Trading is a wonderful profession to make money and Forex undoubtedly is a seducing wonderland. Contrary to the belief that you buy low and sell high, you can actually make money on both the bearish and bullish days with the following simple tricks:
1. Master to manage your capital
Managing your capital is the basic yet most important discipline that a trader needs to follow.You can easily manage your capital money with two simple thumb rules
- Per trade, limit your risk to 2 to 3 percent of your capital in the early stages.
- Ensure you have enough capital for at least 15 consecutive trades.Even the best of the strategies encounter 5 or more consecutive losses, and hence it is crucial for a trader to manage his capital.
2. Stick to one particular Forex currency pair
Forex is an ocean and there are innumerous forex derivatives. Avoid scattering your money in all the derivatives and stick to one particular derivative in the initial beginner stages. It is wise to start with your nation’s currency. Get an edge over one derivative and slowly expand your portfolio.
3. Choosing the right strategy
Every trader has a different game plan and chooses a strategy based on the personal goals and the efficiency of the strategy against historical data. A good strategy should give decent return with risk highly managed. There are loads of software that can help you develop and backtest your strategy rather than just generating buy/sell signal.
4. Choose the right timeframe
Most traders take intraday trades looking only at the lower timeframes : say, 5 minute charts. They fail to understand that the signals in the lower time frames are determined by the market movements in the higher timeframes. So, when a strategy triggers a buy/sell signal in the lower signal, it is wise to pay attention to the higher timeframe charts to ensure the trend is the same(buy/signal) in most of the timeframes. Doing so will prevent an intraday trader from falling prey to the bubble signals.
5. Always use a Stop Loss(SL)
Stop Loss is the most powerful weapon as it will caution you against a bad trade. Determine your stop loss before the trade execution and stick to it. Do not move the stop loss after the trade is executed giving your emotion as a excuse.
6. Choose the right broker
There are two types of brokers : full-service brokers and discount brokers. Full-service brokers are expensive in executing an order as they provide services like personalized research and advice for your trades. The discount brokers on the other hand are cheap and some discount brokers have flat rates for a trade execution irrespective of your lot size. Discount brokers are the trending ones and are a popular choice among young, budding forex traders as most of their capital is limited. A trader also needs to consider other factors such as Minimums, Margins and Withdrawal fees, his type of investment(long term /short term) before zeroing in on one particular broker.
7. Choosing the right quantity or the number lots for a trade
It is crucial to plan in advance the risk involved in a trade and limit the quantity of your order based on your strategy. This discipline will save an intraday trader on a volatile market day as any sudden market movement or an SL(Stop Loss) hit can be easily managed with a limited order. Nevertheless, the forex trader can increase or decrease the quantity of the order based on the market trend and sentiments. Some brokers provide 3 – 5 times Limit and many brokers provide 10-30 Times Limit. The thumb rule is that the limit should handle any accidental movement.
8. Enter or exit a trade meticulously
Enter/exit a trade when most of the time frames are in sync rather than deciding when to exit/enter looking at one particular timeframe. When there is a sell on a daily chart and buy on a weekly chart, analyse if you should wait until there comes a sell signal in the weekly chart too. Never enter into any hasty decision before cross-checking with different timeframes.
9. Learn continuously
Every single trade has a lesson to be learnt. Learn and keep learning. Learn from your trades as well as others. There are lots of groups and communities; join them and stay updated on the software, broker, strategies apart from just the forex derivative level. This will help you become a better player.
10. Analyse your trades
Spend some quality time analyzing your trades on a periodic basis. This helps you zero down the places of high/low and the reasons behind them. It is absolutely perfect to maintain your trade history in print so that everything is on track.
11. Grow your capital
Once you have mastered your strategy and have decent returns, you should look for growing your capital. It makes sense to add up your capital with organic returns from your trades rather than merely adding up to your capital with deposit.
12. Capture the trends
Most bigger trades happen when the market trends and it is important to anticipate and capture such market trend reversals. Doing so will ensure hefty returns in lesser trades.
13. Check your emotions
Stick to your strategy and ensure to manage the risk involved in a trade. Never let your emotions take precedence like moving the stop loss or trying to go against the market or trying to prove yourself to the market. Trading involves a lot of discipline and lets your discipline make the money!
14. Relax taking a break once in a while
Silly it might sound, taking a break after consecutive win/loss is essential. Trading is definitely stressful and can exhaust you physically and mentally. Take a break in between and just observe the market from some time. This will energize your trading skills significantly.
15. Never fight the market
Be humble and never prove anything to the market. Accept your failures, learn from your mistakes and follow the above tips 🙂