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There’s no shortage of Forex trading tips online these days. A quick online search will inevitably provide you with an endless supply of tips to help with your trading.
However, I noticed that many articles were repeats. On top of that, most of the materials only skimmed the surface of their topics, making the learning experience less than ideal. This realization inspired me to create today’s post.
I’m by no means promising that all 17 trading tips below will be new to you.
What I am promising is that you will learn something new from this post. Not only have I hand selected the most useful trading topics, but I have also explained each one in considerable detail.
This list comes from more than a decade of trading the Forex market. It’s not exhaustive by any means, but it will give you an excellent starting point from which to beat the competition.
Ready? Let’s get started.
The best traders can change their opinion about a particular market in the blink of an eye. They understand that loyalty to one viewpoint can be disastrous to their bottom line.
In life, loyalty is a good thing. We expect our friends and family to be loyal and offer the same in return. My dog, for instance, is loyal to a fault.
But in the markets, a bias or loyalty to a certain position can get you in a heap of trouble.
As a Forex trader, you want to allow the market to do the talking. If it closes above or below a key level, you need to take that into consideration.
It doesn’t matter whether you were bullish or bearish yesterday. The only thing that matters is what the market is doing today.
The market is fluid, so your opinions about what is likely to happen must also remain fluid at all times.
If you try to stay rigid in your views and opinions, you will eventually break.
Have you ever blamed the market for a loss?
Sure you have; we all have. Placing blame elsewhere makes it easier to cope with an unpleasant experience, such as when you are wrong and lose money at the same time.
However, this doesn’t make sense because the market is always neutral. Moreover, deflecting blame only stunts your growth as a Forex trader.
Some will argue that a market in an uptrend has a bullish bias and conversely, that one on a lower or downward trend has a bearish bias.
That simply isn’t true.
You see, the only bias is yours. The market just flows with the information it’s given. It doesn’t know you or whether you’re bullish or bearish.
Why does that matter?
Because far too many traders think the market is out to get them—as if every rate decision and employment figure is determined to take them out of the trade.
When you accept that the market is always neutral, you have no choice but to improve. After all, you are responsible for each possible outcome, good or bad.
This is one of those Forex trading tips that I cannot stress enough.
If you want to become consistently profitable (which I assume you do), then it’s imperative that you stop focusing on the profits.
Every Forex trader wants to make millions of dollars. That’s nothing new.
But how many retail traders make it happen?
I’ll bet it’s less than 1%. In fact, I’m sure of it.
One thing that separates the 1% of millionaire Forex traders from the rest is that they aren’t focused on making millions. Heck, they aren’t even focused on making thousands.
You know what they care about instead?
The trading process.
They prioritize quality over quantity trades, and do not risk more than they’re comfortable losing. Those are the things that allow these traders to succeed.
As Bill Lipschutz said,
If a trader is motivated by the money, then it is the wrong reason. A truly successful trader has got to be involved and into the trading, the money is the side issue… The principal motivation is not the trappings of success. It’s usually the by-product—simply stated, ‘the game’s the thing’.
If you only remember one thing from this post, let that be it. If you focus on mastering the Forex trading process, the money will surely follow.
Forex trading is a paradox. On the one hand, you have to devote a crazy amount of screen time to become successful.
But on the other hand, trying harder will leave you a trading loss or worse, a blown account.
That’s because the market isn’t on your schedule. It does what it wants when it wants.
You can’t force it to offer favorable setups or play out in your favor, regardless of how much effort you apply.
In fact, the harder you try to find a favorable setup, the more likely you are to walk away with a loss.
Instead of trying harder to find setups, put more effort into your technical analysis.
Spend time learning how to identify the best levels possible. Understand what a market’s highs and lows can tell you about momentum. Learn everything there is to know about risk management.
Applying more effort to those areas can be a game changer. On the other hand, exerting more effort trying to find favorable setups or make a trade profitable can be devastating.
You can’t expect to improve as a Forex trader if you don’t assume responsibility 100% of the time.
Now, I’m not saying you take the heat for a poor non-farm payroll figure. That’s obviously out of your control.
What I am saying is that you should take responsibility for everything that happens to your trading account. When you do this, you’re forced to take action and improve areas of your trading that need attention.
