forex trading tipsSo we’ve looked in some depth at the theory behind the markets that’s underpinning how currencies and forex trading works, and we’ve even gone on to examine some of the strategies you can use to get the best results from your trading. But beyond the sheer mechanics of how to generate a return from forex there lies a human element to the problem. Humans are driven by human psychology, and with the best will in the world it’s often difficult to overcome some of these inherent behaviours and emotions that can take hold. Furthermore, before you’re made aware of the damaging practices that tend to creep in and affect so many traders, you may not even be aware of your tendency to do likewise.

Successful trading is all about sticking to the game plan and making sensible, rational investment decisions. A substantial part of that comes down to being assured that you are trading with your head rather than your heart, and that you are following the strict list of do’s and don’t we’ve set out for you below.

Set Performance Targets

When it comes to planning and strategising over your forex career, it’s important to recognise the sheer value of long-term oversight on the trading you do. Much like running a business, becoming too bogged down in the day-to-day operations can lose focus on the end game, which is obviously to derive a certain amount of money in profit, or yield on your capital in the example of the forex trader. While you naturally have no choice but to get stuck in to trading the market, you need to also take care to nurture the strategic side of things in order to ensure you’re meeting your wider objectives.

As part of that process, setting achievable, realistic objectives for daily, weekly, monthly and annual performance will provide you with the kind of data and accountability you require to keep your trading progress on track.

Why Performance Targets Are Valuable

When you’re trading forex, it’s imperative that you treat it like a profession, and take your trading as seriously as possible if you want to make anything from it. This might sound a bit much, but there are others that are taking the markets deadly seriously, and if you’re not at least half the way there in terms of commitment, planning, strategy and research, you’d be as well not being there at all.

As part of that, determining how you need to perform and marking the outcome against your targets is the only way to determine categorically how successfully you are trading against your earnings requirements. In a world where no-one will ever tell you how you’re getting on, setting targets and reflecting upon then after the event is critical as a part of self-management and structuring your trading in the most effective, most efficient way possible.

Performance targets can also help as far as wider planning considerations are concerned. You need to plan your daily returns targets in order to realise a set annual goal, otherwise achieving those targets becomes impossible to manage. By breaking things down into more manageable, lesser chunks, you can quickly establish the best path towards your ultimate trading goal.

How To Set Realistic Objectives

Of course, setting objectives is only useful if you stick to them, and you can only stick to targets that are realistic in the first place. Have a think about the capital you have at your disposal and the amount of revenue you need to generate. If you can return a rate of 10% monthly, you’ll be doing extremely well as a beginner, and remember that the annual returns promised on the high street can be as much as 8% annually, depending on the investment type. So don’t go plucking numbers like 400% and 1200% out of the air – while some traders might experience these kinds of returns once in a blue moon, you should set your sights on small incremental goals rather than larger, home-run trades that come along less consistently.

Setting performance targets and reviewing them at regular intervals might take up a few valuable moments of your day, but overall it works out to be highly effective as a management strategy, both personally and for your capital. As a result, it’s a worthwhile activity for traders of any stage to engage with.

Don’t Regret Your Mistakes

As time goes by and you move through the forex trading cycle, you will inevitably come across losing trades, and you will inevitably make mistakes. Assuming you’re a human (and even if you’re a trading robot!), you won’t always get the answer right, and aside from learning from your losses there’s nothing you can really do about them. Certainly try to avoid losing at all costs, but it’s important that when you do lose and you’re smarting from the damage to your capital that you realise it’s all part of the game and move on with your trading.

A bad trade, or a run of bad trades, doesn’t make you a bad trader. In fact, even some of the world’s most successful financial traders get it wrong. That’s the nature of the markets and the simple way in which they operate. Sometimes every indicator can point in one direction and the market can move in the other. This isn’t something you can personally do anything about, so there’s no point in getting yourself in a panic over it. Move on and get started researching your next position – you will recover from your losses in time if you keep focused and dedicated to the cause.

