The last two lessons taught you about what you must avoid when trading. Now, it’s time to learn about what you must do.
In this lesson, you’ll find some of the most effective tips you can follow to ensure a smooth trading experience.
Lesson Highlights
- Educating yourself about various forex concepts can help you become a better trader.
- Practicing your trading strategies using demo accounts is a good way to become more familiar with trading platforms before going into live trading.
- Slow and steady trades can be better than larger and riskier ones in the long run.
- One way of improving your trading strategies is by adopting the techniques of better traders.
Stay Informed
Keeping yourself knowledgeable about the different forex trading concepts and strategies is perhaps the single most important step to becoming a good trader.
Knowledge breeds confidence, and confidence backed by a solid understanding of market dynamics leads to better trades.
You can make better decisions when you know the factors affecting your trades. Armed with trading knowledge, you can safely navigate the forex markets and avoid risks less savvy traders often fall prey to.
Additionally, learning more about the forex market before entering trades can help you earn larger profits. Becoming familiar with currency pairs and market dynamics makes you better at identifying trading opportunities you would’ve otherwise missed.
Develop and Commit to a Trading Plan
Developing a trading plan is like crafting your battle strategy before opening trade positions. A well-made trading plan can help keep you on the right track regarding your trading decisions.
A good trading plan typically outlines your entry and exit strategies, risk management, and overall goal for each trade. Committing to an established plan will help you avoid unnecessary risks and losses. It fosters trading discipline and lets you focus on your short- and long-term goals.
More importantly, having a trading plan and sticking to it helps you stay rational and objective while trading. Emotional trading is the bane of traders, and a sound trading plan lets you avoid it.
Practice, Practice, Practice
As cliche as it sounds, practice does make perfect. Just because you have created a trading plan doesn’t mean you should already dive headlong into trading.
Many brokers offer demo trading accounts. You should practice your trading plan on these accounts first to test its effectiveness and help you become more familiar with it. This way, you can try different approaches to your trading plan without risking monetary losses.
If your trading plan works, then that’s good. If it doesn’t, you won’t lose any real money.
Constant practice will familiarize you with the different trading platforms and monitor price movements on charts.
Keep It Slow and Steady
You may be familiar with the saying, “Slow and steady wins the race.” This age-old wisdom applies to trading, too.
Keeping to smaller yet more steady gains can often prove better in the long run and net you larger long-term gains. By staying within your risk tolerance level, you can accumulate larger net profits over time as you avoid unnecessary losses from larger but riskier trades.
Strictly following a trading plan can help you commit to a slow and steady trading pace.
Know Your Limits
Just as you need market awareness before trading, so too must you be aware of your own limitations.
There are many things about yourself you should know before entering trades. These include:
- Your risk tolerance
- Your financial capacity
Knowing these factors can help keep your trading in check. Risk tolerance awareness can curb overleveraging tendencies. Meanwhile, being aware of how much you can afford to lose can prevent overconfidence and encourage caution when trading.
Keep Your Emotions in Check
Letting emotions affect your trading decisions is a bad idea. Whether riding the high of successive profits or feeling the low of multiple losses, you shouldn’t allow emotions to cloud your judgment.
Emotional trading can make you overconfident or overly cautious. Both states of mind can be detrimental to your trades. Overconfidence can expose you to more risks than necessary; overcautiousness can significantly limit your profit opportunities.
Keeping a clear head will help you remain objective and avoid straying from your established trading plan.
Keep an Open Mind
An important lesson in trading is that there are always better traders than you, and your strategies are not always the best for all situations.
Sticking to the same methods and market perspectives will leave you—and your profits—stagnant.
You should always be open to adopting other traders’ techniques to improve your own strategy. This will help you react better to market changes and stay afloat regardless of current conditions.
Now that you know some of the best practices for new traders, you can head on to the next lesson about what you need to become a good trader.
