One of the first steps towards forex success is constructing a productive trading strategy. What needs to be included? How long does it take to become ready to trade? How complicated should the strategy be? Can you make profits with simple strategy?
Winner Forex Strategy for Beginner
Becoming a professional forex trader requires lots of time, complete market understanding, well-designed trading strategy and plan, very harsh self control and ability to accept losses with open heart! Whoever tells you that it is possible to constantly make money is lying big time! It is not about what happens after each trade – the trick is to see the big picture (aka profits within months).
Forex market is volatile, very fast and therefore naturally inconsistent. In order to make a successful trade, any trader needs to make a decision based on:
1. Technical and fundamental analysis
2. Awareness of market sentiment and outlook
3. Correct timing of a trade
4. No expectation to make profits on every trade
Now, let’s consider what trader needs in order to have a profitable trading strategy:
· Trade the amount you can lose
If you don’t have any money to spear – don’t trade. Forex can be extremely exciting and rather addictive. It is important to focus on the trades you make with a clear mind. If you cannot afford to lose the money you put in the trade, you won’t be able to make any logical decisions, and therefore you drastically increase the chances of losing it all. Never trade the money you need to survive!
· Analyze the market
Ask any experienced trader what is important in forex and you will get an answer “follow the trend” and “the trend is your friend”. It is important to be in tuned with the market. Is it trending up or down? Is the market strong or weak? Has the trend formed a while ago or it seems like a new trend?
The very basic idea behind following the trend is going in the right direction with a strong trend. Of course, this is not that simple, since any trade can reverse at any time and surprise you! In order to avoid such nasty surprises, you have to follow technical and fundamental data to figure out whether the trend just began, or it has been around for a while now, and also whether it is strong or weak.
· Decide on the time frame
The general goal of forex trading is, of course, making money. However, this is not what you should be focusing on. Instead:
1. Have a clear plan when to enter/exit the trade
2. Determine the chart period you will be using. For example, in case you trade several times a day, you should use 30 minute to hour graph.
3. Know the different time periods for each market sessions – whenever each financial centers enter/exit, the market volatility and liquidity is influenced.
· Don’t trade when unsure
If you cannot justify the trade and explain out loud the reasons why, when and how the trade in question will be executed, you better off not making that trade at all. Hesitation is not the right indicator for a profitable trade!
· Simple is the key
Beginners think that, since forex is complicated, then it requires complex technique to make profits. This is a big mistake – using tones of indicators will only complicate things even more and instead of creating rather clear picture of the market, you will have a gigantic mess! All you need is:
1. Fundamental chart formations
2. Complete understanding of support and resistance
3. Couple of momentum indicators to confirm your decisions
· Don’t trade all you have in one go!
Forex brokers offer large amount of leverage and therefore provides you with a possibility of trading much larger sums then you actually have in your account (for example, 1:200 leverage means you’re your $100, you can trade $200,000 instead). This can either make very large profits or completely wipe your account clean. So, your job is to trade so that you can re-enter the market or make transactions on other currencies. The trick is to avoid using all your funds right away and trading the amounts that can potentially wipe your account clean.
· Don’t ignore money and risk management!
In order to be a successful trader, you not only have to know how to make money, but also how to keep what you have earned safe and sound. In order to cut losses, always have an exit strategy – never buy or sell without stop/loss.
· Stick to the plan
The biggest mistake every beginner makes is changing the plan along the way. Stop yourself the minute you have ideas such as:
“Let’s see what happens now”
“I really want to make another trade today, so let’s find something tradable right now”
“Damn, I have to make all that lost money back today!”
“OMG, how did this happen? Let’s move that stop/loss a bit lower and hope the trend will reverse”
The only winning approach known is to stick to your plan and discipline. Stay focused, control your emotions and stay away from irrational, desperate trade hunting.