TOP FOUR THINGS SUCCESSFUL FOREX TRADERS DO
Trading in the financial markets is
surrounded by a certain amount of mystique, because there is no single formula
for trading successfully. Think of the markets as being like the ocean and the
trader as a surfer. Surfing requires talent, balance, patience, proper equipment
and being mindful of your surroundings. Would you go into water that had
dangerous rip tides or was shark infested? Hopefully not.
The attitude to trading in the
markets is no different than the attitude required for surfing. By blending
good analysis with effective implementation, your success rate will improve
dramatically and, like many skill sets, good trading comes from a combination
of talent and hard work. Here are the four legs of the stool that you can build
into a strategy to serve you well in all markets.
Approach
Before you start to trade, recognize
the value of proper preparation. The first step is to align your personal goals
and temperament with the instruments and markets that you can comfortably
relate to. For example, if you know something about retailing, then look to
trade retail stocks rather than oil futures, about which you may know nothing.
Begin by assessing the following three components.
Time Frame
The time frame indicates the type of
trading that is appropriate for your temperament. Trading off a five-minute
chart suggests that you are more comfortable being in a position without the
exposure to overnight risk. On the other hand, choosing weekly charts indicates
a comfort with overnight risk and a willingness to see some days go contrary to
your position.
In addition, decide if you have the
time and willingness to sit in front of a screen all day or if you would prefer
to do your research quietly over the weekend and then make a trading decision
for the coming week based on your analysis. Remember that the opportunity to
make substantial money in the markets requires time. Short-term scalping, by
definition, means small profits or losses. In this case, you will have to trade
more frequently.
Methodology
Once you choose a time frame, find a
consistent methodology. For example, some traders like to buy support and sell
resistance. Others prefer buying or selling breakouts. Yet others like to trade
using indicators such as MACD and crossovers.
Once you choose a system or
methodology, test it to see if it works on a consistent basis and provides you
with an edge. If your system is reliable more than 50% of the time, you will have an edge,
even if it's a small one. If you backtest your system and discover that had you
traded every time you were given a signal and your profits were more than your
losses, chances are very good that you have a winning strategy. Test a few
strategies and when you find one that delivers a consistently positive outcome,
stay with it and test it with a variety of instruments and various time frames.
Market (Instrument)
You will find that certain
instruments trade much more orderly than others. Erratic trading instruments
make it difficult to produce a winning system. Therefore, it is necessary to
test your system on multiple instruments to determine that your system's
"personality" matches with the instrument being traded. For example,
if you were trading the USD/JPY currency pair in the forex market, you may find
that Fibonacci support and resistance levels are more reliable in this
instrument than in some others. You should also test multiple time frames to
find those that match your trading system best.
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