7 golden points to become a successful Forex Trader

So you want to become a top trader. You want to quit your job and finally have a business for yourself. Your desire to achieve this goal is huge and you are working a lot on it, spending countless hours at the computer, looking at the charts, searching on Google for the latest super-mega-power indicator 7000 that will give you an edge over the market and many other things that we, as traders, have done at least once in our career.
They say that it doesn’t matter the quantity of work that you do, it is the quality of work that counts. In this article, I have summarized 7 rules that you should follow to address all your efforts in the right direction.

1. Basics
Forex trading is a bit like Math, I mean in the way you advance to the next level. Let me ask you this: what is the result of 2+2? Probably you are laughing and you are thinking “oh gosh, this guy is an idiot. Is he really asking me the result of 2+2?!”.
Now let me ask you another question: what is your margin if your final investment is $1,000 and your leverage is 10:1? I bet that you are not laughing anymore and probably you don’t even know the answer.
What’s the connection between the 2 questions?
The 2+2 question is to Math as the margin question is to Forex trading.
A successful mathematician can solve advanced problems not because he studied directly how to do it. He started with 2+2!
If you want to be a successful Forex trader and you are searching on google “super complicated indicator to use in your Forex chart”, you are not off to a good start. You need to start with the Basics.

  • What is Forex?
  • How is it possible to earn money?
  • Who trade Forex?
  • Leverage
  • Margin
  • PIP
  • Lot
  • Spread
  • Orders
  • Stop Loss
  • Take Profit
  • Candlestick chart
  • Forex Sessions
  • Time frames

I think that this list covers 10% of what you need to learn to master the basics!
I understand the desire of everyone who wants to start with concrete concepts to make money as soon as possible, but that’s not going to be helpful. You are not going anywhere without knowing what is a stop loss, how to set it correctly etc.

Forex Trading: Your Complete Guide to Get Started Like a Pro

This is a course that I created to cover all the basics and show how you can practically use these concepts to start trading. The link contains a coupon, so you can take the course for $10 and you also have 30 days to get a refund if you don’t like the course.

2. Price Action
What is Price Action? It is literally the action of the price. Why is it important to study the action of the price?
Any financial market follows the supply and demand rule. The price of a currency pair is made by the current volume of supply and demand for it.
If the demand is bigger than the supply, the price moves up; if the supply is bigger than the demand, the price goes down. So, it makes sense to study the action of buyers and sellers on the market, because they determine the volume of supply and demand, and so the price.
Even if you don’t want to use candlestick patterns, or strategies based on candlesticks, I highly recommend to study price action, because it will give you a logical approach to the market and you will understand better the game that you are playing.

Candlestick Patterns to Master Forex Trading Price Action

This is the second course that I have launched. As you can see, my students are following the same steps to succeed in Forex trading.
Once again, the link is giving you a coupon to take the course at a discounted price and you will also have 30 days to get a refund if you don’t like it.

3. Strategy

Do you really have a strategy? Most “traders” don’t!
What do I mean by strategy? I mean that you exactly know when to enter a trade and when to get out. Let me give you 3 examples of different strategies:

  1. After studying the main trend, I wait for a correction of the price and then for a reversal pattern. I always open a position after the reversal pattern and get out if the price surpasses the reversal pattern;
  2. I open a long position when the RSI is below 30 and the moving average 24 is over the moving average 100. I open a short position when the RSI is over 70 and the moving average 24 is below the moving average 100.
  3. When the price is up/down by 20 pips, I open a position in the same direction to get other 20 pips and try to join the trend. I use a trailing stop and get out if the price goes 10 pips in the opposite direction.

The first one is a strategy that you can develop studying the price action. The second one is a strategy that you can develop studying indicators. The third one is a very basic strategy that can lead to more complicated studies of algorithmic trading (just to clarify, all these 3 strategies could be automated and be a good subject for algorithmic trading).
As you can see, all of them give specific rules to get in and out of your trade.
Which one do I suggest? I’m not going for any of these, it’s a matter of preferences, but I can say that you better have one, because I have never heard of a trader who has been successful without having a trading strategy.

4. Money Management
Let me start this paragraph with a piece of an article written by Boris Schlossberg:

“Put two rookie traders in front of the screen, provide them with your best high-probability set-up, and for good measure, have each one take the opposite side of the trade. More than likely, both will wind up losing money. However, if you take two pros and have them trade in the opposite direction of each other, quite frequently both traders will wind up making money – despite the seeming contradiction of the premise. What’s the difference? What is the most important factor separating the seasoned traders from the amateurs? The answer is money management.”

Money management is the most important part of building a successful career in Forex trading. This is a percentage game. If you start losing a huge percentage of your trading balance, it will need an astounding performance to get your money back. This is very well explained in the article “Kelly Criterion: How can I maximize my Profits in Forex Trading?, anyway I’m reporting here what I mean by “percentage game”.

When you lose a large percentage of your account, you need a super score to get back what you have lost. This is explained by the so-called percentage recovery formula:

y = x/(1-x)

where y is the percentage gain required to break even and x is the percentage lost.
So if you have lost 20% (0.20), you have:

y = 0.2/(1-0.2)

y = 0.25 = 25%

You need to perform a 25% to recover a loss of 20%.

Loss (%)……. Req’d Gain
5%……………… 5.2%
10%…………….. 11%
15%…………….. 18%
20%…………….. 25%
25%…………….. 33%
30%…………….. 43%
35%…………….. 54%
40%…………….. 67%
45%…………….. 82%
50%…………….. 100%

This should leave no doubt. The more you lose, the more it will be difficult to get it back.

