It’s no secret that most people get into trading to be successful and earn money. However, to execute profitable trades over time, there are a few rules that should be followed. In this blog post, we have therefore gathered our 5 keys to profitable forex trading:
1. Stick with your trading strategy
New traders often make the mistake of passing the verdict on a trading strategy after a couple of trades. The biggest mistake you can make is to judge a trading strategy too quickly. It’s impossible to base your decision on just a few trades.
Even if you lose multiple trades in a row, it’s essential to give a strategy tens, or even hundreds, of live trades before you draw a conclusion, while ensuring that you analyse your results properly. Therefore, you need to pick a trading strategy and stick with it.
2. Apply proper risk management principles
Risk management is one of the most important aspects of trading, and this is where the 2% rule, which we teach here at Learn to Trade, comes in. Following this strategy, you will never risk losing more than 2% of your trading account on any one trade.
Managing your risk is an essential aspect of successful forex trading, and the rule is set in place to ensure you know when you should cut your losses and prevent you from blowing up your entire trading account. Unfortunately, this is something that still happens way to often among new traders.
Losing is a part of trading, and you can’t avoid it from time to time. By managing risk, however, you leave yourself enough room to bounce back from a losing streak.
3. Disconnect your emotions from your trading
As easy as it is, letting your emotions dictate your trading decisions will get you nowhere. Emotional detachment is crucial in executing trading strategies, and it’s important not to let your thoughts and feelings dictate decision-making in trading. Among other things, emotional trading can lead to consequences such as overanalysing situations, inconsistent returns, and illogical decision-making.
To train yourself to be more emotionally detached while trading, you should set reasonable expectations, trust yourself and your strategy, and constantly work to optimize your strategy and your entire trading process.
4. Keep a watchlist and written trading plan
One of the best things you can do as a trader is to stay organized by keeping a daily or weekly watchlist, and drafting a trading plan for each and every trade.
A watchlist is simply a list of forex pairs that you have decided to keep an eye on to determine whether they meet the criteria in your trading strategy. This also helps you stay focused on what you need to be focused on, instead of randomly jumping around from one forex pair to another while looking for trades.
Your trading plan, on the other hand, is the set of rules that determine your actions from the time you decide to enter a trade and until you exit it. This also helps keep you accountable to yourself, and makes it easy to go back and analyse past trades.
5. Journal and review your trades
To determine whether your trading strategy is as effective as you hope it is, it’s always important to review what’s been done in the past. Keeping a record of your past trades through a trading journal helps you improve your strategies, your trading process, and the way you execute your trades. Simply put, if you don’t have any historical data to analyse, you won’t be able to point out what areas can be improved upon.
Download our new infographic
To help you remember these 5 rules to profitable forex trading, we have developed an infographic with all the key information on it. You can download it as a PDF here.