Here is what I see happen far too often:
Forex trader Joe decides to sell the U.S. dollar ahead of a Fed rate decision. Everyone expects a hold so Joe figures it’s a good bet to make.
The 2 pm EST decision rolls around and to everyone’s surprise, the Fed have decided to raise rates.
Needless to say, Joe’s account took a serious blow when the dollar gapped up on the news.
His first mistake was placing a bet in front of a high impact news event. As you may well know, it’s better to wait for price action signals once the dust has settled. Trading in front of news is a pure gamble.
But it gets worse…
Immediately after taking the loss, Joe takes to his favorite Forex forum and begins bad mouthing the Fed Chair for raising rates.
I see this happen all the time and I’m sure you have as well. Perhaps you’ve even been that person bad mouthing a figurehead.
What traders like Joe don’t realize is that they are seriously stunting their growth whenever they do this.
It seems harmless, but by placing blame elsewhere, they aren’t able to correct their mistakes. And if you can’t correct your mistakes, you’ll never improve.
If Joe had stayed on the sideline, he wouldn’t have lost money. That decision is always within his control.
This is probably the most common Forex trading tip on this website. I try to weave it into most of the posts I write.
Why is that?
It’s because the market only produces so many quality setups each month. I would estimate that there are only two to five A+ setups each month for every 10 currency pairs.
So even if you are trading 20 currency pairs, you may get less than 10 quality setups every month.
Now, don’t assume that you can just add more pairs to get more opportunities. Not all currency pairs are created equal. Read this post to learn more.
When it comes to Forex trading, quality always trumps quantity. If you took 50 setups last month, try taking just 5 setups this month. If you took 100 setups, try taking 10 setups.
If you do that and apply the other teachings on this site, I can all but guarantee that your trading will improve.
Good trading is about having confidence in the process and conviction in the setups you take. If you don’t have those two things, you will find it difficult to remove your emotions from the decision making process.
I receive hundreds of emails each week, not to mention dozens of private messages on Twitter, Facebook and the member’s community.
Those who contact me with doubt about a particular trade setup usually get the same answer.
If you’re unsure, do nothing.
That is by far the best thing you can do if you have doubts about a market’s likely path forward.
Now, I’m sure that isn’t what those asking the question want to hear.
But you know what?
I’m doing them a favor by telling them to do nothing. Not because I think they’ll lose money on the trade, but because doing nothing in situations like these is the key to success.
Unless the market is screaming at you to trade it, you’re better off staying on the sideline.
I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up. I do nothing in the meantime.
Becoming a successful Forex trader isn’t just about taking fewer trades. It’s about maximizing the gains from those trades.
There are two ways you can do this.
You want to make sure that the reward is at least two to three times the potential loss. In other words, ensure that the reward is worth the risk.
So if you’re risking 100 pips, the reward should be at least 200 pips. Personally, I use a 3:1 reward to risk ratio for all of my trades.
The second way to maximize gains is to pyramid, or scale, into profitable trades. Doing this can increase your average profit per successful trade. If you do it properly, you won’t need to take on more risk to gain the extra profit.
See this lesson on how to pyramid to learn more.
Hoping for a favorable outcome seems harmless enough. After all, I’m sure you hope that your favorite sports team wins when they play.
So what’s the big deal?
Emotional involvement. It’s expected that when you watch your favorite sports team, your emotions will play a role. This is why you feel excited when they win and disappointed, or even frustrated, when they lose.
Now, compare that to trading. What’s to stop you from getting excited over a win or frustrated with a loss?
The answer is nothing. As long as you’re hoping for a particular outcome, your emotions are going to run the show.
That’s never a good thing. The less your emotions are involved in the trading process, the better. The best way to do that is to stop hoping for profits.
And one of the quickest ways to remove hope from your trading is to reduce your risk. The less you have at stake, the less likely you are to get emotional, regardless of whether you win or lose.
As price action traders, we never want to trade the news.
Instead, we look for buy and sell signals once the dust settles. In other words, we let the price action indicate whether the news release was bullish or bearish.
The only way to do that is to let the market make the first move. Trying to outsmart the market or front run a news event will usually result in a loss.
One reason many traders get in too early is because of the fear of missing out, or FOMO as some call it. As the name implies, it’s the fear of missing a profitable trade.