I also want to tell you a story to explain better what I mean.
I was playing poker with friends, the Texas hold ’em variation. At my table, there was a very good player, who was also quite famous among poker players because he used to have the highest rank on Pokerstars.
We were at the beginning of the tournament, one of my friends (a beginner who was there for fun just like me) went all-in after a raise made by the good player.
He thought less than one second before folding his hand. My friend showed QQ and the good player smiled and showed KK.
The most interesting thing to me was why he folded KK in less than a second, without even considering the chance to call, so I asked him after the first break.
He told me: “KK has 61% chances to win against a random hand and I don’t risk all my chips like this at the beginning of the tournament”.
I might not be an expert about Texas Hold ’em poker, but I’m sure that this was an expert poker player talking about money management… or chips management in this case 🙂
He knew that he had good chances to win but the risk was too high. He decided to stay in the game and play other hands in which he could better manage the risk. That’s very similar to what I say about money management for Forex Trading. You need to manage your risk because you want to stay in the market. You need to have rules to protect your money, because once your money is gone, you are not in the game anymore.

5. Practice
Let me tell you how I started trading Forex (you can find the whole story here).
I was 17 and I needed to wait other 6 months to open a real account, with real money, but I was studying a lot, practicing with my demo account, so I didn’t want to wait. Long story short, I used my mother’s name to open my first real account!
I started my adventure with €500 that I saved with a part time job. I felt so powerful, I was a “trader”, I was making money from home! This lasted a couple of months, I blew up my account. I was devastated.
It’s a very common mistake. You read a book, you take a course, you follow a blog… and you think that you are ready in a couple of weeks. I can assure you that you aren’t!
In my course, I say that being a Forex Trader is like being a Tennis player.

This gentleman is Roger Federer and he is one of the best players of all time (the best, in my opinion). Do you think that Roger Federer has become a champion after a couple of weeks of training? Of course not. So why do you think that you can?
If you are a tennis player and you think that after a couple of weeks you can already compete with pro players, it’s not a huge problem. You will join a tournament, lose 6–0, 6–0 in the first round and go back to the sporting center to practice more.
If you are a Forex Trader and you think that after a couple of weeks you can make money, it is a huge problem, because you are going to lose your money.
The best way to start is with a Demo account. Virtual money that you can trade with the same market conditions, so you can get experience and find your way to become a top trader without wasting your capital.

6. Record your trades
Having a trading journal is important because it is the way to find your edge. Let’s say that you open 1000 trades this year, you can calculate your expectancy to win your next trade:

E = (Winning% * Average Win) – (losing% * average loss) – fees

Analyzing your trades, you can understand how to increase your winning%, how to increase your average win and how to decrease your average loss.

Do you think this is not important? Let’s suppose that after the first year, you find out that your winning% is 52. You win 52% of times. Your average win is 100 pips and your average loss is 100 pips.
In this case you win 400 pips every 100 trades, or 4 pips every trade (not every single trade, it is an average of your long term action).
Let’s say that you earn $1 per pip, so it is fair to say that you earn $4 per every trade. After one year, you made $4000 more or less.

After the first year, you take time to analyze your trades and to improve your trading strategy. You find something to increase your winning% and your average win.
Let’s say that you don’t find the holy grail, but you find a small thing that can be improved and it brings your winning% from 52% to 55%. Your average win goes from 100 pips to 110 pips. It doesn’t look like a big change, right?
In this scenario, you win 1550 pips every 100 trades, or 15.5 pips every trade (again, it is an average of your long-term action).
If you open again 1000 trades in one year, your final profit will be $15,500. A small change and you are now earning almost 4 times what you used to earn in your first year. Mind that I’m not even considering that you can reinvest your earnings and open trades for more than $1 per pip.

Once again, Forex trading is a business and you need to include every single aspect of it in your business plan.

7. Strategy
“What? you have already mentioned strategy, did you forget about it?”
I didn’t, I don’t have Alzheimer’s… not yet! I only mean a different thing.

Do you know what almost all successful people have in common? They had, and they still have, a strategy for their business.

I have been moderator for a Forex forum, I have seen so many aspiring traders coming with the best intentions and then failing. Trust me, many times it’s not because they don’t have a good trading strategy. It is because they don’t have a strategy for their business.
What can you do to have a kind of business plan? A strategy that you can follow to become a top trader? Ask yourself questions like:

– What is the first important goal that I want to achieve with Forex trading?
– How long does it take to reach this goal?
– What do I need to do to achieve this goal?

Do you have a plan in your mind? Are you trading with a precise goal to follow? Most traders don’t have a plan. They wake up, open their MetaTrader 4 and say: “let’s make some money today”.
Here is an example of how a newbie should answer those questions, so you can have a better idea of what I’m talking about.

– What is the first important goal that I want to achieve with Forex trading?
I want to get a +20% trading with my Demo account and following my trading strategy, so I will know that I’m ready for a real account.

– How long does it take to reach this goal?
Considering a realistic winning% of 3% per month, it will take around 6 months to achieve this goal.

– What do I need to do to achieve this goal?
I can simply say that I need all the previous 6 points that I have mentioned in this article.

I have said many times that Forex Trading is a business. Let’s imagine for a moment that you are not anymore in the business of Forex Trading, but you are the owner of a pizza store. If you miss point 7 of this article, you are like any other small entrepreneurs who go to work. You only focus on making pizzas and other small things. You don’t have a plan and you don’t have any idea of what is your next step to grow your business.

These are my 7 golden points to become a successful Forex Trader. I’m sure you are still wondering how to learn them. I’m going to edit my answer soon in order to include a list of books and online courses (not only mine) that I suggest, but you should start from the premise that you can’t learn anything with one course or one book. If you want to become a doctor, you don’t buy one book or follow one course and you become a doctor. Forex Trading is not different.

Good Luck!!

 

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