The Forex market surely tops the list if we rank different financial markets based on the trading volume, liquidity and profit potential. Because of this, millions of people from all parts of the world are engaged in forex trading. They enter the market after seeing the success stories of top forex traders and often aim to attain the same level of success in the forex world. But they often think forex is easy money and don’t put enough time and effort into learning and practising trading. Any pro forex trader will tell you about the importance of demo trading as risking real money without some hands-on practice can end up badly.
But demo trading is not the only component for forex trading success. There are no secrets or shortcuts to profitability in forex but you can improve your chances of success by developing good trading habits that have helped many traders in achieving long-lasting success. In this article, I will be telling you about the best trading habits that can lead you to success in forex trading.
Basics of Forex Trading and How It Works?
Forex trading is primarily about buying and selling various international currencies and you try to make profits from favourable fluctuations in the currency pair prices. A currency pair is made of 2 currencies and the conversion rate or exchange rate is considered to be the price of that pair. You will buy the pair if you expect the value to go up and this will be a long position in trading. On the other hand, if you think the prices are about to drop, then you will sell the pair by opening a short position. The trades are carried out after signing up with a forex broker and opening a trading account in the platform that is offered by them. Because you cannot access or trade in the forex market without a broker.
Forex brokers mostly offer MetaTrader platforms for trading due to their user-friendliness and powerful functionality. Those who want to trade with basic tools and features can choose MT4 which is the most used trading platform among forex traders. If you are looking for additional tools and features, then MT5 would be ideal as it is an advanced version with enhanced capabilities for modern traders.
So, these are the basics of forex trading and now we will dive into the best trading habits that can help you to attain success in the dynamic currency market.
1. Identify your limitations
You need to accept the fact that every trader has some weak points and limitations that they need to work on to perform better later on. Identifying your limitations allows you to tailor your strategy and trading style in a way that the impact of these limitations is reduced in trading. There is always room for improvement and you will get to reach your true potential as a trader by following a suitable trading plan and risk management plan.
2. Be a lifelong learner
When you stop learning, you stop growing and this quote can be applied to forex trading as well. The time that will be needed to complete the learning process will be different for each newbie depending on their grasping power. Demo trading is one of the best methods for practical learning and you can also familiarise yourself with various trading tools and features on a demo account. As these simple tools like trading calculators can aid you in the decision-making process. You should not stop learning even after transitioning to a live account as that allows you to maximise your potential and enhance your skills.
3. Work on your trading plan
Your trading plan plays a big role in determining your success rate as a trader. This trading plan typically consists of a method of analysis, criteria for choosing trade setups and how you identify optimal entry and exit points for getting the best possible results. A trading plan is like a road map that tells you about the direction in which you need to travel to reach your destination. So, you need to constantly work on your trading plan to adapt to the changing market situation as and when needed.
4. Learn to manage Your emotions
Fear and greed are the most dominant emotions that you experience while trading. The fear of losing an opportunity and greed for making more profits leads to emotional trading where you risk more than what you can afford to lose. Traders who lack emotional control ignore logic and make poor trading decisions which is a grave mistake in the volatile market. You need to study trading psychology so that you can learn to manage your emotions without letting them overpower your trading process.
5. Focus on Risk Management
The majority of the population are risk-averse and they look for security and stability in everything they do. But you cannot eliminate the risk when you decide to trade in the constantly fluctuating forex market. Risk is an integral part of the trading process and you can’t make money without risking some money in the first place. Risk management is about keeping the risk at a level that you can tolerate and this includes having a risk/reward ratio, limiting risk per trade to 2%, setting a stop loss and making calculated moves.
6. Trade on a Demo Account
All beginners need to utilise a demo account before trading with real funds. Demo accounts are risk-free and provide a realistic trading experience by letting you place trades with real-time market conditions. Thus, you are free to make mistakes and learn from them. This is perfect to polish your skills, test your strategies and get familiar with the trading environment. Those who spend enough time on demo trading will be more confident in live trading and are less prone to making beginner mistakes.
7. Cutting Losses Early
We are always told to let the winners run and cut the losses early. When you win a trade you should let it run as long as the market is favourable and this allows you to maximise your gains. The losing trades should be closed as soon as possible but many traders get emotionally attached to their trades and keep it running in the hope of the market turning in their favour later on. This approach will only increase your losses and hence you need to be sure about the stop loss level before opening a position. Stop-loss orders are automated setups to close the trade at a predetermined price when there is a loss and this saves you from losing more due to emotional bias.
8. Maintain a Trading Journal
Another good trading habit that can lead you to success is maintaining a trading journal where you record and analyse all your trades. This helps you to reflect on your decisions and learn from your mistakes while also keeping track of the progress you have made so far. A trading journal saves you from overtrading and deviating from your strategy as you will be able to spot such things while journaling.
9. Let go of FOMO
FOMO is real among forex traders as the market is always moving and you see a lot of opportunities to trade. But the fear of missing out often makes us force trades that are not worth the risk and this results in major losses later on. Being patient and sticking to your plan is important to get over this fear. Only trade when it aligns with your strategy and stay out of the market when you don’t see favourable movements.
10. Be Flexible and adapt to the changes
Sticking to a plan does not mean being rigid, because such an approach will not work in the dynamic forex market which keeps changing over time. The market can shift and you must be able to adapt to the changes as it happens. Your trading plan should be flexible and you must be capable of revising and modifying it to suit the changing market situation.
11. Master Technical Analysis
Fundamentals do play a role in influencing currency price fluctuations but retail traders are more likely to benefit from technical analysis especially when they follow short-term strategies. You need to master technical analysis before anything else as it allows you to trade with precision by identifying the key levels of support and resistance.
12. Trade with a reliable broker
The last trading habit is choosing and staying with a reliable and reputed broker. The best thing you can do here is look for regulated brokers with good reviews and choose the best one after trying their demo accounts.
Final Thoughts
In summary, good trading habits are the foundation of a successful trading career. Being a beginner, you need to focus more on the process instead of being too fixated on the results. Because getting desired results may take time and meanwhile you need to prioritise learning and skill development.
