As with any journey in life, there are good times and bad times usually marked by wins and losses. More often than not it’s the losses that give us the greatest gift of learning. They allow us to evaluate what we did right and what we did wrong to become better at whatever it is we’re pursuing.
But this opportunity isn’t always apparent at the time, especially when money is involved as it is when trading the Forex market. In fact sometimes it takes us days or even weeks to recognize a loss as a learning opportunity. But regardless of how long it takes to notice it, the opportunity to learn is always there.
The inspiration for the following article came as I was helping some of my more novice members. It occurred to me that most of what I know now about Forex trading I take for granted. Most of the things I do throughout the trading day are second nature to me now, but this wasn’t always the case.
This observation prompted me to think of things I wish I had known when I first began trading Forex, which is how I came up with the list below.
1) Simple Price Action Is All You Need
The charts I used when I first began trading Forex were a mess. There’s no other way to put it. At any given time I had a random combination of at least five indicators crammed onto my charts. This combination of indicators seemed to get shuffled every other week.
I was convinced that my “ah ha” moment would come as soon as I configured the right set of indicators. But instead of an “ah ha” moment I had a lot of frustrating moments filled with despair.
The moment I was searching for didn’t come until I did the unthinkable – I removed every indicator from all of my charts. MACD, stochastics, RSI, all of it, gone! It was in that moment that I found clarity and six months later I found consistent profits as a Forex trader.
Coincidence? Possibly. But that moment occurred in 2010 and I have continued to profit consistently ever since. That is far from coincidental.
2) The Daily Time Frame Is NOT Limited to Large Trading Accounts
The time frames I traded in my early days consisted of the 15 minute, 30 minute and occasionally the 1 hour. Of course my preference was constantly changing because I really had no idea what I was looking for other than profits.
I wasn’t using these time frames because they were superior because the truth is I had no idea what was superior. I was using them for three reasons, all of which I believed to be true at the time.
- The lower time frames provide more setups and thus allow you to make more money
- The higher time frames are only for those with large trading accounts
- Even if I had the larger account, the higher time frames are boring
Of course I later learned that all three reasons are as far from the truth as you can get.
The lower time frames are great at one thing – eating away at your trading account. Sure, there are Forex traders who have found success with them. But in my experience far more traders find success after moving from the lower time frames to the higher time frames than the other way around.
With the availability of mini and micro-lots the higher time frames are available to anyone who can open a trading account. Even if it’s a $100 account.
As for being boring, the higher time frames are only boring if you think making money on a consistent basis is boring. Personally I happen to enjoy it.
3) Use 90% of Your Time Learning How to Properly Identify Support and Resistance
From a technical perspective, your number one priority needs to be mastering the art of properly identifying support and resistance levels. That’s it. If you start focusing on this one thing right now your trading will be vastly improved over the next several weeks and months.
For those who are not artistically-inclined, think of it this way. What looks better in the end, an image in a coloring book where all you have to do is color between the lines or a drawing you start from scratch?
I think most will agree that the coloring book makes it easier to create an end product that looks nice. In a similar way, the support and resistance levels on your chart become the lines in a coloring book. Only instead of coloring between the lines you get to trade between the lines.
And best of all, trading between the lines pays better than coloring.
4) Choose to Be a Patient Trader
Everyone has it in them to be patient. Whether you think of yourself to be patient or impatient at this very moment, you are that way because you choose to be that way.
This is one area that I certainly took for granted during my early days of trading. I heard all of the “pros” talk about the importance of patient but I figured I knew better and continued in my impatient ways.
I’m here to tell you that if you truly want to become a successful Forex trader you must learn patience. Read books, go to seminars, do whatever you need to do to develop patience because once you do you will never view trading the same again.
It’s time to stop chasing trade setups and start allowing them to come to you – that’s what developing patience is all about.
