Failing Forex Traders can’t see the forest for the trees: 7 Forex Trading truths
- Basic training: know the game rules.
Forex trading is a grave game of high risks played by some of the smartest and most well-funded individuals and financial experts, which is why unless you comprehend how this game is played, you will most likely get overwhelmed. If you think it is stress-free money, you are mistaken. You must know the main players in your market and the product you are trading. The cycle, trends, seasonality, and correlations to other markets. The force that gives momentum to the market and etc. If you can’t answer these primary questions, then you are not ready for the game. Without understanding the rules, you are unlikely to win the game.
- Market timing Science
You must have heard at least once that it is not possible to time the Forex markets, and that is not true. There is specific technique to time the market, however it is difficult not impossible. With the market continually going up and down, you will be identifying the short-term or long-term movements. Strategizing your portfolio, you should target to capture both movements for maximum profits. Whether you are aiming to do buy-and-hold for the long-term, or planning to day-trade on daily movements, the knowledge of market timing will be critical. Long-term passive incomes are: stocks, bonds, REITS, ETFs. Active monthly income can be generated from Forex and CFDs. The Forex swing-trade is fast paced and volatile.
- Dispose the indicators in the trash can
Many failing independent traders believe that they can utilize the indicators to overcome the lack of experience. However, the experienced professional traders are restless in studying price action to trade. There are many people trying to sell special indicators to traders who are hurrying their way to profit. This is one of many reasons why Forex traders ultimately fail during the first 3 years of Forex trade. If you want to become professional trader, you must start from the basics and avoid so-called shortcuts. You must develop your own discipline that can bring consistency in your profit. Understand the price movements and learn from the big players.
- It is all about Price & volume
Despite all the colorful software and techniques out there, every trader must understand that the essential knowledge of price and volume is what makes the difference. Identify optimal entry point by studying the mechanics of basic variables. You cannot utilize other fancy indicators without the basic understanding of how price and volume works towards high probability of profit. You can find the right entry point for a trade if you identify turning points. When you start thinking from other trader’s point of view and brainstorm the psychology of price action and volume, you do not necessarily have to wait extensive hours for the profits.
- 80:20 Pareto Principle
According to Pareto principle, roughly 80% of the profits come from 20% of the trades.
“Throughout all my years of investing I’ve found that the big money was never made in the buying or the selling. The big money was made in the waiting.” – Jesse Livermore (World’s Greatest Stock Trader)
In Forex trading, you have to focus on the quality of each trade rather than quantity.
It is much better to make each trade accountable and profitable, rather than throwing bunch of trades in hope to catch a fish by luck. You need to put your bait in the right spot and start reeling at the right moment. No matter how much you try different methods, if you don’t have the mindset of “one shot, one kill”, you are likely to complicate strategy and to spend extra hours without any promises. Any successful method in trading is simple yet powerful. You do not have to be an expert in indicators or charts.
- Art of Risk management
The essential risk management technique exists for a sole purpose: prevention of account closure. Capital allocation, optimal price level calculation and timeline plan are meant to minimize loss, it is not to maximize the profit. For successful Forex traders, distribution of asset in small accounts is key to success. Rather than expecting few heavily invested accounts to hit windfall profits, it is far more efficient to capture known-to-proven small profits from many small accounts, which will can grow into 6-7 figure accounts. It is prospective to achieve better results by skillful compounding of accounts.
- trading psychology is the key
Behavioral psychology prevails the market. Overall, it’s a market created by humans with faults. Behavioral economics studies how psychological, cognitive, emotional and social factors can effect on individuals and institutions’ economic decision. According to Heuristics, humans make 95% of their decisions using intuitive judgments when people do not have the resources or time to reflect. When these cognitive emotions affect trading decision, you cannot nurture the correct habits by enforcing them in everyday basis. You must keep yourself under certain set of disciplines and rules.
It’s easy to get lost in Forex Trading pursuing profit with smaller perspective.
It’s hard to see the bigger picture without the map developed by forerunners.