There is a tendency for traders to dwell on mistakes, particularly when there seems an obvious cause or misinterpretation along the way. The issue isn’t helped much by the fact that you not only feel stupid but you’ve also lost money. But in many respects, losing money when you make a mistake is one of the quickest ways to force you to learn from your errors and get into a position where you don’t make the same mistake again.

Regretting your errors is unproductive. As the saying goes, there’s no point in crying over spilled milk, and unless you’re prepared to dust yourself down and get involved the markets will leave you behind. Remember the markets won’t wait for you to think over your errors, and any positions you have open will still require management. You need to be dynamic and resilient in the face of defeat, and trust in your research skills and strategy to get you to where you need to be. Similarly, the markets won’t hold it against you – you can realise profits to the same extent in the wake of a loss as you can following on from a successful trade.

In a nutshell, the successful trader understands the value in not hanging around feeling sorry for himself. Believe me, the best cure for getting over a defeat is a resounding victory, and it can work wonders for your confidence if you then go on to land a home run. That said, you need to remember not to get too greedy and become too reckless in the face of adversity – just stick to the plan, think about your strategy and research and make sure you find the right trade for your next move.

Anticipate Currency Drivers

By this stage, we hopefully know that markets are driven by prompts, or ‘drivers’ as we’ve called them. A driver is some stimulus that pushes a market in one direction or the other, usually by altering supply and/or demand in one way or another. In the process of prompting a market movement, even minor drivers have the potential to give rise to a sort of snowball effect whereby once the floodgates are open the natural momentum of the market takes over and starts a trend. In forex trading, as indeed in any other form of trading or investment, trends mean profit provided you’re on the right side of them, and if you get in early enough you can simply sit back and watch the position soar as it continues to earn you money.

In forex, there is room for some traders to be followers. By that, its meant that you don’t always have to be one step ahead of the crowd when it comes to placing your positions in order to make some money. That said, it definitely helps. If you get in at the ground floor on a trend or a price reversal, you could be in line for massive percentage returns as you ride the wave.

Essentially, this all boils down to anticipating where the market is going next. You can make money as a latecomer, but those that are first in always reap the highest rewards. That doesn’t mean having a wild guess, or taking a stab in the dark as to whether or not you think a market has the potential to keep on doing as its doing. What it does mean is researching, reading price data and analysing the raw numbers in order to give yourself the best chance of getting it right.

The beauty with trading forex as opposed to, say, shares, is that there are arguably fewer direct prompts for currency market movements than there are for shares, or other markets. Because currencies depend on current geopolitical affairs to such a material extent, you can position yourself to quickly become an expert on what these factors are, how they work, when they surface, and what they mean for different currency pairings. This is the best and quickest way of getting yourself to a position where you can proactively anticipate market movements before they actually happen.

So the main tip to take away here is the sheer importance of being able to anticipate where the market might be headed next, and in the process identify opportunities that could deliver vast returns on your capital (particularly when leverage is factored in).

It’s worth noting however that the earlier you call it, the greater the risk of things heading south. It’s all about timing, but ideally you want to be in a position where you are anticipating potential movements ahead of time so you can then pounce when it becomes apparent that a trend is starting to emerge. However, simultaneously it’s worth remembering that there is a premium on speed, and the sooner you get in, the wider the market cycle you can capitalise upon.

Don’t Overleverage

When it comes to trading forex, you don’t have to be a genius to work out that its all about leverage. Leverage is what drives forex trading in the short term, because it acts in many respects as an amplifier to counteract low market volatility. Without leverage, forex trading would quite simply be much less profitable, and would be beaten hands down by many other forms of investment in terms of the returns it could provide and the speed with which they can be delivered.

As things stand, leverage makes up massively more of the proportion of the total overall transaction size for forex traders than their own capital, and this brings two immediate effects that must be considered. The first is positive – if the position moves into profit, you can rest assured that every incremental move is delivering you a return that you simply couldn’t match with the same degree of capital exposure in any cash market.

