Forex trading is a complex but fascinating field. Forex traders have tremendous opportunities to make money, but they also need to constantly improve their skills. In this article, we’ll discuss how you can enhance your trading results.
Consistency is the Key to Successful Trading
If you want to be successful as a trader, you must have a trading strategy and a proper trading plan for each trade you make. Once you choose your trading strategy, you should stick with it for a while to see whether it produces positive results in the current market environment.
Many traders, especially beginners, fail to appreciate the importance of consistency in trading. They quickly switch between trading strategies if some trades go in the wrong direction.
This is a major mistake as trading is a probability game. To be profitable, you do not have to be right about the market direction every time. Instead, you need a trading strategy with a decent risk/reward and win/loss ratios.
Any strategy that you choose should be tested with a sufficient number of trades to see if it works well in the current market environment. This is very important since trading strategies need time to show their true performance.
For example, if your strategy has a 60% win/loss ratio, you may easily start with three losing trades in a row. You need to make more trades to see its potential. The more trades you make, the more confidence you’ll have in the expected results of your strategy. If you switch to another trading strategy right after a disappointing start, you’ll never know the true potential of your trading strategy.
Choose Your Risk Levels Wisely
You need to make a certain number of trades to test any trading strategy. Therefore, you must limit risk in each trade you make in order to provide yourself with an opportunity to test various trading strategies.
The math is simple. If you risk just 1% of your account in every trade, you’ll have to make 100 losing trades in a row to run out of money. This is an extremely unlikely scenario.
Do not be greedy during the testing phase. Choose modest risk levels for every trade, test various strategies without stress and concentrate on execution of every trade. Once you have established what works best for you in the current market environment, you’ll be able to increase your risk level if you wish so.
Analyze Your Trades
Profitable trading requires analyzing trades on a regular basis. Proper analysis provides you with an opportunity to learn what works in the current market environment – and, even more importantly, what does not work.
To get the best out of your analysis, you’ll have to follow a certain strategy (as noted above, consistency is the key to success in trading). If you make trades based on your “gut feeling” rather than a well-defined strategy, there’ll be nothing to analyze – your results would be random.
Meanwhile, following a strategy will equip you with information that will improve your trading performance.
Start by looking at whether all your trades met the conditions of your strategy. Even experienced traders sometimes fail to make trades according to their strategy. Reasons for such failures may be emotional (markets are always exciting) or technical (for example, some patterns look similar). Eliminating unnecessary trades should boost your performance so do not take this issue lightly.
Once you have established which trades were made according to your preferred strategy, you can analyze its performance. This analysis will show whether your strategy works in the current market environment, as well as expected win/loss and risk/reward ratios. If you are satisfied with the results, keep using your current strategy and focus on execution. If results fail to meet your expectations, you can tweak your existing strategy or try a new one.
If you choose to tweak your existing strategy, make sure to proceed with just one change at a time so that you can evaluate the impact of this change on the performance of your strategy. If you make several changes and something goes wrong, you will not be able to learn what hurts your performance.
Focus on a Limited Number of Instruments, then Expand your Watchlist
Forex markets offer multiple trading opportunities every day, but it is not easy to track them all if you have just started trading.
Thus, you should start by tracking a limited number of instruments so that you do not miss entry and exit points according to your strategy.
Once you have tested your strategy on several instruments, you can add more pairs to your watchlist and evaluate whether your strategy works with them.
Eventually, you will have a set of various strategies to choose from, and you’ll learn what works best for every pair you trade.
Having several strategies is very important for a trader’s success in the long term as markets always change. Let’s discuss how to deal with this challenge.
Be Prepared for the Inevitable Change
Change is the only constant thing in markets and – this is why you often hear that past performance does not guarantee future results.
What works well today may not work tomorrow, and a strategy that brings disastrous results in the current market environment may turn into a real gold mine in the future.
Fortunately, you can prepare for the inevitable change. Analyze your trades and closely track the results of your current trading strategy. Pay attention to the efficiency of your strategy – if you see that its performance is declining over time, then it’s time to act.
Do not wait until your current trading strategy stops being profitable. Instead, start testing another strategy on a limited basis once you see that the performance of your current strategy is declining.
By the time your previous strategy stops bringing profits, you’ll be ready to use a new strategy that works better in the current market environment. Be prepared, and you’ll successfully navigate through all market changes and profit from them!
Forex Trading involves significant risk to your invested capital. Please read and ensure you fully understand our Risk Disclosure.