Become a better forex trader in 4 simple steps
There’s no denying that forex trading is booming. An ever-increasing number of traders are starting to use the Metatrader 5 platform by getting an MT5 download link to execute trades via regulated brokers. The industry is clocking staggering amounts in daily trades worldwide. Bond and stock markets pale in comparison. Traders opt for forex to take advantage of the high leverage offered by brokers.
To succeed in this space, you need to take specific steps. Successful traders invest a lot of time learning how forex markets work. They also practice trading with mock accounts before placing trades with real money. Doing so builds the required skills to achieve profits consistently.
When you prepare properly, you can participate fruitfully in a market deemed the last great investing frontier. It’s possible to succeed with a small amount of trading capital. But success requires high levels of discipline, self-analysis, and a data-driven decision-making approach. You shouldn’t let fear, emotions, or greed control your actions. Here are the four steps you should take to ensure profitable forex trading:
1. Define your trading goals and strategy
Your trading journey starts by setting realistic targets and selecting a suitable strategy. The strategy you choose should match the amount of risk you’re willing to take. Scalping is a riskier strategy that you could choose if you want quick wins. Conversely, swing trading requires a patient approach and entails less risk.
As you define your goals and choose a strategy, remember to avoid making emotional decisions. A logical approach makes it easier to focus on data-driven strategies. Another key consideration is choosing the right trading platform and a broker.
2. Choose the ideal currency pairs and determine entry and exit points
Once you deposit funds into your trading account, you must first pick the right currency. Then, focus on how to manage risk. So, don’t trade with money needed to cover essentials.
During the first days, it’s better to trade the United States dollar against currencies like the Euro, Japanese yen, Canadian dollar, the UK pound, and the Australian dollar. Pairing the greenback against these briskly traded currencies allows you to leverage the liquidity. Other currency pairs may require more extensive research.
In the early days, practice using the United States dollar against the Euro. There’s a lot of market information on this pair to help you make informed decisions. Once you pick the right currency pairs, you should define your entry and exit points. Buying (entry) and selling (exit) points provide a proven way to minimise losses.
It’s important to keep your weekly and daily charts in sync to ensure that entry and exit points work seamlessly. Experienced traders pick a trading direction using a weekly chart. A daily chart plays an integral role in timing entry. Therefore, if you get a buy signal from the weekly chart, check the daily chart for the same. Once both charts indicate the buy signal, you’re good to place trades.
Over time, you can determine the effectiveness of these and other strategies by calculating expectancy. This calculation provides a practical way to evaluate the reliability of your approach. So, regularly calculate the expectancy of your historical trades – both winning and losing trades. Also, assess how much profit you generated from your winning trades.
3. Preserve your trading capital
Whether you trade forex via Metatrader4 or other platforms, always strive to avoid incurring large losses. In some cases, it may be tempting to make huge profits, but the risks are significant. Becoming a better forex trader involves a disciplined approach. Experts recommend adopting a great defence mindset to minimise losses.
The last thing you want is running of trading money, and you’ve to watch the action from the sidelines. Small winning trades can build your overall profit over time. By preserving your capital, you create many chances to achieve a huge winner or a string of small wins.
4. Keep your technical analysis simple
When it comes to technical analysis, there are tons of variables that you need to focus on. You can apply as many lines to the chart as you want. But you could easily overwhelm yourself with little or nothing to show for it. Many traders get confused when the lines on the chart increase.
In contrast, adopting a relatively straightforward approach with fewer rules can yield better results. By working with fewer indicators, you no longer grapple with doubt and indecision.