5) A Favorable Risk to Reward Ratio Is Never Optional
If I gave you a choice between two investments, the first involves risking $100 to potentially make $100 and the second involves risking $100 to potentially make $300, which would you choose? Mind you the probable outcome of both investments is equal.
I hope you chose the second investment. That’s exactly what a favorable risk to reward ratio can do for you. In fact if you use patience to your advantage you can often find setups that offer 4R or better.
This kind of risk-based thinking will completely change the way you view the trades you take and will undoubtedly make you a better Forex trader.
But it isn’t optional. If you truly want to succeed in the Forex market you have to tip the scales in your favor. And risking no more than half of the potential reward is a great place to start.
6) Never Rush Into a Trade
It took me a long time to figure this one out. When I first began trading I thought the big profits were only to be had by those who got in just as a major move was beginning.
While there is some truth to this, no trader can possibly know if a market is in fact turning until it shows its hand. The market does this by either breaking a key level of support or resistance or forming bullish or bearish price action at a key level.
By waiting for the market to make the first move you get to effectively play the upper hand. You get to see which direction the market favors before putting any money on the table. From there it’s simply a matter of reacting accordingly.
7) A Breakout Without a Retest Isn’t Worth your Money
Most Forex traders, especially those just starting out, love to use pending orders when trading breakouts. The issue with doing this is that you open yourself up to getting caught in the middle of a false break.
The best way to trade breakouts is to wait for the market to confirm the break and retest the broken level as new support or resistance. This two-step approach will give you greater confidence that the market is ready to make a move and will help you to avoid getting caught on the wrong side of a false break.
It took me a long time to realize this as it requires a great deal of patience. But if you are interested in trading breakouts I strongly urge you to give it a try.
The benefits are well worth the wait.
8) Always Choose Quality Trade Setups Over Quantity
There are many areas in life where more is more. Take sports for example. As a former soccer player the general rule was that if you get an open look at the goal from the top of the box, you take the shot. The more shots you take, the more goals you’re likely to score. At least that’s the thinking.
Trading Forex is the complete opposite. In the Forex market less is more. The less trades you take the greater chance you have of finding consistent profits. This is one reason why becoming a successful Forex trader will be one of the toughest challenges of your life, if not the toughest.
Taking less trades to make more money goes against human nature. But doing so will open up your eyes to the importance of always choosing quality over quantity.
9) You Don’t Need to Know What’s Going to Happen Next to Profit as a Trader
If someone asked you, “do you think you need to know what’s going to happen next in the market in order to profit as a trader?” How would you answer?
I know how I answered that question when I first started trading Forex. I said, yes, you at least need to have a firm idea of what will happen next to profit consistently.
I didn’t know it at the time, but that couldn’t have been further from the truth. You never need to know what’s going to happen next in the market in order to profit. You only need to stack the odds in your favor and then let the market do the rest.
If you convince yourself that you need to know or worse, that you already know what’s going to happen next, your ego is going to wreak havoc on your trading. So take a step back and understand that you don’t need to outsmart the market to win consistently.
10) Successful Forex Trading Is a Process, Not a Project
I wanted to finish off this article with what has arguably been my most important discovery to date – the idea that becoming a successful trader is a process and not a project. In other words it has no end date as you will constantly be evolving as a trader.
Why is this so important, you ask?
Because if you haven’t been tempted to quit yet, you will be. The journey we make as Forex traders is more than tough. So when you’re sitting in front of your monitor after a loss and feeling desperate, it’s important to understand that it’s all part of the process.
By viewing it as a process you will also begin to appreciate the journey as a learning experience. Once you begin focusing on the process rather than the profits you will start to see trading in a whole new light.
The constant stress and anxiety you once felt will start to dissipate and the frustration you used to feel after a losing trade gets cut in half. But the best part about focusing on the process is that you will inevitably find consistent profits as a byproduct of your efforts.
What are some of the lessons you have learned along your journey to consistent Forex profits?
Share your experience in the comments section below.