Education is fundamental to successful trading. Here are six steps that will help develop your Currency trading skills.
1. Plan How You Will Trade
Successful traders create a thorough strategy and they stick to it at all times.
Choose the right currency pairs.
Some currency pairs are unstable and fluctuate a lot intra-day. Others are steady and make slow moves over longer time periods. Based on your risk parameters, decide which currency pairs are best suited for your trading strategy.
Create a timeline for your position.
Based on your currency pair, decide how long you want to stay in your positions: minutes, hours, or days. Remember that depending on your account type; having open positions at 5:00pm Eastern Time may be subjected to rollover charges.
Set your targets for the position.
Before you take a position you should establish your exit plan. If the position is a winner, at what rate will you cash out? If the position is a loser, at what rate will you cut your losses? Then, place your stops and limits accordingly.
2. Follow the Forex Market and Current Events
Use Forex charts and Forex news to monitor market information and technical levels that affect your positions.
Use Forex Charts
Charts are a useful tool to improve trading returns. You can easily redeem the money spent on a charting package from a single well-planned trade based on the analysis from professional charts.
Follow Forex News
Current events influence the value of the markets. Keep an eye on economic reports and political events. You can access detailed market commentary and trading strategies from experienced traders.
3. Commit to a Forex Diary
Many traders fail because they repeat the same mistakes. A diary helps to track what works for you and what doesn’t. Used consistently, a well-kept diary is your best friend. Once you learn to recognize successful trading patterns, you will be able to spot them when they return.
When keeping track of your positions, make sure that it contains at least the following:
- The date and time you took the position.
- The rate at which you took the position.
- The reason you took the position.
- Your strategy for the position.
- The date and time you exited the position.
- The rate at which you exited the position.
- Your profit/loss on the position.
- Why you exited the position. Did you follow your strategy?
4. Learn to Manage Your Risk
Professional Traders use Limit Orders and Stop/Loss Orders as the cornerstone of a disciplined trading strategy. By setting both on all their positions, they have removed emotion from the equation and are letting the market work for them.
A limit order instructs the system to automatically exit a position when your target profit has been achieved. This enables you to “lock in” your desired profit on a winning position.
A stop/loss order instructs the system to automatically exit a position when your maximum loss limit has been hit. This enables you to cap your losses on a losing position. As a general rule of thumb, you your Stop/Loss Orders should be set closer to the opening position price than your Limit Orders. If you do this, then you can be successful while being right less than 50% of the time.