Originally published on AxiTrader.com
Many people are attracted to forex trading because of the perceived lifestyle that goes with successful trading – images of fast cars, luxurious holidays or trading in some exotic place.
While some successful traders may show off their rewards, they don’t always tell you about the years of effort they put in before they became successful. But the fact is, like in any other profession or endeavour, becoming a successful forex trader requires hard work.
In this post, we’ll consider the top 6 habits of successful FX traders.
#1. BE A CONSTANT LEARNER
One thing that all the best and most successful forex traders have in common is an ongoing curiosity and the love of learning new things. So, if you want to be a successful FX trader, you need to be a constant learner. The FX market is one of the most dynamic and active markets in the world, so you have to be on top of what’s happening and what’s affecting it.
#2. BEING PROACTIVE
In his best-selling book ‘7 Habits of Highly Effective People’ Stephen Covey said being proactive is an important part of one’s success. As a trader, being proactive means taking action – doing something or doing the things that will contribute to your success as a trader.
Here are a few examples of the proactive things you can do to help your trading.
- Setting up a daily routine to help you become more efficient with your trading.
- Set aside time for training and education – e.g. watching trading videos, learning technical analysis, attending trading webinars or seminars.
- Reviewing chart patterns.
- Testing and refining trading strategies.
- Subscribing to or following successful traders
- Keeping track and monitoring the global markets will also help your trading, so make it a habit to regularly check news sources like Bloomberg, CNBC, BBC.
#3. DEVELOP A TRADING PLAN
You’re probably aware of the saying ‘failing to plan is planning to fail’. Though it might sound cliché, it’s true and it’s a very important component for trading success.
Whether you’re a new trader or someone who has been trading the markets for years, you need a trading plan that should be your guide in everything you do for your trading.
A trading plan need not be complicated. It can include some basic guidelines like:
- Entry and exit levels
- Position size
- Stop loss level
- Take profit level
- Indicators to use to confirm your entry and exit
While having a trading plan is important, it’s also equally important to have the discipline to stick to and implement it.
Otherwise, what’s the point of having a map (your trading plan) if you’re going to ignore it?
So, remember, if you have a trading plan it’s best to stick to it.
#4. CONTROL YOUR EMOTIONS
It’s been said that fear and greed are the two strongest emotions that drive the markets.
Fear of missing out on a trade usually drives forex traders to jump into a trade without prior validation. And, at times, getting into a trade in haste can result in losses if it turns against you.
Greed is also something to watch and to control. It can fuel your desire to chase multiple trades (over trading) or to allocate too much of your capital in one trade. In either scenario you put your trading capital in jeopardy if greed takes over.
If you want to become a successful trader, it is critical you put your emotions in check as much as possible. So, before you hit the button to confirm a trade, take a moment to think whether the trade is the right one by considering the following simple questions:
- Does it fit within your strategy?
- Is it within your limits of risk?
- Do you understand what it means if this trade goes against you?
#5. DEVELOP A RISK MANAGEMENT STRATEGY
Every successful trader will tell you that trading is all about risk management. And it’s true: your success as a trader will depend largely on how robust your risk management is. At its basic level, risk management can be boiled down to a few components.
Here are some items to consider when building your risk management strategy:
- How much capital to allocate per trade?
- How much capital to risk per trade?
- What is your stop loss level?
- What is your take profit level?
- How much leverage to use per trade?
One of the best words of advice for traders is to preserve your capital. By protecting your trading capital, you’ll be able to trade the next day.
#6. START WITH A DEMO ACCOUNT
While most people want to rush into trading to have a taste of success right away, it’s advisable to start small and start slowly. This is particularly true if you’re new to forex trading where one of the best things you can do is start with a Demo account.
Using a Demo account brings several benefits, such as:
- Opportunity to familiarise yourself with the trading platform and different trading products
- Start testing different trading strategies without committing real money up front
- Gain confidence in placing trades
Like a learner driver, it’s better to start slowly and surely. Learn more about the markets first. Learn more about order types. Learn more and refine your trading strategies and techniques. Then take that confidence and apply it to your live account.