Over the weekend I got a chance to talk to a group of traders who were just getting their feet wet in forex trading.
I’m sharing with you a list of what they said are the most important lessons that they’ve learned so far. I’m sure you can relate to at least one or two points:
1. Stick to the plan
A lot of traders mistake trading plans as a set of rules that may or may not be followed when executing a trade.
There is nothing binding you to follow the plan and there are times where you feel that the trade won’t “work” if you stick to it. As a result, you take trades on gut feeling, making sudden adjustments and deviating from the plan at the first sign of trouble.
What you should remember is that a good trading plan is a dynamic set of guidelines, a product of hours upon hours of analyzing, testing, and refining.
If applied consistently, your trading plan could also give you an edge. You take away this potential edge every time you deviate from the plan.
One way to help you stick to the plan is to keep a detailed trading journal showing your statistics. Once you see that your trading plan does work and is yielding positive results, it could give you more motivation and confidence to stick to the plan and follow through.
2. Be patient
Forex trading concepts and techniques are simple and easy to learn (just ask newbies who’ve read the School of Pipsology).
What’s hard to learn is how to be patient and disciplined enough to consistently make good trading decisions.
Patience in forex trading can be as simple as waiting for good trading opportunities or for price to hit your entry and exit levels. It can also be as difficult as cutting losses, letting winners run, and diligently developing a trading system that works for you.
While these tasks are no walk in the park, remember that trading is a MARATHON, not a sprint. Opportunities are always around the corner and, if you’re patient, you’ll learn how to profitably trade in any environment the market will throw at you at any time.
3. Practice risk management
Risk management is what separates a trader from a gambler.
Simply put, we’re in the business of making money and, in order to make money, we have to manage our risk exposure. This means no overleveraging or risking more than you can afford to lose; no moving or disregarding of stop losses, and always practicing proper position sizing.
If you haven’t yet, read all about what margin, leverage, and drawdowns mean. They sound intimidating but they would help a lot in designing your trading plans and minimizing your losses in the future.
Experiment with position sizing and ALWAYS use stop losses. While it’s easy to just hit the “buy” and “sell” buttons or bet half of your account in every trade, they won’t help you find your edge enough to be consistently profitable in the long run.
4. Trade what you see and not what your think
2019 is peppered with forex events that have spurred price action that’s different from how price reacted to similar events in the past. An interest rate cut, for example, had caused a major currency to pop higher because traders have moved on to expecting no further rate cuts in the foreseeable future.
A consistently profitable trader is open-minded and prepared for alternate price behaviors. Just because you’ve had a string of wins doesn’t make you a demi-god of forex price action (though that sounds like a good job title).
As we’ve seen in the past couple of months, you’re likely to win more trades if you trade what your charts are telling you instead of hanging on to your existing biases.
5. Run your own race
Every trader has his/her own trading journey.
Nowadays it’s easy and tempting to constantly compare yourself to others’ trading performances. But just because one dude from the forums is making pips rain doesn’t make you a lesser trader.
How you perform has nothing to do with how others perform. Any comparison will just likely make you doubt yourself and make mistakes trying to outpace the “competition.”
Take the time to evaluate existing trading strategies and see if they suit your trading personality. What works well for others may not necessarily work for you.
Focus on improving your past performance record, rather than looking at how other traders are doing. Focus on the process, not the profits.
There you have it, folks! Did I miss anything that you’d like to add to the list? Let me know!