Forex Trading without a plan is like sailing without a compass: you’ll get lost battling the waves if you don’t know where you’re going. As a result, try to put together a forex trading strategy that you’ve tested and found to be generally successful and easy to follow.
Money management and risk assessment techniques should be an important part of your trading strategy. Choosing trades with appealing risk/reward ratios, as well as appropriately sizing your trades in relation to the amount of money in your trading account, can help you improve your trading performance and manage your risk.
Other aspects of trading you’ll need to master include taking necessary losses quickly and recovering emotionally from trading losses. Remember that hope and fear are a trader’s worst enemies: poor traders are afraid of losing money and hope that the trade will return to profitability. Instead of reacting to such hopes, they should react to the far more rational fear of having to take an even bigger loss if they don’t act.
A stop-loss order should be in place, or you should plan to cut your losses at the market if you’re watching it closely, to prevent a losing trade from exceeding your predetermined threshold of pain.
While creating a trading strategy takes time and effort, you can save time by joining a social trading platform and copying the transactions of another trader in your account who has a proven track record.
1) Choose Your Analytical Approach
“How do you identify trade set-ups?” is a question that the analytical approach answers. Price support and resistance, trend lines, chart patterns, Fibonacci levels, moving averages, Ichimoku Clouds, Elliott Wave Theory, sentiment, or the use of fundamentals, among other things, could all be used.
This first step in the trading plan assists traders in focusing their attention on a small number of scenarios that they are comfortable with. Traders can then look for trading opportunities based on their preferred trade setups.
2) Select Your Favourite Trading Set Ups
The trade setup is the most important step in the trading process. But first, consider the analytical approach as the event that sets the stage for the trade. A good example of this is seeing a consolidation pattern (known as a chart pattern in the analytical approach) that prompts the trader to take action, such as trading the breakout or waiting for a pullback, or combining breakouts and pullbacks only after the chart pattern has successfully played out.
Set ups are based on a variety of factors that, when combined, result in higher-probability trades. This process may take some time to figure out if you are new to forex trading, but it is critical for traders to understand. a trading set up that works best for them.
3) Think About Your Holding Period
The type of trader will determine the time frames. Scalpers and day traders are traders who specialise in short-term trades (trades that open and close on the same day). Swing traders are medium-term traders who hold trades for a few hours to a few days. Long-term trading involves time frames that can range from a few days to weeks, months, and even years.
4) Plan How You Will Handle Adversity (and Success)
Because all traders will eventually experience the dreaded drawdown, it is critical for traders to establish a set of rules to follow in order to manage their emotions. Quantifying an amount, or a percentage loss, that forces the trader to take a step back and evaluate what went wrong/is going wrong is an effective way to do this. Don’t make the mistake of estimating this figure along the way; instead, quantify it up front.
Is Forex Trading Right for You?
Getting started as a retail forex trader is relatively easy no matter where you live if you have some risk capital, but trading currencies successfully requires a lot more than that. You’ll need a strong understanding of the market, a viable trading strategy that fits into a larger trade plan, the discipline to stick to your strategy, and the emotional resilience to recover from losing trades.
If you plan on meeting those criteria, you have a good chance of making money as a forex trader. If you don’t have an account with an online broker that supports social trading, you can still participate by copying a successful trader’s transactions.