The world of forex trading is equally challenging and exhilarating. Every trader, novice or seasoned, faces numerous challenges along the way that test both their trading skills and resilience. Many fail to overcome them, and only a few become successful. How do they do things differently? What tactics do they implement that separate them from their counterparts? In this article, we will talk about six tactics that will help you to become a successful trader in the forex market.
1. Effective Execution of Trading Strategy
Every trader has a story about a strategy that looked perfect on paper but failed in practice. The difference between success and failure is often different from the strategy itself and how it’s executed. Think about a trader who’s seen the ups and downs of the market. On a day when everything seems to be aligning perfectly, it’s tempting to think, “Maybe I can push my targets a bit more today.”
Instead of following the tried-and-true strategy, they decided to chase a bigger win. But the forex market, ever unpredictable, has other plans. Just when it looks perfectly stable, a sudden shift occurs, resulting in losses for the trader.
The most consistent gains always came from sticking to the original plan rather than chasing those elusive bigger profits. Traders get enticed by the market easily, especially on a good day. But remember, consistency and discipline in your strategy often lead to the most reliable outcomes. Don’t be swayed by short-term temptations.
At times, traders fail at creating and executing a trading strategy. Hence, it is a double risk. You can avoid this by testing your strategy on a demo account. When you do this, execute your trades like you would in a real account. For example, select the same margin. Use a margin calculator to do the calculation quickly. Here are some good margin calculators that you can use:
- zulutrade.com/trading-tools/margin-calculator
- xm.com/forex-calculators/margin
- forextime.com/trading-tools/trading-calculator/margin-calculator
Note down all the trade-related values so that you consider and assign the same when doing live trading. As a result, you can create a strategy that gives desired results.
- Risk Control
The forex market can either shock you or leave you in awe. The best trading strategies have failed in the market, while strategies with an 80% success rate have given traders decent rewards. What do we conclude from it? Your strategy is only some of what will define your success. Besides its correct implementation, you need risk management to curb risk.
Consider two traders as a case in point. The first trader, perhaps driven by ambition or overconfidence, allocates 10% of their capital to every trade. On the other hand, the second trader, adhering to a more conservative approach, only commits 2% of their capital per trade.
Now, in times of high volatility, market shifts are inevitable. When a significant downturn occurs, the first trader’s substantial risk can rapidly deplete their capital. Why? Because with a 10% stake, just a few consecutive losses can compound, leading to a significant drawdown in the account.
Meanwhile, with their 2% risk, the second trader has a buffer. Even if they face a series of losses, the impact on their overall capital is more controlled and less severe. This trader can withstand more losses in a row without endangering their account’s longevity.
Also note: Risk management isn’t just about potential rewards but sustainability. Before entering a trade, you should assess and determine the risk you’re ready to take. Stop losses and a smaller risk for each trade can mean the difference between long-term success and early burnout in forex trading. Knowing how your trades will pan out if you take a certain risk is even better. After taking the required input, trading calculators can help you look at your trades’ potential profit and loss. With the outcome, you can adjust your risk or strategy as you find necessary. Check out these trading calculators to find the values quickly:
- avatrade.com/trading-info/trading-calculator
- roboforex.com/beginners/start/forex-calculator
- icmarkets.com/global/en/help-resources/forex-calculators
3. Using Price Action
Price action is the heartbeat of the forex market. Successful traders understand that while indicators and patterns are helpful, price action offers real-time insights. A good example is when a currency pair has steadily risen, forming a series of higher highs and lower lows on the chart. This is a classic sign of an uptrend in price action.
Conversely, if the pair is making lower highs and lower lows, it indicates a downtrend. Beyond just trends, price action can also reveal patterns like ‘double tops’ or ‘head and shoulders’ – a signal of potential reversals or continuations in the market.
Now, while technical indicators can provide insights, they often lag behind. Price action, on the other hand, offers real-time data. Hence, this real-time information can help you make decisions based on the latest information available, removing miscalculations from your judgment.
Understanding price is invaluable because it provides a direct link to deciphering the market’s movements. Any trader who recognises these patterns and trends can position themselves for greater success.
- Choosing the Appropriate Time Frame
Not all traders can trade the same way. Some prefer the fast-paced world of day trading, while others prefer the longer-term perspective of swing or position trading. Knowing your approach is essential to finding the style of your trading.
Let’s say you’re a day trader accustomed to the hustle and bustle of 1-hour charts. You’re in the groove, riding the short-term waves. Then, on a friend’s suggestion, you decide to dip your toes into swing trading. This new method leans more on the broader 1-day charts. The shift is, frankly, jarring.
You are used to spotting market fluctuations and trends on your familiar 1-hour chart. It’s all about the here and now, with trades that might last just a few hours.
But when you switch to that 1-day chart for swing trading, it’s like looking at the market through a whole new lens. Those minute-by-minute changes blur into the background, revealing overarching trends spanning days or weeks. Instead of reacting to every market hiccup, you’re now trying to catch larger waves, requiring patience as trades play out over a more extended period.
The timeframe you opt for in forex isn’t just about choosing the hour or minute you seem fit for trading; it’s about what suits you. Do you thrive on the immediacy of short-term trades, or do you prefer the strategic patience of the longer game? Each time frame offers a unique perspective on the market. Finding the one that resonates with your trading style and, more importantly, your comfort level is essential.
Also, regardless of the timeframe you switch between your trades, keep note of the updated currency exchange rate. Though your broker supports this feature, you might not be able to see the latest because of slippage or technical issues. So, always cross-check with the help of a currency converter calculator to avoid inaccurate trading decisions and get real-time prices.
- Simplified Technical Analysis
While using every indicator available is tempting, sometimes less is more. Successful traders often have a few key tools they rely on and understand them inside out.
The sheer number of indicators available can be overwhelming. You might think, “The more tools I use, the better my analysis, right?” So, you load up your charts with a dozen different indicators, hoping to catch every possible market movement.
But here’s a scenario to consider: One day, while analysing a currency pair, your RSI indicates it’s overbought, suggesting a potential sale. At the same time, your MACD shows a bullish crossover, hinting at a buy. Meanwhile, your Bollinger Bands are telling you a completely different story. Confused? That’s the trap of over-relying on too many indicators.
Now, think about a seasoned trader you might know. They might use just a handful of indicators, maybe even three. But they know these tools inside and out. They understand the nuances, strengths, and limitations of each one. As a result, they can make better decisions without being bogged down by conflicting signals if they focus on mastering a select few.
- Strategic Edge & Mental Resilience
Two elements that will pave your success trajectory are your trading edge and mental resilience. Every trader needs that unique advantage—that special something that sets them apart. It might be a one-of-a-kind strategy, discipline, or even a specific trading window.
Take, for instance, a trader who zeroes in on the overlap between the London and New York sessions. This approach can help them tap into heightened volatility, giving them a leg up on potential profit opportunities. It’s these nuances, these edges, that can make all the difference.
But the best strategies work only when your mental game is powerful. Hence, it’s your attitude that can make or break your journey. Consider a trader with a rock-solid strategy who, despite all the tools at their disposal, finds themselves swayed by impulsive decisions. On the other hand, the trader who knows when to trade and when not can see better results.
Conclusion
Becoming a successful forex trader is no small feat. Requiring both a combination of mental and technical skills, there are many approaches that can destined you to success. The tactics discussed in this article can help you become a better trader over time. When you implement these tactics, refrain from forcing yourself to do them all at once. Check what you are missing out on first. And based on that, make small changes, as good trading often comes with small yet consistent changes.
