3 Secrets For Profitable Forex Trading
There is a definite step-by-step process to becoming a successful Forex trader. Most would-be traders don't become profitable on their first try, or even the second or third. But those that take the journey and make it to consistent profits learn a lot along the way. Here are three things I feel are essential for becoming a Forex trading success story.
There are a lot of different ways to trade Forex, from scalping the lower time frames to trading on the daily and weekly time frames. But in my experience, it is the traders that have the persistence and stamina to trade the higher time frames that do the best. Higher time frames are more reliable, take less time to trade and are a lot less stressful than the lower time frames.
I was also drawn to the lower time frames when I first started out. I thought I would be able to make more money and learn faster because setups happened faster and I could use lower stop loss values. I wanted to pop into the market when it was convenient for me, make some quick cash and be done for the day. But the opposite really happened. Hard to believe, but when I switched to higher time frames I started to enjoy more success. Therefore, the first tip for trading effectively is to trade on time frames no lower than 1 hour. (The time frame I trade on now is the 4 hour time frame).
New traders want to make more money on each trade by using big lot sizes. A lot of times this means using too tight of a stop loss instead of the proper stop loss based on price action. As a result, they get stopped out a lot and lower their winning percentage.
A better way to trade is to manage your risk with your lot size. Adjust your lot size to manage risk after placing your stop loss where the market indicates. This way, you can determine a specific percentage of your account to risk on each trade, which will be the same regardless of whether your stop loss is 20 pips or 200 pips. Therefore, the second secret is to us proper stop loss size and manage risk by adjusting your lot size.
Forex trading is not gambling. And you can see by the first two recommendations, successful traders move away from the fast time frames with unrealistically short stops "hoping" the trade goes in their favor and makes them a ton a money. More often than not, this approach leads to losing a lot of money, and then any win you have only gets some of the loses back or to break even.
The best way to succeed is to treat your trading like a business and developing the patience to build your profits over time. In the long run, creating a trading plan for slow, steady profits and developing the trading skills to trading the plan consistently is what creates a successful trader. Forex trading should be treated like a serious business, because when you do you can make serious money.
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