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The Forex Trading Success Formula


Trading Forex can be an emotional roller coaster. These essential tips will ensure that you develop a successful forex trading formula that will maximise your potential for success in this exciting market.

Let's get started...

1. Start small and let your gains feed your investment.

When you are first starting out in forex it's very tempting to put more in to get more out. But a larger deposit can totally cripple you before you even get started. The number one golden rule for lasting success with forex is to start small. If you can build your account by making wise choices at lower investment levels you can reinvest your profits to increase your returns. If you can't make it work with small numbers then putting in more cash will be a very costly mistake.

2. Set realistic expectations.

Forex is confusing for a beginner. Don't get carried away. Be realistic with your knowledge and expectations. Choose an account package that is suitable for your level of knowledge. If you are a complete beginner start with a mini account and practise diligently. Focus on lower risk and learn about the various account types before increasing your investment levels.

3. Trade in the now

There's no sure fire way to guarantee the future of a currency pair. Changes happen, so ultimately there is no gain from adding to a losing position. The surest way to trade is in the now... not the future.

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4. Set realistic goals and stick to them.

Before you start trading define what it is that you want. Do you want to generate an additional income or replace your day job? Define your terms of success and failure. Set your own limits, goals and expectations then create a plan to actualise them. Decide how much time you will devote to trading (and learning!) and use this as your measure of progress. The more accurately you can define what you want the more successful you will be. It's important to recognise your success and progress as well as your failures. Know where you started, know where you are heading and be aware of your position in your journey. Regularly ask yourself what is your next logical step to accomplish your trading goals.

5. Stick to what you know.

Never trade unless you completely understand what you are doing. If you are not 100% confident in your knowledge then you are not ready to trade. Go back to study and become bullet-proof in your chosen position.

6. Leverage automation.

There are two really solid reasons to automate. The lessor is that it saves you time. The greater is that automation removes emotion from your decision making process. When our emotions are highly stimulated (in either direction) we make mistakes. There are many automation tools available at your disposal. Learn about them, understand them and use them.

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7. Learn from your mistakes, and your successes.

Keep a journal of all of your mistakes and successes and regularly review it with a critical eye. Ask how you could have done something better and prepare yourself for similar situations in the future. By regularly reviewing past entries in your journal you will begin to spot patterns in your behaviour that will lead to much better decision making. Most people are completely blind to their own habits. Aside of getting a mentor, keeping a journal and constantly reviewing it is one of the fastest ways to improve your decision making process and skills. It also hi-lights where you need to undergo more study.

8. Stick to a single currency pair that you understand.

When you start out it is best to keep things simple and stick with a currency pair that you already understand. Personally, I find it very easy to think is GPB and USD. Most people can only think clearly in one currency and mentally understand value in their local currency only. This value awareness increases respect and prevents poor decision making. If you can consider value in a currency without having to perform a mental exchange into your local currency then it's a good one to trade. When dealing with currencies that have little meaning the perceived value is lost and you can fall into the trap of trading as though you're using play money. This is when poor decisions and high risk begins to creep in.

9. Don't fight the trends.

Unless you are already experienced and in for the long term, avoid fighting the trends. Top and bottom picks are a roller coaster ride for your emotions and can cause a huge amount of stress.

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10. Become Money savvy.

Remember that trading Forex is about making money. There's no point in making money if you are blowing it in other areas. It's good money management practise to find the holes in your budget where you are haemorrhaging money now and plug them before you start. Protect your profits and make sensible money decisions.

11. Leverage profits and losses.

The smart way to trade is to appreciate that you will have ups and downs. There's no sure fire silver bullet in trading. So expect losses but minimise them so they are harmless to your overall progress. Never enter into a high risk trade that could potentially burn you out. Assess risk and step away if it's too high, even if the potential gains are tempting.

12. Captain your own ship.

It's a good idea to seek advice from others and gather opinions but always make sure your trading decision is yours. Don't go ahead on a trade if you don't feel right about it. Trust your inner feelings and make sure you are the one that makes any final decision. This gives you a sense of control, pride in your success and a way of improving your losses. When you leave decisions to another party it robs you of your power and you don't improve as a trader.

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13. Be realistic in your abilities.

When you're winning it's tempting to let your ego get a little out of control. Be realistic in your abilities and don't fall for the illusion of thinking that you have found the Forex silver bullet. When your ego gets carried away your perception of risk assessment suffers and you make bad decisions.

14. Know your market and go in prepared.

Study the market and be aware of the risks. Then decide on a suitable capital that you will need to succeed. Don't enter a high risk market without a budget that is robust enough to handle the falls. If you don't feel your available budget could handle a volatile market then pick another one. Stick to your limits and minimise the percentage of capitol risk.

15. Consider your broker choice very carefully.

Not all brokers are the same and you definitely shouldn't simply trust that all brokers are honest or are committed to your success. It is highly recommended that you choose a broker based on recommendations from people you do trust and respect. Consider your individual needs too. Do you require a broker that can also work closely with you and coach you? Do you need a high level of customer service and support? Define your goals and ensure they match your brokers skills, plans and ethics.

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16. Keep your emotions in check.

If you are prone to heightened emotions then don't make any trading decisions until you are level headed and thinking logically. The nature of trading means that you will get excited, and you will get frustrated. Expect it and plan for it. Being able to recognise when your emotions are heightened is an incredibly valuable skill. The discipline required to stop trading at this point is hard but if you can manage it it'll save you from making high risk trades. It is expected that people will make bad decisions sometimes, but 9 times out of 10 bad decisions are made when we are thinking emotionally. If you commit to never trade when you are emotionally charged you will eliminate most of your bad decisions and overall you will substantially improve your gains.

17. Study, study study!

There is no substitute for a thorough understanding of the markets. There is always something you can learn or some way you can improve. Study the markets that you trade in and those that you don't. Study patterns, study past experience, study yourself. The better you can understand the markets the wiser your decision making process. You can still act on advise from others, but now you'll know if it's good or bad advice.

18. Learn to recognise your personal patterns.

You are human. And as such you have cycles. You will go through different stages throughout the day. Pay close attention to these. At certain times of day you'll be able to think more clearly than others. If you keep a daily journal and track how you feel at different times of the day over a week, you'll start to recognise these cycles and patterns. As an example, from around 8pm until 11pm I'm extremely focussed, motivated and positive. During these 3 hours I make much better decisions and I'm far more productive, so I adjust my working day to take advantage of this. In the morning I'm next to useless. Those 3 hours from 8pm are more productive for me than a week of mornings! Find out what your patterns are and adjust your schedule to take advantage of them.

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19. Visualise your end goal.

We tend to move towards what we focus on. It's important that you have a clearly defined goal in mind and that you know where you want to go in life. It's OK to have high ambition but also set yourself realistic milestone goals along the way so that you can recognise and reward your progress.

20. Respect the journey!

Remember that trading is a journey, you will learn and grow as you embark on your journey. It's often very tempting to become too focussed on the present and neglect the long term plans of your trading career. Make the effort to step back often and admire your journey. See where you have come from, there was once a time when you knew nothing about Forex at all. So recognise that you are definitely progressing. Sure, there may be ups and downs along the way but as your knowledge grows you constantly move forward. Also step back and admire the journey ahead of you. Commit to the long term and you'll avoid making costly mistakes that 'promise' quick profits.

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