While there is a high profit potential in online forex trading, there is also a corresponding risk of losing money in the markets. Whatever your level of experience in the markets, here are some tips that you absolutely must know in order to become a successful forex trader.
- Know yourself: Before you jump into trading, you have to know what your trading personality is. For example, are you a conservative trader with a low tolerance for risk, or are you willing to accept a higher level of risk in exchange for potentially higher profits? The answer to this question will also determine how you trade in the markets. One of the major reasons people fail as forex traders is that they fail to understand themselves before they plunge into real trading.
- Stick to your trading plan: This tip is particularly important since it is so easy to give in to your emotions during online forex trading, eventually resulting in losing trades. But when you have a trading plan, it is easier to fall back on it rather than trading with emotion. All you have to do is keep your mind on your plan and you’ll make money in the markets in the long term.
- Use leverage carefully: While leverage can greatly increase your profit potentially, it also increases your risk of crippling financial losses in case of losing trades. So you should use only the amount of leverage that you feel comfortable with and which will keep your risk manageable.
- Learn how to use stop loss and take profit orders: One of the most common mistakes committed by traders is not setting stop loss orders, resulting in catastrophic losses when a trade turns against them. Conversely, they also set their take profits too high, resulting in lost profit opportunities. Take these orders into account when you’re creating your trading plan.
- Keep a trading journal: This is one of the most important things you can do to improve your online forex trading skills. Keeping a journal allows you to learn from your mistakes as well as making a record of trading techniques that worked and those which didn’t.
- Use forex trading software as much as possible: Also known as forex robots, these programs help you by removing emotion entirely from the trading process, since it only makes trades based on the parameters programmed in it. And they are customizable so that you can eventually change the parameters based on your particular trading style.
- Practice responsible money management: Money management involves safeguarding your profits and maximizing your gains. For example, instead of chasing a losing trade, you should be able to close it and accept the loss rather than chasing the trade in the hope that it might suddenly reverse and become profitable.
- Learn to develop a long term view: The best traders are the ones who don’t focus on making quick short-term profits, but accept that successful online forex trading involves making winning trades more often than losing ones over a longer period of time.