terms of how much profit you want to generate each day, week or month. Furthermore, you need to decide how much capital you will be trading with and how much of it you would be comfortable to lose. Without clear targets in mind, you will find it difficult to stay disciplined when it comes to taking profits and cutting losses.
2. Follow a system or trading strategy
Secondly, it’s important not to trade blindly without a strategy or a system in place. There are various strategies you can use to trade forex. Whether that is using technical indicators, fundamental analysis, an event-driven approach or any other way. But it is vital to trade using a strategy that is proven to work. Remember, not every trade will make you money but more than 50% of the trades need to be profitable for you to make money in the long run.
3. Never risk more than you can afford to lose
When it comes to the amount of risk you take as a trader size matters. The key to determining how much risk you should take is in relation to how much you are targeting to earn each day, week or month. However, the key is never ever to risk more than you can afford to lose. Especially, when you are trading with high leverage.
4. Always use a stop-loss
In forex trading, it is absolutely vital to use stop-losses limits to ensure that you don’t fall into the trap of holding onto losing trades longer than you should. Stop-loss limits are a price you set below the level you bought at or above the level you sold at, at which your broker will automatically close out the trade if it moves in the wrong way. This is a very helpful tool to stay disciplined and to avoid risking more than you can afford to lose.
5. Use the right online broker
Another important aspect of trading forex successfully is choosing the right online broker. Make sure you pick a trading platform that offers tight spreads, low transaction fees, a wide range of user-friendly chart analysis tools and timely market updates. Also, make sure the broker covers all the currencies that you want to trade.
6. Be mindful of overconfidence
After having placed several winning trades in a row, it’s easy to become overconfident and take more risk than you originally set out to in your strategy. Be mindful of overconfidence and don’t let it interfere with your discipline as a currency trader. Stick to your strategy and use stop-losses every time you put on a trade.
7. Never stop learning
Finally, it is import to keep educating yourself on topics such as macroeconomics, geopolitical events, the financial markets and how they correlate with one another to become a better trader. The more you learn about how the financial markets, global economics and currencies react to certain events, the more likely you will be able to recognize patterns that you can profit of off. Hence, it’s important to keep learning if you want to be successful in this field.