No matter where or how you invest your money, returns of this level over such a short period of time are as rare as hen’s teeth. But the corollary to this is the impact of leverage on losses, which effectively means that the markets can turn against you with equally heavy momentum when things don’t go your way. This presents a few key problems for traders to manage, and the gung-ho invest all your capital approach simply won’t cut it if you’re looking for any form of longevity as a successful trader.

The first issue that leverage presents is the natural tendency to become overly leveraged. Over leveraging is effectively taking on leveraged positions at sizes your account can’t handle. Whether it’s across one trade, ten trades or 100 trades, your total exposure to leveraged risk shouldn’t ever put you in the position where you face possible margin call or capital insolvency if things go bad.

Imagine you were a trader with leveraged positions in bank shares immediately prior to the run on Northern Rock. If your account was overleveraged, this single event could have toppled the house of cards – and in fact, for many traders (including some of the most successful), it did. Keeping a stable, sustainable balance between capital exposed to leverage and capital held in reserve is essential for being able to trade with the lowest possible risk profile.

So how can you go about ensuring you don’t overleverage? It all comes down to thinking about the risks of your account, and taking a conservative approach to managing your capital at all possible opportunities. Remember that trading is as much about prudence as it is about risk, and you need to be able to strike the best possible balance between the two in order to get the most from your trading activity.

Make sure that your account is in a position where it can tolerate the absolute failure of one or multiple of your positions – if you think this is unrealistic, you’re probably leveraging too heavily, and it is up to you as the professional trader to determine the right balance and the right level of investment for your capital portfolio.

Don’t Overtrade

Another common ‘don’t’ that you should take care to avoid is overtrading. The temptation as a forex trader is to see leverage and automatically equate that to pound signs. Your instincts take over and you start to invest your capital left, right and centre, all in heavily leveraged positions that could make you thousands. Unfortunately, this practice is far more reckless than most traders imagine when they’re knee deep in it. Not only do issues of overleveraging arise, but overtrading becomes a concern as traders take more positions and load even more pressure onto their capital resources.

The mindset is simple. Get in as many different positions as you can and reap the rewards when everything goes well. Sadly, as any trader will tell you, things going well can’t always be relied upon, and even the best researched positions and the tightest strategy can and do fail. For this reason, the successful trader needs to be one step ahead in managing his capital and allocating resources in an efficient, risk-minimised way, in order to give longevity.

What Is Over-trading?

Don’t overtrade. Overtrading is where you trade out too much of your capital, either by taking on too many positions or positions that are unsustainably large. The effects of overtrading going wrong are broadly the same as overleveraging – disaster. If positions that fail have too big an impact on your resources, it can lead to the house of cards effect as other open positions are automatically shut out and the broker’s swallowing up your capital.

Realising when you’re overtrading is something you need to ensure you can do, and not many new traders have the nose for it to begin with. You need to factor in the amount of capital you’re trading with and the percentage daily returns you’re looking to achieve – the point at which you’re trading too heavily depends on a number of variables. Indeed, even individual traders have different thresholds for how much capital they will expose at any time, depending on their risk appetite.

But the best way to think about the balance of your portfolio might be to say ‘factoring in the percentage chance risk of all my current positions failing, am I happy to risk that amount as a proportion of my capital”. This needs you to think about how much capital you’d like going forward as a minimum, how long you feel you need to grow your capital and how much you’d like as a buffer. There is no definitive answer, but remember that where leverage is involved the risks become all the greater.

The best way to avoid overtrading is to realise that playing the forex markets is a marathon, rather than a sprint. Over the short term you’ll have good days and bad days, but long term, assuming you trade sensibly and with some degree of prudence, you will find that it is possible to seriously grow your capital from trading the forex markets.

Forex Trading Tips

Some of the tips might be hard to follow but these are the basics for successful forex trading; of course, there are more tips to follow but these ideas are important to adhere to. The most imprtant thing – don’t expect to become a professional trader overnight and learn with every trade you make; just like any other business, fx trading is not an easy business, which requires dedication and discipline and one can only succeed if follows the pre-defined rules and tips.