But here’s the deal…
Those who think this way are forgetting their primary job as a trader, which is to protect their capital. In other words, they’re too focused on the profits.
Always start with the risks when analyzing any market. That’s the best way to eliminate the fear of missing out.
What’s the risk of jumping in too early when you don’t yet have a proper signal?
It’s quite high, I assure you.
Emotions can wreak havoc on your trading.
I would argue that most traders are aware of that. However, knowing something exists and knowing how to fix it are entirely different.
Then there’s the matter of having the discipline to put those fixes into practice.
So what’s the best way to remove emotions from your trading?
Simply reduce your risk per trade to a point where a loss doesn’t trigger an emotional response.
If you find yourself biting your nails and unable to sleep when you have a position on, I can almost guarantee that you’re risking too much.
It comes down to your tolerance for risk, but I’ve found somewhere around 1% or less of my account balance to be at my own comfort level.
Now, here’s the other side of the equation…
What if you have an account that is sitting at $500. A risk of 1% is just $5. Even a 3R profit only amounts to $15.
Unless you’re extremely disciplined, waiting several days or even a week to make just $15 is going to cause you to risk too much or trade too frequently. Neither one of those is a good thing.
This is why I say that it’s harder to build a smaller trading account than a larger one. Those with larger funds such as $10,000 or more are able to make a few hundred bucks even when risking only 1% of their account balance.
Like everything we do as traders, it comes down to what suits you best. If you’re comfortable making $15 on a single trade that takes days or even weeks to play out, more power to you.
If you aren’t, I suggest you go back to a demo account and save up enough risk capital so that your losses are insignificant but your wins are still meaningful.
Buy low and sell high. It’s arguably the most common mantra of market participants.
And you know what? There’s a good reason for it.
If you’re a swing trader like me, buying low and selling high is the name of the game.
Of course, there are always other factors to consider, but that’s the general idea.
Unfortunately, most Forex retail traders do the opposite. They buy high and sell low.
The good news is that there’s a simple way to avoid entering overextended markets. Personally, I use the 10 and 20 EMAs for this purpose. They serve as a mean reversion tool.
If the market is trading well above these averages, I want to avoid buying regardless of any bullish signal that forms. The same applies to selling a market that is trading well below the two averages.
Once you know that the market always reverts to the mean, you too can buy low and sell high.
This is perhaps my favorite Forex trading tip in today’s post, so be sure to pay close attention to this one.
Did you know that there’s a scientific reason why some people enjoy taking risks?
It involves the neurotransmitter called dopamine. Unless you’re a scientist (I’m certainly not), you probably don’t know what that is, so let me break it down for you.
Think back to the last time you had a filling meal. You know, the kind that leaves you lying on the couch too stuffed to move but feeling 100% content with life.
Remember that feeling?
Or how about the times when your favorite sports team wins an important game.
Events like these create an influx of dopamine in our brain. It’s essentially the brain’s feel-good chemical.
Guess what? Taking risks such as skydiving out of a plane or risking money in the financial markets gives us the same feeling.
Even drugs like cocaine work by squeezing more dopamine out of the brain. It’s what gives users a high and leaves them coming back for more.
You can probably see where I’m going with this by now.
Although trading and using cocaine are on opposite ends of the spectrum, they both trigger an increase in dopamine. In other words, taking risks in the Forex market makes you feel good; it’s exciting.
It also leaves you coming back for more. Hence the reason most people overtrade.
Now, I’m not saying you need an intervention. However, you should ask yourself before every trade whether you’re entering solely for the sheer excitement of it.
Always remember that taking risks, whether it be in the markets or the casino, can be exciting, but it can also be addictive.
As Jack Schwager once said, “the market is an expensive place to look for excitement”.
Every new trader wants to figure out a way to profit from news events.
I get it. There’s no shortage of price movement following a release like non-farm payroll or a central bank rate decision.
Those just starting out in the Forex market see this movement as opportunity. It’s a way to make fast cash.
I see it as risk. Events like the two I just mentioned are very good at one thing—setting you up for a loss.
There are simply too many variables to succeed at trading this type of volatility.
For instance, if you venture to guess whether a release will be positive or negative, there’s no telling how the market will respond. The odds are not in your favor when you do this.
