Anyone can succeed in forex trading – that is a fact. Yet, only a few people show visible success in forex trading. What could be the secret behind their success? This article reviews the top habits of successful forex traders and how you can use them to influence personal success.
WHAT MAKES A SUCCESSFUL FOREX TRADER?
Are you a Forex trader who wants to join the list of successful traders? However, success in forex trading is not an overnight project; you must put in consistency, practice, and patience. So, equip yourself with the knowledge of the inevitable habits of successful forex traders before you start your journey to become a forex trader.
THE HABITS OF A SUCCESSFUL TRADER?
Combining well-researched habits is effective both for beginners and experienced forex traders. Here is our list of the most prominent habits of all successful forex traders:
Learn Consistently
Learning never stops because of the dynamic nature of the FX market. Not even top traders in the market can claim that they have learned all they need to know about the forex market. That is why you must develop curiosity and love for learning to keep up with constant innovations in the FX market.
No matter how simple trading might seem, the factors that control it are vast, and you could lose money if you are not on top of the game. While learning the market, consider the following tips to guide you:
Read guidebooks to help you understand the theoretical underpinnings that help people to succeed
Record your trading and activities and learn from the patterns created
Read and watch online videos of successful traders on how to succeed.
2. Develop a Trading Plan
All successful traders have unique trading plans. Their plans are carefully adjusted to their risk tolerance, the amount of money they are willing to lose, and their desired profit. It is easier to have forex trading success with a plan. Indeed, ‘failing to plan is planning to fail.’
A trading plan can be simple, provided it fits your trading decisions. Additionally, you should develop a trading plan that reflects your learning experiences in the FX market. From experience, most traders recommend that a trading plan reflects the following:
The entry and exit points based on chart analysis
Position size
Stop-loss
Take profit
Most forex brokers help traders develop their plans. The plans shared by brokers are often generalized but traders can customize them to fit their individual needs.
3. Control Your Emotions
From all the habits of successful forex traders, managing your emotions is at the center of success. You can have the right strategy but fail based on your emotional involvement.
There are two types of emotions that you need to control, i.e., fear and greed.
Fear is common when traders feel they can miss out on a prosperous trade and jump into a trade blindly. Often this turns into a hostile trade and results in losses.
Greed is the second emotion that leads traders to chase multiple trades or allocate too much capital to a single trade. Often this results in uncalculated losses and desperation.
Therefore, it is essential to keep emotions at bay when trading. Instead, your strategy and risk management should influence every trading decision.
4. Develop A Risk Management Strategy
Let’s face it; the FX market is volatile. Therefore, trading success is measured by the ability to manage the risks involved in forex trading. The implication is that you can make a lot of money or lose it in equal measure.
Risk management is a broad concept though you can narrow it down to the following components:
The amount of money that you are willing to allocate per trade
The capital you can risk per trade
The level of stop loss
The level of take profit
The leverage that you are using per trade.
The whole idea behind risk management is to protect the capital while maximizing the potential of profits.
5. Start With A Demo Account
Never start trading with a live account, no matter how good you think you are. Using a demo account can help you test some of the strategies you have planned and also you can get a sense of your reactions when you are losing or winning. This will give you more data about the market and valuable insight into your emotions. With this data, you can craft a strategy that is tailored to your appetite and your reactions.
For a demo account to be purposeful, you need to treat it similarly to how you will treat your live account. For example, you should never put exorbitant amounts of money in a demo account if you won’t invest such an amount in your live account. Such decisions make you delusional about the amount of money you can make.
Instead, you should also use the same leverage you intend to use when trading on a live account. It helps you test your strategies without any cushioning.
6. Cut Losses Early
One of the best-kept secrets of successful forex trading is cutting losses early. The financial market is not entirely predictable – it can be wrong even when you have done proper research. Therefore, never compete against the market. Instead, cut your losses early and close the trade.
As soon as you notice that you are on a losing trend, it would help if you cut your losses early to avoid huge losses. There is always another chance to set up a thriving trading position – but never stick to a losing position. Additionally, this is an essential tip for traders who don’t use a stop loss.
7. Stick To Your Trading Strategy
Consistency is an essential skill that you need to be a successful trader. There can never be a perfect strategy in FX trading, however, developing a plan that will guide your trading activities is always necessary.
One mistake traders make is to hop from one strategy to another simply because the strategy hasn’t led to many successful trades. This leads to losses and extra stress that is completely avoidable only if you stick to one strategy and play the long game.
But can you change strategies? Yes, you can change your trading strategy if it has not worked for you for a long time. But the most important thing you need to consider is that trading strategies might take time to start bearing fruits; thus, the need to exercise patience.
8. Maintain A Trading Journal
Trading shouldn’t be a spontaneous activity. Successful traders track their market activities and note their, as well as others', wins and losses. It is a helpful record that helps you reflect and evaluate your previous trading decisions and it will also influence your future trades. The trading journal should include:
Date and time of your trades
Trading instruments – e.g., USD/GBP
Time frame
The size of your position
Long or short
Entry point
Levels of stop-loss and take-profits
Exit point
9. Learn From Your Mistakes And Be Humble
In forex, you can be on a winning or losing streak for a prolonged period but the only thing you shouldn’t avoid is to learn from your actions that put you in that position.
For example, if you are on a winning streak for some time it is good to analyze the steps you have taken to get to this position. A good practice all successful traders have is to immediately write down the strategy they have used in combination with the external factors and how much they have won. Additionally, when you are in a winning position it is very important to stay calm and humble in order not to blow your position.
On the other hand, if you are on a downward trend and you just can’t get out of the rut, a good strategy is to stop the trade and step away from the computer. All successful traders know that a losing streak can be very demotivating but they also know that they need to learn from their mistakes and improve in the future. A habit that you should always practice in this position is to calm down, disconnect, and when fully rested analyze your strategy and identify possible mistakes you have made.
10. Adapt To The Market
In forex, a successful trader should understand the factors that control the market and how you can use them to their advantage. The most dynamic financial market is indeed the forex exchange. However, it is incredibly volatile and changes may occur at any time. This means that a trader needs to be very adaptive and react quickly.
A good example is when you have researched a trading position that holds well in a prolonged phase in the FX market. However, one external market decision could change the trading position rapidly. When such an occurrence happens, you need to be adaptive and react quickly to switch your trading positions in alignment with the market changes.
11. Life Outside Trading
Forex trading is a lifestyle that can be difficult to manage if you don’t know how to balance it with your personal life. That is why all successful traders have a very strict daily routine as well as a time when they disconnect from their computers and just enjoy life.
A healthy work-life balance is needed to maintain the professional aspect of the trade but also maintain a positive mindset. For example, if you wake up in the middle of the night to chase an open trading position, you should find ways of relaxing afterward so you can keep the balance.
Another tip that successful traders use is to create timelines for their trading operations. This tip helps them know when to open and close trades to keep a work-life balance. Some traders also use notifications to help them track their trading timings.
12. Focus On A Few Trading Tools
There is no definitive guide for the trading tools you should use when making informed market decisions. However, successful traders know that using too many tools will only mess up their trading decisions and defocus. Therefore, they stick to a few tried and tested tools that give them the information they need to make good decisions.
Additionally, the most successful traders put all their focus on one or two currency pairs. It gives them more time to learn and understand the currency pairs compared to studying many currency pairs.
FINAL THOUGHTS
Becoming a successful FX trader is not complex – all you need to do is follow the combination of the traits shared above. Even without a guarantee of making millions, these inevitable habits of successful forex traders shared above can put you on the right path as long as you are willing to put in the effort.
