How to succeed at Forex
trading?
Asking the market what
is happening is always
a better approach than trying to tell (predict) the market what to do.
It's not difficult to understand why most people lose money trading Forex.
This is because, they choose to believe only the advantages of the Forex market
but ignore the pitfalls.
Causes of Failure
Often time, the better way to become successful is to avoid the
causes of failure:
- Don't think that it is easy to make money in Forex.
Don't believe that you can succeed without effort in Forex trading.
The fact is that the Forex market is where most people lose their money. This
is because they don't treat it as a serious business and are unwilling to keep
learning and improving their trading skills.
- Don't treat Forex as a get rich quick scheme.
Don't believe that with a few dollars, you can open an account and become rich
in no time.
The high leverage which magnifies profit and loss is a disadvantage to a careless trader with limited capital
who ignores the importance of money management. The reason is that unlike the
big players with better funding, you can't afford to ride the volatility
of the Forex market.
- Don't expect to gain a lot in a short period of time.
Don't believe that the more you trade, the more profitable you become.
Many traders wrongly think it is commission free to trade Forex and don't
realize the costs involved in term of the spreads the broker charges. You are
already disadvantaged by a few pips whenever you trade and you need
to win consistently and sufficiently to cover these transaction costs to become profitable
in Forex trading.
- Don't choose a broker in haste.
Don't open your account with the first broker you find until
you have done your due diligence. There are questionable Forex brokers with
bad executions, large spreads, and worst of all, unregulated and trade against
their clients.
Trading with a dealing desk broker is worse than gambling in a casino.
This is because, while the casino has a mathematical advantage against the
gamblers, the broker who trades against their traders can "see" their cards
before it takes on the counter trades.
If you are serious about Forex trading, look for a reliable broker. Take your time
researching
the market and see what they have to offer you.
If you can avoid these causes of failure, you will be on your way to
profitable Forex trading.
Successful traders are not born but made as demonstrated by
the famous Turtle Traders experiment and that trading ideas can be programmed to
do all the hard works for you.
Factors for Success
After you have avoided the causes of Failure in trading,
you can then move on to increase your chances of success with the following
factors:
- Time your trade entry.
Seeing what they want to see is a common
problem among traders. When that happens, they usually hear only what they
want to hear! Look at each trade objectively. Do not allow yourself to become
married to your opinion.
The clearest and
easiest way to determine a trend is from previous highs and lows. Higher highs
and higher lows mark an uptrend, lower highs and lower lows mark a downtrend.
Let the market comes to you and don't chase prices.
Hence, never enter a trade with Market
Order. Base your trade entry on price actions and at your own term.
Let the price comes to you with your Pending
Order.
By studying the historical pricings, you will discover that
price tends to move in certain patterns. Together with the proper use of
technical indicators, you can identify the favorable time for your trade entry
that sets the stage for a high probability winning trade.
- Eliminate stops hunting by brokers.
It is a well known fact that brokers who are also market makers do hunt for your stops in order to
take you out of your trade.
Stops hunting by unscrupulous brokers are real.
Manual traders tend to set up stop loss and/or take profit targets which
become visible to their brokers.
Trading without setting these stops can prevent the hunting but would expose
the traders to greater losses or missed profits taking when the traders are
not around to close their trades.
These challenges can be overcome with automated trading.
An EA can be easily programmed to monitor the stops without hard-setting them
in the broker's server.
It can even be programmed to mislead these stops-hunting brokers by the the
setting false stops.
Generally there are 3 ways a market maker can make money.
- Matching up 2 traders for the same amount at
the exact same time thus earning on the spreads from both the traders.
- Taking the opposite side of a weaker trader
who loses consistently.
- Offsetting the order at a better price than
the trader.
With automated trading, stealth stops which are
invisible to your brokers can be pre-programmed to exit your trade when the
need arise.
- Adapt your trading strategies according to changes
in market condition.
Market condition varies over time due to changes in economies, fiscal
policies and market sentiments. Hence it is necessary for you to monitor the
performances of your trading strategies and adapt them accordingly to stay profitable in your
trading. Do not let a profitable trade turns
into a loser. Remember, you can always re-enter the market. If you are in
doubt, stay out!
As a trader, you must learn to dance with the market. You, also, must learn
that if a market you are trading decides to do the “Cha-cha,” you do it too.
But before you can dance with the market you have to learn how.
- Let your profit run and cut your losses short.
It has been
said that the best offense is a good defense. Since most traders and aspiring
traders are hardly in a position to move a market, or materially affect the
movement of prices in any great way, it is incumbent upon such traders to
learn to trade defensively.
Since there is no way to know who is doing what, their size, their intentions,
or anything else, all we can do is to trade defensively and attempt to catch
the moves that occur in the market in some manner that will minimize our
losses while we let our profits run.
While you can't control the direction of the price movements after you
have entered your trade, you can exit with any of the 4 possible outcomes:
- Win More
- Win Less
- Lose Less
- Lose More
By adhering to your trading strategies for not
allowing your exit to Lose
More than you can afford, the odds are in your favor whenever you close your
trade with Win More, Win Less or
Lose Less. You can be profitable even if your win:lose ratio is 50:50.
In short, a profitable trader will
practice trade his
uncomplicated system so as to build confidence before trading with his real
money.
He realizes that loosing is part of the game and knows that profits are just
around the corner, and he does not switch to another system.
With good money management, he will always keep losses small and leave the
profits running.
The Need for Automated Trading
More than 90% traders lose money in the market because
they didn't avoid the causes of failure and/or adhere to the factors of success.
Trading is not mainly
about making money but more about capital preservation. Think about it. No
capital, no trading. Each time you enter a trade, you should consider "How much
I am prepared to lose!" and not "How much I am hoping to make!". Trading is
simple, but not easy.
Don't worry about what the
markets are going to do, worry about what you are going to do in response to the
markets.
The truth is, computers are much better than humans at
performing certain tasks. They are faster. They can work non stop, 24 hours a
day, 7 days a week.
More importantly, computers will trade emotionlessly and result in more
predictable and more consistent results than humans.
In my experience, a well programmed Forex EA or robot is more profitable than
trading manually.
It is not easy to make money from the market by trading
manually because there are just too many considerations that require your
constant attention and actions to become profitable.
It is said that "Rules that you can't or won't follow
will not do you any good".
This is the major issue with manual trading. Hence the necessity for automation.
Recent studies have shown that more than 30% of trading
are carried out automatically mainly by well funded entities.
Do you still think you can make a living by trading your
time for money?
The easiest part in trading is to enter a trade. All we
need is a 1 mouse click to buy or sell a currency pair.
Exiting a trade is a totally different ball game.
While a manual trader can set stop loss and take profit
levels soon after the entry, the market dynamics require these exit targets to
be adjusted tediously in order to optimize their returns.
The smarter way to trade is to let a trading robot
trails these stop losses and take profits automatically for you.
Automated trading will free you much time and can even prevent you from making
mistakes by not letting your emotions ruin your trading.
Have time but no money? Have money but no time?
To me, automated trading is my answer to having more time and more money!
