10 Ways to be a Forex Pro
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What Is a Forex Pro?
Essentially, forex trading is when currencies are exchanged.
The concept is nothing new. Anyone wanting to buy something from another country will have to change their currency into another one. Anyone going on vacation exchanges their money into that of the country they are visiting.
With forex trading, you are exchanging one currency into another in the hope of making a profit.
Each day the forex market makes $6.6 trillion worth of transactions.
What makes forex trading so appealing is that there is no central marketplace. Instead, it is all electronic. This means that trades happen all over the world, at all times of the day and night.
The forex market is open 24 hours a day, Monday to Saturday afternoon. As forex trades in every location, when one market closes, another opens, making it very active and exciting.
However, there is more to becoming a forex pro than learning the basics and hoping for the best.
All top-performing traders are:
Types of Traders
To become a forex pro, you must develop excellent technical analysis and numerical reasoning skills.
Technical traders spend time looking at indicators, such as price pattern analysis, to find market trends.
However, some hold the belief that these indicators overcomplicate the charts.
The most successful traders are aware of all the indicators, but they keep things simple by only using the tools they truly need.
Generally speaking, most traders will not solely use automated trading.
The automated systems use an algorithm, making them difficult to adapt when the market makes an abrupt move.
Instead, they will use automated trading in the background as extra analysis.
Fundamental trading requires the use of economic news to steer decisions. Markets react to changes in political leadership, natural disasters and companies experiencing problems.
The markets also react to the anticipation of these news updates.
While news updates can significantly influence market prices, the data is speculative. Therefore, traders will use fundamental analysis alongside their technical data to confirm a decision.
10 Ways to be a Forex Pro
1. Manage Your Money
When trading forex, it is non-negotiable to manage risk.
The most effective way to do this is never to risk more than 1% of your capital.
You can back this up by using risk assessment tools such as stop-loss and take-profit orders.
Setting a stop-loss and a take-profit allows you to set a closing price for your trade.
Even if you are not present, the trade will stop when either requirement is met.
While stop-losses are not always guaranteed – sometimes the market behaves unpredictably and uncontrollably – they do limit your exposure to risk by closing a trade before you lose too much money.
Also, be aware of any hidden fees and make sure you know where every cent is going.
2. Regulate Your Expectations
When you start trading, it is tempting to focus solely on profits, but this can lead to many problems such as overtrading and, ironically, losses.
Setting goals based on profit alone can lead to stress, anxiety and poor decisions. When trading forex, ensure your goals are attainable.
Forex is not a get-rich-quick scheme, so pushing yourself to make a million in four months is not realistic.
The best traders set SMART goals, such as:
- 'Make a 12% ROI, generate $5,000 in profit'
- 'Gain 40 pips every 10 days'
They also decide their long-term goals first and make smaller goals month-by-month to help them get there.
Once you have clear, attainable goals, you can start building your strategy and picking your tools.
3. Develop a Winning Strategy
Explore different strategies and tools until you find one that works for you and be prepared to use several strategies.
One strategy might work on a currency pair in one market, but in a different market, the same pair might need another strategy.
To be successful, focus on creating a strategy in line with your risk profile. Study all the tools and techniques to see how they can become part of your strategy.
Once you have found a strategy you think will work, test it on your favorite markets until you are confident it is a success.
4. Stay Up-to-Date
Keeping up with market news and economic releases is vital if you want to succeed as a forex trader.
Markets are influenced by bank announcements, political events and economic news. Sometimes the anticipation of an announcement is enough to make the markets react.
Staying on top of the news will keep you prepared for any changes in your trades.
News announcements are known as fundamental data. Use it with your technical data to create a complete picture of the market.
5. Keep a Record
Regardless of what you trade, where you trade and how, knowledge and understanding will make you a top trader.
The best way is to keep a record of your trades and results.
Write down any meaningful information and the lessons you learned. This enables you to refine your strategies to improve your outcomes.
Make a habit of journaling your trades as soon as you have made one.
At the end of each week and month, analyze your performance to see what you can improve and shape your next set of goals.
6. Develop a Trading Mindset
The best traders recognize when strategies are not working.
They do not let fear or greed dictate their decisions; instead, they stay calm and rely on their strategies and knowledge.
They are dedicated to their craft and dare to try different things, testing innovative techniques.
Work on developing this level of discipline if you want to be a forex pro.
7. Accept that Loss is Inevitable
Success does not mean that you will never experience a loss. Making a profit on all your trades is not possible, and losses are inevitable.
It takes a lot to admit when you have made a mistake or need to change something. It also takes a lot of strength to close a trade early to minimize losses or to see a trade through despite its current situation.
Accepting that losses will happen makes it easier for you to recover and make smart decisions.
8. Avoid Overtrading
Many people want to become profitable in the shortest time. So, they look for money-making opportunities where there are none. This is overtrading.
The two most common types are:
- Trading too often
- Trading too much volume
While frequent trading can increase your chances of profit, it can also increase your losses. Smart traders do not need to make lots of trades to turn a profit; they just need to make the right ones.
It is true that buying and selling the same forex can be a valid strategy, it is risky and unless you know what you are doing you can easily slip into overtrading.
Follow your trading strategy – it will keep you from overtrading so long as you have the discipline to stick to it.
9. Be Selective
Be particular and selective with:
- Your trades
- The markets you choose
- The trading platform you use
All forex pros are selective when it comes to their work as they want to avoid being associated with the wrong people/companies/markets.
A strong trading and risk management strategy will help inform your decisions. But before making any trade, research the company and market to make sure it aligns with your values.
10. Maintain a Healthy Work-Life Balance
Trading forex can have you working around the clock. But it is important to create a healthy work-life balance.
The top forex traders all say they spend just as much time relaxing as they do trading.
They do this because they know that trading is mentally draining and to make the best decisions, you need to be performing at your best.
Living off caffeine and take-outs while spending hours looking at market analysis will not yield the best results.
Make a schedule so you can see where your focus should be and remember to include:
- When you need to be online for optimal trading times
- At least four exercise sessions a week
- Time with friends and family
- Time studying the markets
- Time for your other hobbies
- Time for meal preparation and grocery shopping
There is no quick route to becoming a forex pro. It takes time, dedication and a lot of trial and error.
Following these 10 steps will help you become a forex pro, but remember:
- Establish your goals so you have a clear focus
- Your money is important. Keep track of where it all goes and stick to your risk management strategy
- No two traders are the same. Do not compare your experience to another. They may have more time or resources at their disposal or a better overall understanding
- What works for one may not work for you—trial strategies and techniques to find what works for you and your goals
WikiJob does not provide tax, investment or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.