7 Simple Steps to Drastically Improve your Forex Trading
I have written about a lot of genuine forex trading topics in the last few years on this blog, but in this article, I wanted to do something different. Today I wanted to go over some important points that I think traders should focus on, this article will be a summary of the most important things you can do right now to improve your trading ability and mindset… I am sure you will enjoy this one..
Every forex trader wants to improve their forex trading success. By following the 7 simple steps outlined in this article you will gain great insight into some concrete strategies you can begin implementing immediately to take your forex trading success to a new level. For all those traders who are struggling to make money in the markets each month and are looking for some no-nonsense ideas to get on the path towards profitable forex trading, this one’s for you!
– Treat your trading like a business…not a casino or hobby.
Stop and think for a few minutes about how you have been behaving in the forex market for the past month. Have you been viewing each trade as a business transaction with risk and reward associated with it? If not, you should be, there is risk associated with any business; a restaurant runs the risk of having slow customer turnout and thus poor sales, if a restaurant’s total costs are more than the total revenue it brings in, it will have a loss at the end of the month. Similarly, if the costs of your losses are greater than the revenue from your winners each month, you will lose money in the market at the end of the month.
The example above is meant to get you thinking in terms of business transactions. When you view each interaction with the forex market as a potential cost to your trading business, you will be more cautious of the trades you take and you will use more discretion. Forex trading is a business, unfortunately many; if not most
forex traders treat their forex trading not as a business but as a trip to the casino. This would be analogous to the owner of a restaurant literally going to the casino each day and gambling away the revenue his restaurant brought in for the month instead of continuing to run his business as effectively and efficiently as possible. Starting right now you are to begin viewing your interactions with the forex market in terms of costs (losing trades) and revenue (winning trades). The aim of any business is to keep costs as low as possible and revenue as high as possible. In forex trading this is done by effectively managing the risk to reward on every trade you take.
– Use position sizing to manage your risk and reward effectively.
Positing sizing and risk to reward scenarios are how a forex trader effectively keeps track of and manages his or her forex trading business. Understanding how many lots to trade for every trade setup you take so that you can maintain your pre-determined risk amount is crucial to making your forex business grow consistently and without massive drawdowns. Many traders make the mistake of risking more than they should or want to on a trade simply because they forget or don’t understand how to adjust their position size to meet the necessary stop loss. Stop loss distance should always be determined first and then position size should be adjusted accordingly to maintain desired risk amount.
Forex traders must use position sizing to not only manage their risk but also their reward on each trade.