There is no holy grail in Forex trading but having a detailed trading plan is of utmost importance. The following 5 habits are employed by most seasoned traders and they will help you to achieve consistency as well.
1. Practice makes perfect
Regardless of your trading strategy, if you have not spent time, a lot of time, testing and back-testing your trades in simulation, you are headed down a slippery slope. Successful traders never become complacent and think that they have mastered the market. They are continually analyzing their methods and trades in order to ensure that they stay committed to their trading plan.
2. Plan the trade and trade the plan
I have stressed this point to my clients and fellow traders more often than I can actually count. As far as I am concerned, this is by far the most important of all the tips that you will ever learn in Forex trading. Any strategy is only as good as the set of rules it has and if you keep changing those rules without a complete back-test with every change, you don’t have a trading plan. It is important to teach yourself and understand the psychology of trading that it is ok to get it wrong. No set of rules will win every time so move on from the expectation that you should win every trade. It just simply is not possible. Design a set of rules that you will be able to implement and use in order to navigate any market condition. Then you need to stick to those rules, whether that means a profit or a loss.
3. Accurate money management
Any successful trader will be able to tell you exactly what percentage of their account is at risk with any particular trade. I personally don’t risk more than 2% of my account value in any given trade. Before entering a trade, I know where my exit point as well as where my target point is. That means that I know exactly how many pips my stop loss will be from my entry point which allows me to calculate a lot size based on 2% risk. This means that the lot size I trade varies with every trade entry but the percentage of my account that is at risk, is always the same.
4. Set up your trading system
It is common for successful traders to have a set checklist that they use before entering a trade. This ensures that they have thought about all the integral parts of their strategy before making a final decision as to whether or not it is a valid trade entry. More often than not when a trader makes a mistake with regards to a trade entry, it is because they have not applied their trading system and knowledge correctly rather than because their strategy is flawed. Make sure that you always check each important rule regarding your trading system before pressing the buy or sell button.
5. The trend is your friend
Trading with the trend has proven to be a far more successful way to approach the market than to try and pick the top or bottom of any given move. I am a swing trader and have developed a trading strategy which assists me to enter trades in the direction of a trend or alternatively when a possible trend change has been confirmed. This is a much less stressful way to approach the market and allows me to easily apply my trading system accurately. For more information regarding swing trading, read this article: Which Form of Retail Trading Is The Most Successful?
Remember to keep things simple. The more complicated your trading system is, the more chance there is for mistakes to be made. Defining your habits as a trader will define your success as a trader. These are just a few of the many possible habits that you could adopt but in my opinion they are the most important. Get the foundation right and you will be able to build a solid trading system on top of it.
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