Trading the currency market can seem like a daunting task if you don’t know where to start.
Luckily, there are some practices; you can exercise to build your trading muscles.
In this guide, we are going to talk about some of the best practices every trader should utilize when trading the forex market.
1. Ask yourself
Before venturing on any quest, it is important to have a basic understanding of your destination and how you want to get there.
As a result, it is important to establish specific goals and then ensure that your trading system can achieve these goals. Each trading style has a unique risk profile that requires a specific trading methodology in order to trade successfully.
For example, if you can’t sleep in an open trading position, you might opt for day trading.
Make sure your personality is compatible with the trading style you want to follow.
Stress and losses can lead to trading personality mismatch.
So, it’s better to ask yourself, “Should I really do this” before every trade.
2. Stick to plans
Developing a trading strategy is a key component of effective trading. A trading strategy is a structured approach to implementing a trading system that you’ve built based on market analysis and forecast while also taking risk management and personal psychology into consideration.
You can tell if you’re on the right track if you have a trading strategy. You’ll have a system in place to assess your trading results, which you’ll be able to track on a regular basis.
As a result, you can trade with less emotion and stress.
3. Take a test-drive
You should first “test drive” your trading strategy until you are comfortable implementing it.
Before you begin trading on a trading platform, you should learn how to use its features.
Traders can, fortunately, evaluate each platform using a demo account, which means no real money is at stake.
A demo account enables you to test your trading strategy in real-time market conditions without risking any real money.
4. Learn, learn, and learn
We can’t stress enough how important it is to educate yourself and learn as much as you can about the forex market.
Before putting real money at risk, make sure to study the various currency pairs and understand what causes their prices to rise and fall.
That being said, it is critical that you narrow your attention. In other words, concentrate on the educational methods that work best for you. Since learning to trade is personal and subjective, it goes without saying that the manner in which each trader learns would differ as well.
5. Limit your losses
The science of successful trading is more concerned with avoiding losses than with making profits.
The more you lose, the more difficult it is to return to your original account size. This is all the more reason why you should take every measure to safeguard your account.
This means that you can only trade a small portion of your account. The smaller the size, the better.
You should keep risk around 2% or less per trade.
6. Keep it real
As a new trader, you must be aware of your own limits.
First and foremost, do you have enough money to trade? Forex would not make you rich overnight! As a result, make sure that the money you’re putting at risk is money you can afford to lose.
If you need the money to pay your bills, you might reconsider trading.
If you have the funds, you must know how much you are willing to risk each trade. Keep your leverage in check, as it’s a two-edged sword, and never open a position that is so large that it can blow your account.
7. Leave your emotions at the door
To be consistently profitable, you must think clearly and be emotionally distant.
Many new traders experience an emotional rollercoaster, feeling on top of the world after a win but depressed after a loss.
When you get a losing trade, don’t go all-in to try to make it up in one shot; it’s better to stick to your strategy than to find yourself with two devastating losses all at once.
Even after a string of losses, most seasoned traders remain calm and relaxed.
The key to success is emotional stability combined with proper risk management.
8. Changing your plans
Although continuity is key, don’t be afraid to re-evaluate your trading strategy if things aren’t going as planned. Your needs will change as your experience grows; your strategy should always represent your goals. If your goals or financial standing change, so should your strategy.
9. Carry out Weekend Analysis
When the markets are closed for the weekend, review weekly charts for trends or news that can impact your trade. Perhaps a trend is forming a reversing pattern, and analysts are predicting a market turnaround.
A weekly trading system is more likely to yield favourable results. Forex trading is about trading with the trend or momentum, and using simple technical indicators on a weekly chart will help you stay on top of the path of momentum and avoid getting caught up in trading on small price fluctuations within the larger trend.
10. Jot it down
Jot down your trading results or keep a printed record. Print a chart and write down all of the reasons for the trade, including the fundamentals that influence your decisions. Make a note of your entry and exit points on the chart.
Fill in the blanks with any specific remarks, including emotional reasons for taking action. Did you get scared? Are you overly greedy? Were you stressed out?
This is how you can assess your trades and will develop the mental control and discipline to execute trades according to your trading system instead of your habits or emotions.
Bottom line
The steps outlined above will lead you to a more disciplined trading approach, which would help you become a better trader. Remember that trading is an art, and the only way to improve is through continuous and disciplined practice.