I get a lot of emails from beginning traders asking questions such as “I’m new, can you give me any tips?” or “are you really a full-time trader? How can I get started doing that?” Well, I’m sure this won’t answer all question but I started this blog to be a learning experience for other traders and myself as well. Below let me share with you some of thoughts on how to succeed in the Forex Market and how to be a successful currency trader.
First off, if you are new and frustrated let me tell you I know exactly how you feel. When I started out I made every mistake you could. First I tried scalping (I didn’t know that was what it was called then, I just sold if I saw a huge green stick and bought if I saw a huge red one). I made a few pips at a time. If I got too far under I just bought more lots to get a “net position”. That worked great for a few weeks even until a one giant trade where I had bought four extra lots to “get a net position” wiped out all of my profits and then some! Big mistake. Next I tried trading the news. There was always a rise or fall with interest rate changes and all you had to do was buy or sell in the right direction, right? Sounds simple. In practice it is a little bit harder. Liquidity drops like a rock. The market tends to whipsaw, knock out stops or even go in the wrong direction you would expect it to. Again, Big Mistake. Lost a hundred pips on that one too.
And this a regular lot sized account, too, not a mini-lot account. Ouch.
Many new traders at this point give up and go back to their day jobs. Maybe I was smart, maybe it was dumb of me to stick with it but I did and I’m glad every day that I did. I went back to my demo account and figured out some trading systems that worked for all occassions. I read some books, took some online classes and kept plugging away at the demo account. After I felt confident enough that I knew what I was doing I started slowly trading real lots again. And I started winning.
Occassionaly I still will go back to demo accounts every once in awhile if I suffer too many losses and I lose confidence. Usually though I just keeping using the same systems I know to be profitable in the long-term and it works!
That being said, below are some things I’ve learned along the way that have helped me go from a horrible trader to a consistently profitable one. If you can master these I think you can make it in the currency exchange world too:
1) Use a demo account – and go back to a demo account every time you start to lose confidence or a significant portion of your equity – you should use a demo account until you’ve got your trades down to a science. You should get your trading style down to a consistent, systematic approach. Do the same thing every time. The hardest thing about trading real money is the emotions. When using demo account it is no problem to trade 2 lots with a 50 pip stop – the setup and risk/reward looks good right? When you start trading real money all you can think of is that you have 2 50-pip stops (or $1000) at risk that you don’t want to lose. Practicing over and over with the demo account gives you the confidence to say: “I’ve seen this chart setup over and over, I know that it will probably move in my favor. If it doesn’t and I take a loss I know that this trading technique is solid enough that over time it will be profitable.”
2) Keep a journal of every trade – and review them once a month or once a week. Preferably take a screen shot of the chart when you make the trade so that when you go back to review them you can see what you were looking at when you made the trade. Write about what was good about the trade and what was bad. If you keep doing this you will find that you start making less bad trades and more good trades. You will also hone what techniques you like and what works for you.
3) Take a loss as a learning experience. Write about in your journal what went wrong and what was right. Start making less bad trades and more of what you know to be a good trade. Remember that failure, if analyzed and learned from, is just a stepping stone to greater success.
4) Always use stop-losses. Every trade you enter you should have a stop loss. You should also at a minimum know what your goals (limits) are. If you are a beginner you should have both a predefined stop-loss and limits. Don’t be sorry if you miss out on some pips because of it. Write it down in your journal as far as what went right and what you could have done better. Remember this too: if you stop at at 40 pips and the currency continues to go against your prediction for a total of 80 pips you can always buy or sell then and skip the whole being 80 pips in the hole. Now you are only 40 pips in the hole! Only do this though if your original and follow-up analysis still hold true (for example, that the trend you were trading with has not been broken).
5) Educate yourself. Read some books. Take some online classes. One of my favorite books is “Forex Patterns and Probabilities:Trading Strategies for Trending & Range-Bound markets” by Ed Ponsi. I keep this one on my desk at all times in case I need to consult it.
6) Win at least 2:1 pips than you lose. Not in terms of number of trades (some great traders lose more than 50% of trades) but in terms of pips. This is called money management. If your wins are twice as big as your losses you will be profitable winning just 50% of your trades. If you in a setup you can’t win twice as much as you are risking don’t trade it. There are always other opportunities. For example, if you make 4 trades and only two of them are successful that is a 50% win rate and doesn’t sound great. But if you earn 100 pips on the wins and lose only 50 on the losses then you just netted yourself 100 pips profit (100+100-50-50=100)!
7) Rinse and repeat. Keep at it! If you lose confidence, go back to demo trading until you feel confident in what you are doing. Keep journaling every trade so that you can keep learning and improving. Keep reading books and other people’s analysis like that of PipHut.com. Try to see the charts how I am looking at them and understand support/resistance and candlesticks. Come to your own conclusions about chart setups and try them out on your demo account. Check other site’sm analysis and see how they look at the charts.
These are just my simple 7 rules. The big idea is to educate yourself to the point where these rules make sense to you. Once you know how to look at technical charts, read indicators and draw support and resistance lines try doing some real trades. After you’ve done that these rules will probably make a lot more sense to you, but for me these are the guiding principles.
Just my two cents and I hope this helps!
P.S. Questions, comments? Email me at firstname.lastname@example.org