A forex trader can go through many years of trials and errors, with some profits but losses as well. A lot of times, even professional traders can make some costly mistakes due to a combination of one or more factors. Thus it’s a good idea for traders to make a list of areas where they have to double-check before they execute a trade or during the trading process. Luckily, forex traders can follow some simple and easy tips to ensure that they don’t stray off the path and be focused on profitability.
Don’t modify an already working method
Some traders often fall into the trap of wanting to improve an already working method before they even master it. Traders should stop doing that as the key to trading is having zero fear or worry. A lot of times, modifying an already working method may have disastrous consequences for a trader’s profits.
Switching to an ECN/STP type broker
Look to switch to an ECN/STP type broker where your trades go directly into the market and not through an intermediary or middleman who will trade against you. In many cases, there are instances where traders have lost money consistently when using dealing desk brokers and have switched to ECN brokers to minimize their losses by a great deal.
Charting Settings
You should always set your charting platform to show multiple currency pairs while trading forex. Just take a note of the timeframe you are on. This allows you not only to see where a trade setup might arise but also helps you to identify them faster.
Selecting Timeframe
Decide on a timeframe and try to stick to it. Choose a lower time frame if you can afford to sit in front of your trading software for hours at a stretch. On the other hand, if you are a hands-off trader, you can switch to a higher time-frame such as the 1 hour or 4-hour charts. Larger time frames help traders to get plenty of time to monitor as much as 20 currency pairs together in the chart to see whether there is a set-up.
Avoid looking at chart history
Scanning back through one’s chart history can be a daunting task if you want to find the set-ups. Instead, if you have memorized the setup, opt instead to study real-time moving charts. Thus you can go back into a chart’s history to teach yourself the setups. Once done, you can then monitor real-time charts to train yourself on how to approach the set-up.
Entering new trades
When entering trades, if you want to speed things up, you can use a take-profit Expert advisor. This automatically sets the profit/pip amount target upon entry. But you should be warned not to fancy up this method too much as some EAs can be tricky to handle.
Withdrawing profits
Try to withdraw your profits frequently, such as on a weekly basis. This might not be possible on low capital or micro-accounts. However, if you are using 10k accounts, develop the habit of withdrawing your profits frequently, and keep on trading only with that initial 10K. This helps traders develop a more consistent income stream, especially if that is their main income source.
Human error
Traders are susceptible to human error. A lot of traders advise to stay away or exit the trade when faced with such a situation. However, for currency traders, simply riding it out for a couple of bars more is a better idea.
Walking away from your software
After entering a trade from a perfect set-up and subsequently submitting the take-profit amount, walk away/close or ignore your trading software for an extended period of time. For instance, if you are trading on hourly charts and enter into a trade, you do not have to sit and watch to see if it works each time, which can increase the chances of panic and wrong decisions.
Wait for retrace
If the set-up is perfect and the entry bar or 3rd bar has just opened, wait for the price to retrace a bit before entering the trade. This will allow you to acquire the retracement amount in addition to your original profit target.
Be aware of your emotions
Emotions can have a disastrous effect on one’s trading methodology and decisions. Revenge trading, which involves the trader trying to win back a lost amount, is a common phenomenon and rarely ends in success. As a trader, never let emotions get in the way of your existing trading plan. During a losing trade, do not try to go all in to try and make up your losses in one trade. Rather, stick to your plan and make up for the losses by producing small gains over time.
Understand commissions
The commission payments for transactions are expressed by the spread, which is the difference between the bid and offer price of a currency. The bigger the spread is, the more the trader has to pay the service provider. Commercial banks that offer forex platforms charge higher commission rates than normal forex brokers.
Using Demo accounts
As a trader, you should always use a demo account alongside a real account. You should keep the demo account to test alternative trades. For instance, you can shadow your real trades with identical ones in the demo account. However, you may want to widen your stops in the demo account to see if your trading approach is too conservative.
Maintain a Trading Journal
Maintaining records meticulously is an important aspect. If you are experiencing a winning streak, take note of the reasons why. Take note of the details such as the exit and entry conditions of each winning trade, targets, resistance, and support levels.
Understand your risk
Implementing a prudent money management system is essential. This can range from 1% to 5% of your portfolio. This figure is determined by a trader’s trading style and risk tolerance.
Conclusion
A lot of traders have the misconception that forex trading is the simplest and fastest way to generate profits. While it certainly provides a fast way to generate gains, forex trading requires a lot of risk management and planning to be successful.
