When you trade the Forex markets long enough you start to notice certain trading habits. To me there was always one trait among traders never seemed to change. What I’m talking about is the perception that trading Forex successfully requires a complex and detailed strategy…. In fact, the more detailed the trading strategy the better. Its almost as if traders think they need to find the ‘Holy Grail’. Some shortcut tricks that only the most successful traders know about.
I’m here to tell you that the reality of Forex trading is nothing like that.
Ignore the pitches you see online for those expensive training courses. There is no ‘Holy Grail’ trading strategy. The list below is designed to serve as a reminder that if we simply get the basics right, AND keep applying them, we will improve our skills. The old KISS strategy was never more appropriate than in Forex!
- Use the simplest trading techniques. They are still the most effective in most market conditions. For example, trading zones of support and resistance (called price action); or trading strong bull or bear trends where you can ‘ride the wave’. As you gain experience, you can slowly expand your techniques.
- Stick to just a few of the largest currency pairs. Eg: USD/EUR, USD/GBP. You don’t need to be in every market to win. You need to focus and understand what is happening in your chosen pairs.
- Only trade with money you can afford to lose. When you lose, you are paying for your education and not going broke.
- By extension of the last point, keep your use of leverage minimal. Eg: No more than 1-2% of your investment pool in each trade. Forex trading is as much about surviving as it is about winning.
- Trade the markets during the week but close out your positions on Friday. Unless there is a very good reason to keep a position open, you don’t need the added risk of market ‘gapping’ up or down on Monday due to some unsuspected market news.
- Journal your trades and review your results against your trading plan. When trades regularly fail you often see that you had deviated away from your plan. Eg; not closing a trade when you had reached your profit target.
- Always set a stop loss in your trades. Only experience will teach you where your stop losses need to be positioned. Eg: behind zones of support or resistance. And never move your stop loss position in a losing trade; in the expectation your trade is going to “turn around soon”.
- Keep your self-awareness switched on whenever you are trading. That means don’t let greed and emotion rule your decisions. This is why we follow a trading plan. The best traders are methodical. They know it’s a numbers game that aims to be ‘right’ more times than being ‘wrong’. Forex trading is not a race for riches.
- Keep active on your demo Forex account. If you think a new strategy sounds good, then test it our thoroughly on your demo account first. Eg: where is the optimal position for your stop losses using your trading style.
- Don’t over-analyse your trades. There is a condition among traders called “analysis paralysis”. It occurs when traders require too many trading signals to perfectly align before they “pull the trigger” on a trade. The result can be that they never pull the trigger. To counter this condition, keep your charts clean and simple; stick to 1-2 time frames and watch your support and resistance for entry opportunities.
- Take the time to do some fundamental analysis on your chosen currencies. Pay attention to what is happening in the political and economic environment that can affect the sentiment towards a currency. Eg: what is happening with trade policy or employment numbers. These are just some of the elements that move the currency markets.
If you make these ‘Basics’ part of your instinctive habits, then you are setting yourself up with the odds more in your favour. You will survive in the game long enough to find your success.
One last thought. Many of the world’s most successful traders may only trade once of twice a month. They are not concerned about sitting on the sidelines watching and waiting. Like a hunter, they patiently wait for the setup that puts the odds of success strongly in their favour. When they see it, they pull the trigger.