What does it take to be a Forex trader?

With all the buzz around stocks and cryptocurrencies, Forex trading has all but fallen out of favour of late. While there is certainly much to be gained in the equities and digital assets markets, traditional currencies definitely shouldn’t be overlooked. Forex is still the most lucrative financial market with its enormous daily turnover of close to $7 trillion, positively dwarfing other sectors. Currency trading can be challenging due to many external factors at play and the relatively low volatility of these instruments. But if you can master the specifics of this tricky marketplace, you can make an absolute killing. In this article, we’ll explore what you need to succeed as a Forex trader, covering some of the key behaviour patterns to adopt and major pitfalls to avoid.

Develop and follow a trading system

There’s a reason we put this one at the top of our list. Having a trading system is absolutely crucial if you want to have even the slightest chance of making a steady profit. The biggest enemy of any trader is emotion. When you have money in the market, you’re so much more susceptible to making silly, impulsive decisions that will likely end up costing you handsomely. That’s why it’s so crucial to develop a sound strategy and clear set of rules that you stick to no matter what your heart or gut is telling you in the heat of the moment.

First, your system should tell you under what conditions you ought to open a trade. This is usually informed by trading signals or technical analysis and depends on the current market situation. However, other factors like your maximum risk/reward level and what action to take if your trade starts losing money are up to you and you alone. Typically, successful traders avoid risking more than 2-10% of their total account balance on any one trade. This is a good general level to shoot for because it allows for a reasonable percentage of profit while also preserving your deposit for future opportunities in the event of a loss.

Use Stop Loss and Take Profit levels!

We really can’t stress this point enough. Having a strong and reliable trading system/strategy is all well and good, but if you don’t have clear guidelines for closing each individual trade, a winner can easily morph into a big loser in no time. That’s why it’s so important to sit down and think with a cool head what amount of profit is realistic and satisfactory for each individual position and what percentage loss would represent a true trend reversal from which there really is no coming back.

Of course, there is no hard and fast scientific rule for establishing stop losses and take profits, except that you must set them before opening the trade. You could choose to put your stop loss a couple of pips above the closest support, for instance, and then set your take profit a shade below the closest resistance. What you must absolutely avoid at all costs is the “wait and see” approach. If you don’t have fixed levels for closing your position, you will more than likely end up closing the trade on emotion. It doesn’t matter if this means closing at a profit or loss: your result will almost always be worse than if you have automated trigger prices for closing your trades.

Work-life balance

With the Forex market open more or less 24/7, it’s easy to fall into the trap of sitting in front of your computer hours on end for fear of missing out on a lucrative opportunity. Although you might well sleep through a highly profitable signal during the Asian session, you’ll almost certainly miss more overall by trying to trade every hour of the day. When dealing with an open-all-hours market like Forex or crypto, you simply have to accept that you can’t physically be there every single time opportunity comes a-knocking. If you try, not only will you risk burnout, you’ll also almost certainly be too fatigued to trade effectively and will probably end up losing more money than you otherwise would have.

That’s why it’s so vital to establish a schedule for yourself. You should treat currency trading like a job with fixed working hours. Wake up at 8:00 am, for example. Spend an hour getting up-to-date with all the latest news from the night before. Start actively trading about 9:00 when the European markets open and take breaks as and when needed. Then, trade as much of the Americas session as you wish, but try to limit the entire day’s work to less than 12 hours. After that, you have to get some rest. Luckily for European traders, the Asian session tends to be the quietest and least volatile, so you can sleep soundly without worrying too much about losing out on a huge opportunity.

Stress management

It might seem trite, but this is what separates the winner from the losers in trading. Contrary to popular belief, this isn’t just something you’re born with. You absolutely can and must work at it. It’s normal to feel a bit insecure or worried when you notice you’re losing money, but that’s why you have a strategy and rules you adhere to strictly no matter what. Some things that your trading system can’t prepare you for include not making as much profit as you anticipated. This can be especially challenging because you’re still making money and can be easily tricked into increasing your risk to make up the difference. Resist this urge at all costs! Your system is working, perhaps not as well as you’d hoped…but if it ain’t broke – don’t fix it.

Technical difficulties are another challenge that you’ll eventually have to deal with as a trader. Your computer could break at the worst possible moment, or your Internet connection could drop out just as you’re about to make the trade of a lifetime. When it happens — and it will happen — don’t panic. When you get back online, just make sure you don’t make any silly decisions. For example, if the signal has expired, don’t open the trade anyway. As hard as it might be, you must reboot your trading system and start from scratch. Failure to do so will cost you much more on average than the lost opportunity. Remember that.

Conclusion

As we’ve seen, Forex trading can be a powerful tool for wealth accumulation, provided you bear a few points in mind. Ultimately, success in currencies trading boils down to discipline. If you can keep your head and avoid deviations from your strategy, you should be able to turn a profit.

Once you have your trading system and mental approach locked down, all you need is a reliable platform on which to trade. One such option would be veteran Forex broker Libertex. With almost a quarter of a century of experience under its belt, Libertex is a name you can trust. Its multi-award-winning app is available for iOS, Android and web browsers and comes jam-packed with a range of in-app technical analysis and trading signals. Libertex offers long and short positions in all the majors and more, so you’re bound to find something to pique your interest. To register your very own Libertex account, complete the quick and easy sign-up procedure today.