With all it’s numbers, charts, ratios & timings, forex trading can be both an art and a science.
And in both artistic creation and scientific development, talent is required. But talent alone will only get you so far.
It’s no secret that the world’s best traders sharpen their skills through practice and analysis, continually developing themselves to keep discipline on track and the yields increasing.
In this lesson, we’ll look at the seven steps that will nurture the most novice of traders to the top of their game through ongoing practice. Study these lessons and practice the principles and through time, you’ll find yourself trading like the experts.
STEP 1. Define your goals and choose the style of trading strategy that is compatible with those goals.
So many traders jump in with both feet without considering where they want to go and the vehicle they wish to choose to arrive there.
Each type of trading style requires different risk and attitude approaches. For example, if you can’t handle going to bed with an open position, you might want to consider day trading instead. Conversely, if you have funds that you think will benefit from the appreciation of a trade over a longer period of some months, then position trading may be best for you.
No matter what style of trading you choose, be sure that your personality fits the style of trading you undertake. A personality mismatch will lead to stress and is not ideal in an investing situation.
STEP 2. Choose a mentor with whom you feel comfortable and who offers a trading system that matches your style of trading.
It is important to choose a mentor who is achieving the results you want and offers a trading system that supports the analysis you require. It is worth understanding your mentor’s policies and how he or she goes about making a market.
Finding somebody who can help you achieve the results you need and teach you to learn yourself is one of the fastest ways to trading mastery and will save a lot of time and sweat. Finding an effective trading system can be a very helpful way of learning to trade like a pro and can guide you towards making solid investment decisions.
STEP 3. Choose a methodology and be consistent in its application.
When entering a market, it’s important to be clear on how you will make decisions to execute your trades and you should know what information you will need in order to make the appropriate decision about whether to enter or exit a trade.
Some people choose to look at the underlying fundamentals of a currency or economy, and then use a chart to determine the best time to execute the trade. Others use technical analysis and will only use charts to time a trade.
Remember that fundamentals drive the trend in the long term, whereas chart patterns may offer trading opportunities in the short term.
Whichever methodology you choose, remember to be consistent. There are a number of trading systems that can help you to identify the best times to execute your trades.
Step 4. Calculate your expectancy.
Expectancy is the formula you use to determine how reliable your system is. You should go back in time and measure all your trades that were winners versus all your trades that were losers and determine how profitable your winning trades were versus how much your losing trades lost.
For example, take a look at your last 10 trades. If you haven’t made any trades yet, go back on your system to where it would have indicated that you should enter and exit a trade and determine if you would have made a profit or a loss. Write these results down. Total all your winning trades and divide the answer by the number of winning trades you made.
For example, if you made ten trades and six of them were winning trades and four were losing trades, your percentage win ratio would be 6/10 or 60%. If your six trades made £2,400, then your average win would be £2,400/6 = £400.
Step 5. Build positive feedback loops.
A positive feedback loop is created as a result of a well-executed trade that aligned with your plan. When you plan a trade and execute it well, you form a positive feedback pattern.
Success breeds success, which in turn breeds confidence – especially if the trade is profitable. Even if you take a small loss but do so in accordance with a planned trade, then you will be building a positive feedback loop.
Step 6. Perform regular analysis.
It is always good to prepare in advance and study charts to look for patterns that could affect your trading opportunities. There are the kinds of actions to look for and your mentor will be able to help.
If the market does not reach your point of entry, learn to sit on your hands. You might have to wait for the opportunity longer than you anticipated. And if you miss a trade, remember that there will always be another. If you have patience and discipline, you can become a good trader.
Step 7. Keep detailed records.
Keeping a detailed record is one of the best learning tools a trader can have. Marking a chart with your entry and your exit points and making relevant comments on the charts can help with your ongoing development.
File this record in a safe place so you can refer to it over and over again. Note the emotional reasons for taking action. Did you panic? Were you too greedy? Were you full of anxiety? Note all these feelings on your record. It is only when you can objectify your trades that you will develop the mental control and discipline to execute according to your system instead of your habits.
So what’s the bottom line?
The steps above will lead you to a structured approach to trading and in return should help you become a more refined trader. The only way to achieve trading mastery is through consistent and disciplined analysis and practice. Remember the phrase “the harder you practice the luckier you’ll get”.
There are a number of Trading Systems that can help you achieve all of the above with efficiency and it is worth exploring your options to find the system that supports your trading strategy. (Click Here to FREE DOWNLOAD ForexWOT Trading Systems)