If you’re reading this, perhaps you’ve already taken the first important step to participate in the exciting world of currency trading. With our list of top 10 trading habits, we want to help you to keep all your pips and to grow your money over the long run. Successful forex traders will tell you that it takes discipline, practise and commitment to make money.
1. Don’t gamble, avoid spontaneity
You may be tempted by the large and fast-moving forex market and want to get rich instantly. You may also hear a rumour and want to jump in for a quick profit. In fact, do the opposite. Observe and learn more about what you want to trade before you dive in.
2. Don’t risk all your capital at once
Experienced traders do not put everything in one single trade but spread out the risks. In fact, currency trading should be a part of your overall trading portfolio so that you are not committing all your financial capital to just one asset class.
3. Research your trade and the macro environment
Select a couple of currency pairs and try to learn everything you can about them before you start trading. Use online data and news systems to educate yourself about the macro environment and the fundamental and technical factors that affect these currencies. Study their trading patterns and trends.
4. Practise with a demo account first
Take advantage of the free demo account from your online broker and practise with the charting and analytical tools for a few months. Test out your trading strategy in the various market environments without risking any of your capital or feeling stressed when your trades are losing money. You can practise your risk management skills to see how to best manage your profit and loss. Start each trade with a small amount to proximate your live trades.
5. Always look at longer time frames than those which you are trading with
Currency pairs are likely to display different trends during different time frames, leading to confusing signals for the traders. Although you are setting up a short-term trade, it is important to analyse the trade within a longer time frame so that you can see the general picture as well as the sentiments for the currency pair.
6. Emotions and greed have no place in trading
When you start to get emotional in trading, step back, take a deep breath and see how your impending action fits in with your overall strategy. If you feel anxious that you are missing out on a trade, or if you want to double-down to make up for earlier losses, it is better to reconsider as you are about to enter an irrational trade. Go for money management rather than a “big win”.
7. Set your goals
Before you trade, it is important to determine your goals and plan your trade. For example, know what you want to trade, how much you want to make, how much capital you can lose and how much time you can devote to your trading. The currency market is dynamic, and you can get caught up in the short-term happenings. If you do your research, stay focused and execute according to your long-term goals rather than try to make a quick profit, you can increase your chance of making money.
8. Know your risk tolerance and manage your risk
Risk management is an essential part of forex trading. Before you start trading, you should think about how much risk you are willing to take. Know how much you are willing to lose in each trade. Remember to put in a stop-loss level and stick to the target. Avoid the mistake of losing all your money in the first few months of trading.
9. Do not over-leverage
One advantage of the forex market is that it provides a large degree of leverage for traders. That means you can use a small amount of capital to trade a much larger nominal amount. However, if you place a greater bet than you can afford, you can sustain a loss that can wipe out all your initial investment or cost you more. Look out for risk management systems that can help you to limit your losses.
10. Take notes and study your results
A lot can be learnt from your trading. Keep track of what strategies you are using and how well they work in the various trading environments. Always review if you are holding your trade for too long or if you are having too many open positions.
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