There are three essential components of trading that must be perfected in order to attain consistent and prolonged forex success. These three things must be instilled from the very beginning as part of the forex traders make up, and we’ll look at each of these within this article.
The Makeup Of A Winning Forex Trader
1. A Tight Trading Psychology. When you think about it, the forex market is little more than sentiment that is aggregated at a very macro level. While individual traders cannot control this broad market sentiment any more than they can control the tide or the sunset, they can control their own psychology. Individual traders can mentally hone themselves for long term success by avoiding self destructive emotions such as fear and greed in controlling their trading decisions. Winning traders will be more comfortable with the concept of cutting losses quickly, and letting their winning positions run till exhaustion.
Moving on from personal psychology is the equally important forex trading factor that is crowd psychology. The price of a currency pair is simply the aggregated sentiment of all the market participants. Crowd psychology has the power to create great yawning trends, and part of the skill-set of the accomplished trader is the ability to take positions alongside broader market sentiment. The more the individual forex trader can line up their own psychology and sentiment with that of the market, the more money they will ultimately make.
2. A Clear & Battle Hardened Forex Trading System. Good traders employ good trading systems to make decisions on the back of. The forex markets are at best unpredictable – the job of the successful traders forex system is to bring structure and trading methodology into a world of randomness and short term chaos. Short term price volatility and inefficiency is what good forex systems play upon – they pounce upon price retracements knowing that the true sentiment is going the opposite way. Good systems will protect equity while keeping the trader in a position long enough to bring home some profit. A good system will provide remarkably clear prompts for the trader to enter and exit their position. Solid forex trading systems will typically use a cache of complimentary indicators, and each of these should be in confluence in order to suggest opening or closing a position. Using a system in this way removes the possibility of human emotions prevailing against logic – the forex trader simply operates on autopilot, using his skills to time the trade entry and exit. Newcomers to the forex often end up getting majorly kicked when trying to trade randomly without a proven system.
3. An Understanding Of The Concepts Of Money Management & Risk Vs Reward. The final makeup of the successful forex trader is in understanding how to preserve equity through money management. Equity is king within the trading world – with a balance on your account, you’re in play during the next trading session. Good traders therefore do have strict money management policies, quite often parlaying no more than 5% of their equity on any one trade. Weighing up trading risk against potential rewards is another skill that good traders have – they are able to weigh up a trading set-up with reasonable accuracy, which facilitates them to deliver profits over the long haul.