Instead, wait for a price action signal such as a pin bar or engulfing pattern. These formations typically develop after a news event and allow you to profit from the movement without exposing your account to the volatility.
You know how they say there’s no holy grail in trading? Well, this is one reason why.
The truth is that there are a million different ways to trade any market. Just think of the thousands of technical indicators out there along with the different time frames and methodologies.
Even the best traders such as Bill Lipschutz, George Soros and Ed Seykota all have very different styles and opinions about what works and what doesn’t.
However, do you know what they all have in common?
They found a trading style that fits their personality.
Look at any successful trader and you will see an approach that resonates with who they are as a person.
They don’t just believe in their trading system or strategies. Rather, their mannerisms carved a style of trading that compliments their personality.
That doesn’t mean you can’t become successful using an approach similar to someone else’s. Heck, even price action is nothing new. I didn’t invent it, but I did make it my own.
That’s what you will eventually need to do if you want to achieve consistent profits. You have to find something that meshes with your personality and then make it your own.
Don’t worry, though. It isn’t nearly as intimidating as it might sound. You will know how to make it your own through trial and error.
There are no magic tricks or shortcuts to this process. It’s simply a matter of doing more of what works and less of what doesn’t.
Are markets efficient or not?
It’s an age-old debate with no end in sight. In fact, there won’t ever be a unanimous winner because it’s all based on opinion.
As for me, I don’t believe markets are efficient. After all, if a market’s price already reflected or ‘priced in’ all relevant information, we wouldn’t get the swings that we take advantage of as swing traders.
The idea that financial markets are efficient is downright absurd in my opinion. It doesn’t matter if it’s the stock market, commodities or currencies, they all have inefficient moments, sometimes ones that are quite severe.
Why do I have such an extreme view of Efficient Market Hypothesis?
Because people are irrational. So as long as humans play a role in deciding a market’s price, inefficiencies will always exist.
As price action traders, it’s our job to take advantage of those inefficiencies. We do so by using technical patterns, trend analysis, and candlestick formations.
The study of mean reversion also goes hand-in-hand with the topic of market efficiency. If you can learn to identify a market that is overextended and perhaps at an inefficient price, you will be lightyears ahead of the competition.
Why are you trading Forex?
This is the most important question you can ask yourself. It holds the key to why you make mistakes such as trading too frequently or risking too much.
Ironically, it’s a question that hardly ever gets asked and is rarely answered.
Why is that?
I think it’s because most don’t realize just how important it is to figure out why they’re trading.
For instance, if your only reason is to make millions of dollars from Forex, then you’re naturally going to be drawn to money. You’ll be stuck hoping that every trade you place will result in a profit that will take you that much closer to your goal.
That may not sound too bad until you realize the key ingredient that’s missing.
Passion. You have to love Forex trading if you intend to make consistent profits. There’s no way around it.
A love for money won’t cut it. There are a million ways to make money in this world, and trading just so happens to be one of the most difficult.
It’s a love for the game that keeps me going. The money is just an added bonus.
The Forex trading tips you just read are a compilation of more than a decade of experience. They come from thousands of trades and tens of thousands of hours studying charts.
I’m a firm believer that every trader needs to find a style that fits their personality. It’s the reason I included it as one of the trading tips above.
However, most of what you just read is universal. It can help every trader regardless of style or experience.
Now that you’ve read these trading tips, it’s time to put them to use. Don’t brush this post aside only to come back to it a year from now wishing you hadn’t.
Take a step back and analyze your performance. Where can you improve? Do any of the tips above resonate with you?
Spend 99% of your time learning the game and the remaining 1% actually trading. That’s the best way to fast-track your success.
What do you think of the 17 Forex trading tips you just read? Would you like to add one?
Please leave your favorite trading tip or ask a question below. I always make it a point to respond.
Justin Bennett is an internationally recognized Forex trader with 10+ years of experience. He's been interviewed by Stocks & Commodities Magazine as a featured trader for the month and is mentioned weekly by Forex Factory next to publications from CNN and Bloomberg. Justin created Daily Price Action in 2014 and has since grown the monthly readership to over 100,000 Forex traders and has personally mentored more than 3,000 students.Read more...
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