Any person who has a little money and patience can dive into the forex trading world. However, the only way to be profitable is by using a combination of the said patience with some skill. That’s because you have to know how to limit your losses while identifying trades that have a positive risk-reward setup.
One of the best ways to do this is through experience and practice. However, other innovations like social trading platforms can also give you an invaluable edge, if you can figure out how to use them. That said, here are 4 tips that will help you become a successful trader in 2018:
1. Develop a Fact-Based Trading Plan
Taking the time to come up with a logical, fact-based trading plan might be a bit of a hassle, but it’s well worth the effort. Some people might be tempted to believe in the rumors that forex trading is as easy as printing money. However, financial scams are a common phenomenon on the Internet.
The only way to avoid the scammers is by using facts – not hope or emotions – to develop your trading plan.
If you aren’t in any hurry to learn, then you’ll find it easier to skim through all the information that is available online. But if you’re serious about your trading career, you will undoubtedly put in a lot more time and effort in order to learn all the ropes.
2. Only Risk What You Can Afford to Lose
Saving cash to fund your trading account is usually a long process. So before you start using real money, it is important to ensure that you can afford to lose the amount that is in your account. If you can’t then you should simply hold off and keep saving.
Obviously, the money in your trading account should never be earmarked for paying your mortgage or college tuitions. Never let yourself fall into the mentality that you’re borrowing money from these important responsibilities, even if you plan to replace it after your next windfall. This is an insidious type of gambling mentality that you should work really hard to avoid.
3. Put a Stop Loss in Place
Simply put, a stop loss is the amount of risk that a trader is willing to accept with each trade. It is usually put in place beforehand. Depending on your preferences, you can define the stop loss in terms of percentage or a dollar amount. Either way, it helps traders limit their exposure in the course of a trade.
Furthermore, using a stop loss can make trading much less emotional. If you already know that you will only lose a specific amount on a trade, you will be much less likely to freak out and make emotional decisions.
However, it should be said that ignoring a stop loss is bad trading practice – even if the end result is a winning trade. If you exit a trade because of a stop loss is more acceptable, especially if it falls under the rules of your trading plan.
This may seem quite counterintuitive. After all, shouldn’t the goal be to exit each and every trade with a profit? Everyone wants to make money, but this is simply not realistic. Instead, use a stop loss to limit your risk and potential losses.
4. Always Know When to Stops
You should only stop trading for one of two reasons: a trading plan that isn’t generating the right results, or an ineffective trader.
If the trading plan is the problem, you will generate bigger losses than you had anticipated after historical testing. This could be because the markets have changes or the volatility has decreased in a certain trading instrument. However, it could simply be because the trading plan itself isn’t performing as well as you had expected.
If the trader is the problem, then it’s because they are not following their trading plan. This could be because of poor trading habits or even external stressors. Whatever the case, a trader may be rendered ineffective if they are unwilling or unable to deal with the challenges that come their way.
In that case, then you should probably stop before flushing more money down the drain. And the break doesn’t even have to be permanent! You could simply take a little rest to identify and deal with any problems in the trading plan. Sourcing for advice from your Real Trader Community could be a great idea for you at this time. It will help you get back on the right track.
If you understand these rules and how they can work together, then you are well on your way to becoming a successful trader. It can be hard work, but traders who have the patience and discipline to follow these guidelines will increase their odds of success in this highly competitive field.