How to trade Forex: rules for successful trading

26-01-2021

How to succeed in Forex trading? Typically, the journey of the newbie traders starts with this very question. However, it may end there just as fast if they give in to the thirst for the quick money!

In a way, novice traders resemble gamblers. The first successes push them to act carelessly. The feeling of power and idea that they managed to beat the market makes them open trades even against common sense.

Many people end up in the market because of the greed and the adrenaline rush. But unlike slot machines and casinos, the calculation of the trade, system and the strategy are not only allowed but are the very precondition for success in financial markets.

The gamblers normally get kicked out if they are caught counting cards. In contrast, what makes trading so great is that the market favors and generously rewards those who plan their steps at least a few moves ahead.

Contents:

1. Three Pillars of Successful Trading
2. How to Manage Risks: Short Guide

3. How to Know Whether You Trade Successfully

Three Pillars of Successful Trading

Experienced traders claim that your first step should be about learning how not to lose money, and only after you can start thinking about profits. And this is indeed a wise approach. Successful trading is impossible without risk management.

But there’s more to it. Risk management, observance of trading strategy, and clear trading plan are an integral part of high-yield trading in forex.

How to trade forex: Rules for profitable trading

How to Manage Risks: Short Guide

Risk management is a list of rules by sticking to which you can minimize the likelihood of losing trades.

Money Management

The simplest one of them is money management. In a nutshell, it implies that the trader invests no more than a predefined amount of money in each position. Typically, this amount ranges from 2% to 10% of the trading account. Experienced traders advise not to exceed the level of 5%. If you are a newbie, it must be around 2-3% tops.

This way your trading account will be better protected against drawdowns. Even if you make several losing trades, the overall loss will be minimal. And every successful trader knows well that losses are a natural part of the trading process and it shouldn’t discourage you.

Aside from that, you need to limit the maximum number of simultaneously open positions (e.g. it must be no more than 5). It’s not easy to manage all these parameters and track percentage/number of losing trades single-handedly. This is why pro traders opt for automated risk management software which monitors the situation for you based on parameters you enter.

Key risk management principles include availability of several strategies. In the market, there can be lengthy time periods when your trading system may simply not work as it normally does. You need to have a solid backup for this type of scenario.


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Choosing the Strategy

Another vital element of successful trading is strategy. There are plenty of various options out there. Some of them are based on indicator signals and technical patterns which appear in the charts. Others factor in news and fundamental analysis. Each trading strategy prescribes a specific time for trading (i.e. trading sessions).

What matters is how well the traders understand the rules of the strategy and whether they are able to stick to them. Even the most effective and profitable strategy can end up being absolutely useless in inexperienced hands. So, make sure to start out with something simple. For instance, these can be support and resistance levels. By perfecting your skills, you can achieve impressive results!

Seamless Trading Plan

The last item on our list is a trading plan. This is basically a trading roadmap where you can find answers to your every question. It looks similar to an agreement for provision of services where each paragraph outlines every situation possible i.e., we do A, if B happens, etc.

Below are the things that are typically included in the plan:

  • Force majeure events and ways to address them. If you are a newbie trader, be sure to outline every possible scenario beforehand. This way you will have a clear game plan which will save your time and money. Internet gone? Use your phone as a Wi-Fi hotspot or quickly get to a nearby cafe with the Wi-Fi. No electricity? Call a friend from another neighborhood who was previously informed about the possibility of this situation.
  • Profit and loss thresholds. E.g. Close MT4 or MT5 trading platform after three losing trades, or don’t open new positions if the profit per week exceeds 10% of the trading account.
  • Trading strategies. If the market is headed upwards, use XYZ strategy. In case of the flat market (sideways trend), do not open any positions. Disable Expert Advisors and exit the market half an hour before the news release.
  • Targets. E.g. Achieve 15% increase of the trading account in the course of a month.

With that said, don’t stay glued to the open trading platform from dusk till dawn. This is not going to make any difference when it comes to the foreign exchange market. If your strategy proves to be efficient and generates profits, better close the chart. Keep in mind that the price never follows the same route. There may be rollbacks and corrections which in turn can mess up with trader’s emotions and lead to hasty decisions.

How to Know Whether You Trade Successfully

While chasing success, a lot of traders lose the money they had made. The thing is, big profits fuel greed which is hard to control. This is why it’s so important to have the right success criteria.

Novice traders must keep in mind that if there was no major decrease in their trading account in the course of the month, it’s already a win. Remember what we’ve mentioned earlier? The first thing you need to learn is to preserve money.

Next, compare your results to set goals. Analyze why you succeeded with certain items of your plan, while other parts of it did not work out. Successful trading should look more like a chore rather than a game of chance.

Last but not least, don’t forget that you can be your own worst enemy. This applies to trading as much as it does to other areas in life. Do not create unnecessary problems and battle them later! Better take it slow and it won't be long before you are finally able to snatch high profits.


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