Profiting from the forex market is never easy. However, that doesn’t mean it's impossible for you to do it. All you have to do is be a good trader.
But how do you become a good trader?
Good traders are disciplined and don’t rush their entry into the market—and so should you!
Here are the best tips to become a good forex trader:
Lesson Highlights
- Becoming a disciplined trader is the only way to become good in forex trading.
- A disciplined trader uses a demo account to practice trades and strategies, doesn’t overexpose their trades to risk, and never fails to analyze the market.
- Analyzing the market includes examining historical price data and considering fundamentals such as economic data and geopolitical events.
1. Practice With a Demo Account
Demo trading is like on-the-job training for traders. Like any job, the golden rule is to always be familiar with the field before diving into it.
When you use a demo account, you’re trading in the real market, but you’re not spending any dime. You heard it right. You’re trading in the real market.
So, you’re getting an accurate analysis of how your trading system works in the real market. This way, you won’t be shocked once you enter the dynamic financial market.
Trading on your demo account will yield results that will benefit you throughout your trading journey. When you practice your trade, you can expect to be:
- A disciplined trader
- A decisive trader
- An unbiased trader
Demo trading is the best platform to test the waters because there is no financial pressure at all. Remember, when you practice with a demo account, you get to eliminate all the rookie mistakes you have before you dive into the live trading.
2. Use the 1% Risk Rule
"Don’t overexpose your capital to a single risk.”
You’ll often hear that phrase when you ask for expert advice. It simply means you should never expose more than 1% of your capital to a single currency pair or market.
To be a great trader, you must master diversifying your portfolio to avoid overexposing your account equity to a single risk.
Assume you opened a position in a single market. On top of that, you invested almost all your account equity in a single market (EUR/USD).
If the odd goes against your favor and the EUR/USD market crashes against your position, a single risk might wipe out all your equity.
What you should practice is to divide your investment into different markets.
You can do this by trading the two pairs with negative correlations. Negatively correlated pairs simply mean that their respective markets move in opposite directions.
Trading negative correlated pairs ensures that when one of your positions is losing, the other is winning.
3. Strategize Each Trade
A good trader views each trade separately. They acknowledge that a particular strategy will not work on all their trades.
If you want to be a good trader, you should never be complacent and put all your positions under a single strategy.
Each forex market has peculiar tendencies. You need to be familiar with the market first before making any financial commitment to your system.
If you’re not sure how your trade would react to the market, you can always use demo trading and practice the system in the simulated market. Remember, demo accounts are not just for beginner traders; they’re for wise traders.
4. Analyze the Market
Being a good trader means you’re up for continual studying. Profiting from the market doesn’t stop the moment you finalize your trading system.
You should always study the dynamic market. This is an ongoing, lifelong process because the forex market changes daily.
A good forex trader trades the news. Trading the news will give you an accurate market status, which is beneficial when trading forex.
This will allow you to strategize your trade and take calculated risks. This will also tell you the most profitable entry and exit point, and whether it’s best to stay out of the market to avoid investment losses.
If you want to analyze the news, you should be on the lookout for these news releases:
- Economic data (GDP, Unemployment Reports)
- Geopolitical events
- Central bank releases
5. Use Stop-Loss Order
When you set a stop loss order, you’re basically using technology to your advantage. This order automatically informs your broker to exit your trade to prevent further financial ruin.
Despite being an effective risk management technique, many traders tend to bypass this order. They hold on to their trade, hoping the market will turn around.
However, a good trader knows how to stick to the initial plan. These plans are based on their trade’s past performance and market analysis.
You’re now familiar with the common risks of forex trading and the effective ways to conquer these destructive risks. In the next course, you’ll explore the number one cause of death for beginner forex traders: overleveraging.
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