There is no single formula for success in the financial markets. But there is a way to make money from them. Blending good analysis and effective implementation will improve your success rate as good fx trading comes from a mixture of talent and hard work.
Here are three successful things that all successful traders do:
Before you start, recognising the value of proper preparation is important. Align your personal goals with the markets that you can comfortably relate to. For example, if you have good knowledge in Gold, then look to trade Gold stocks rather than something that is obscure to you.
These three components are worth assessing:
This indicates the type of trading that is appropriate for your temperament. If you’re making trades off five-minute charts then it suggests you are not comfortable being in a position to take an overnight risk. Alternatively, selecting weekly charts indicates a comfort with those overnight exposures.
As well as this, you should decide if you have the time and commitment to sit in front of a screen for several hours a day, or if you prefer to do your research over the weekend ahead of the coming week. Making a living from the markets requires time.
Once you have chosen your time frame you will need to find a methodology or system. You should test it to see if it works for you on a consistent basis to provide you with an edge. If it’s reliable to you for more than 50% of the time then you’re on for a winner. Backtest your system. Ideally you will want to test a few systems to find the one that delivers you the most consistent profit.
Certain markets trade much more orderly than others. Erratic trading markets make it much more difficult to produce a winning methodology.
Develop your own mindset to reflect the following:
Once you are happy with your methodology, you need the patience to wait for the price to reach the levels that your system indicates for the point of entry/exit. Should your system tell you to enter at a certain level but the market never reaches it, move on to the next opportunity.
Discipline helps you be patient. Wait until your system triggers an action point. Sometimes the anticipated price point will never be reached. This is when you need the discipline to rely on your system and not second-guess it.
The market will sometimes make a much bigger move than you were anticipating. Being realistic means that you should not expect to invest $500 in your trading account and expect to make $2,000 from each of your trades.
No system will have a 100% success rate. Some successful traders can live off a 65% profit-to-loss ratio, meaning 35% of their trades are for loss. This means, the art of profitability is in the management and execution of the trade. Here are some pointers for you:
Ultimately, successful trading comes down to risk control. You can take losses quick and often if necessary. But try to get your trade going in the right direction from the start. This requires practice, which requires discipline and patience.
The Bottom Line
There is no right or wrong way to trade. There are only profit-making trades and loss-making trades. Warren Buffet’s famous saying is that there are only two rules in trading:
Rule 1: Never lose money.
Rule 2: Remember Rule 1.