The first key element is one we’ve mentioned already, it’s also the one element of trading that seems to urge the foremost attention – The Trading Strategy.
- The Trading Strategy
Your Trading Strategy is essentially how you trade, what must happen so as for you to tug the trade trigger? Most trading strategies are based upon indicators like RSI, Moving Average or a mixture of a couple of different indicators, personally I prefer to not trade based upon indicators. having the ability to easily read the worth Action off the charts will provide you with a way stronger base in determining your trades.
Whatever your choice, having an honest trading strategy is extremely important when trying to become a profitable Forex trader. The question is what do I mean by ‘good’? What constitutes a ‘good’ trading strategy? Most traders define a ‘good’ trading strategy together that features a high rate of success. the reality is you would like to ask, how has this ‘success rate’ been established? Over what percentage trades was it determined, 10 trades? 100 trades? And what about asking the question were all trades taken following the precise steps of the trading strategy?
It is not as simple as finding a trading strategy that claims to possess a 70% success rate then just running with it, likelihood is that if you have been within the trading game for a few time you’ll know that it’s never that easy .
For e.g.
A Trading Strategy claims to possess a hit rate of 70%
However once you trade it, your success rate is merely 40%
Why is this?
Of course it might be that perhaps Trading Strategy A doesn’t have a 70% success rate to start with, but for instance for this instance that’s does. So, what else might be the problem? the solution is you’re lacking the opposite two key elements of a successful Forex Trader, let’s take a glance at the other .
- Trading Psychology
There is one key component that affects every single trade you’re taking … you. Your Trading Psychology fairly often is that the difference between a successful trade and an unsuccessful one.You can be the strongest minded person on the earth , but you’re still human and as a person’s you’ve got emotions.
Trading may be a very highly charged emotional game, especially once you are trading large amounts of cash , naturally your emotions can overtake and influence your thinking/behavior as a trader. Sometimes you’ll subconsciously take a trade based upon your emotions, whether you’re ‘Revenge Trading’ or simply being plain greedy, it’s all right down to how strong your Trading Psychology.
You could have the simplest Trading Strategy within the World, but if you’ve got a weak Trading Psychology then it counts for nothing. Let’s take a glance at a number of the ways during which your emotions may affect your trading decisions.
Emotions that hold you back from taking the trade
Emotions that entice you to require a trade
Emotions that cloud your judgement
Your Trading Psychology will improve as your exposure to the markets improve, in fact i’m pertaining to LIVE Trading with real money. Trading a DEMO account is ok to start out off with, but you are doing not want to urge too comfortable trading DEMO funds, once you are ready to start trading LIVE. Please in fact make sure you understand the risks involved, and NEVER trade with money that you simply can’t afford to risk.
The final key’s a game changer, most newbies don’t understand the facility that it yields, subsequent key’s Money Management.
- Money Management
We are all different, a number of us have 5,000 put aside that we will put into trading, some have only 500 and for a few those sorts of figures they will only dream of. In other words we are all different, we all have different finances, different aims/goals, different reasons for trading the Forex Market.
Money Management or Risk Management, is that vital a part of trading that determines what proportion money you’ll risk on one trade. This amount are going to be determined by what your individual goal/s are and also what proportion money you’ve got to truly invest within the market.
As a general rule of thumb, once you are able to start trading seriously it’s best to stay your risk right down to 1%, and base your Money Management around that. Unfortunately, there are many ‘Forex Gurus’ out there on the web who don’t even mention the importance of Managing your risk (steer distant from these sorts of people), or say that it’s okay to risk more; say 3% or maybe 5% (unthinkable!)
The fact is it doesn’t matter how great a Trader you’re feeling you are, it’s simply mathematically proven that in your trading activities you’ll have losses and not only one here and there, but runs of losses. The question you actually want to ask yourself is, will I survive during this bout of losses? Or will it wipe my account out?
Let’s say for e.g. you’re taking successful of 9 losing trades consecutively, you risk 5% of your account balance on each trade:
Opening Account Balance: 5,000
5% Risk per Trade: 250 Risk Per Trade
9 Losses x 5% = 45% LOSS
Remaining Account Balance: 2,750
You will lose slightly below half your entire Account Balance! The time taken and therefore the difficulty in trying to form that deficit up are going to be extremely difficult, and factoring within the incontrovertible fact that you’ll still have losing trades, makes the entire thing even more messy.
Let’s now take a glance at what happens if we risk only 1%:
Opening Account Balance: 5,000
1% Risk per Trade: 50 Risk Per Trade
9 Losses x 1% = 9% LOSS
Remaining Account Balance: 4,550
Here we lose slightly below 10% of our Trading Account Balance, a really reasonable amount for a 9 trade streak . Be SMART, Trading is about capital preservation first, and searching at making a profit just one occasion you’ve got taken your Money Management into consideration.
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The earth 