The three pillars of successful forex trading

In this article, we will discuss eternal, unavoidable principles that are essential to a successful career in forex trading (or any other financial market for that matter). It may seem corny, but many less experienced players in the financial markets pay lip service to these principles at their peril – if they are even aware of them. We will try to discuss them in detail.

Number one is money management. You can not breaking this law – you must have some way of tightly controlling the amount you are risking on each trade. The market is an arena of chance; A good trading system will only allow you to tip the odds in your favor so that you win more often than you lose and hopefully (depending on your risk/reward ratio) have bigger wins and smaller losses so your equity grows over time. If you’re still disillusioned with discovering a perfect lossless system, you probably haven’t been trading long enough and are still looking for a quick way to part with your hard-earned cash. You need to know how to manage your equity through the mediocre and bad trades so you can maximize the really juicy trades when they appear. With sound money management principles, even a second-rate trading system would build an account over time; but with poor money management you could quickly blow up your trading account even with a good trading system.

If you really think about it, there are only two things you can control in the markets: your risk and the quality of your trade setups. Once trading is underway, everything else is pretty much dictated by the market. In fact, even the best trade setups don’t always produce the best results. Therefore, it is really important to have a good understanding of risk control when trading.

Number two is discipline. This means sticking to your system rules and trading plan through thick and thin. A successful Forex trading plan should consider all the eventualities and possible twists and turns of the moving market and detail the appropriate steps you would take in each case. It is better to write down such plans and read them again and again until they are firmly implanted in the mind and can be followed. The ideal action when a certain market scenario occurs and you take the necessary steps in your trading plan is Not to reverse those steps, no matter what happens afterward. A good price action-based system would discourage sitting at the computer for long periods of time by setting up and executing as many set-and-forget trades as possible, which would be profitable in the trader’s absence.

The majority of traders believe that they have to sit at their PCs for hours, babysitting their trades, looking for profitable opportunities and getting out at the earliest sign of a price reversal. Such moves, however, could lead to self-doubt and destructive habits that are guaranteed to return your profits to the market once you make them. On the contrary, once a profitable price action trade setup has been identified on a chart, all you would need to do is calculate your risk, place your trade with appropriate stop loss/take profit values ​​and walk away leaving your trade to the care of itself. If executed well, such trades will turn out to be profitable in most cases. Learning to trade using such methods not only builds your confidence over time, it also prevents you from questioning yourself and trying in vain to wrestle with a market much larger than yourself and outside of your individual control or your influence.

The third pillar is a good trading method. Note that while it is also important, it is only a minor component (about 20%) of successful trading. It is therefore necessary to have a simple, robust system with uncomplicated rules that can be easily interpreted in any trading situation in a short amount of time and executed promptly to take advantage of potential market movements. Countless trading systems are marketed on the Internet almost every day. When choosing an ideal system, one important factor must be considered: it must be as close as possible to actual floor trading. Most floor traders base their trading plans on order flows; a simple identification of the trend by observing the price action and no more than one or two simple indicators. Conversely, most over-the-counter traders use systems burdened with a ton of technical indicators, most of which are lagging because they are based on second-hand data. Such systems would do no more for you than hamper your efforts to successfully trade forex. No wonder the majority of off-floor traders lose, because relying on second-hand lagging data in a rapidly changing market like Forex can only result in more losses than profits over the long term.

In conclusion, we briefly discussed three components that are vital for anyone who wants to succeed in the financial markets. While many tend to focus on good trading practice as being primarily critical to success, you need to realize that developing sound money management principles and discipline are even more important. Therefore, the path to a successful Forex trading career and professional status is to seek a training course that addresses each of these components comprehensively, appropriately, and with the right bias, without one suffering at the expense of the other.