Many have compared forex trading to casino gambling but the fact is that it all depends on your approach. While there are various similarities, it is only gambling if you throw your cash into a trade without conducting due diligence.
With forex, you can profit from each and every trade you enter into if you perform your analysis and maintain your discipline.
To increase your chances of winning on each trade, there are various factors you need to pay heed to.
1. Go With the Trend
A daredevil attitude may at times win you big bucks in forex trading, but that is not a sustainable strategy. In fact, such reckless behaviour will lead to long term losses and frustration.
The rules for profitability in forex are very simple. Simply buy low and sell high or sell high then buy low. The biggest mistake many novice forex traders make is to buy and sell at the top and bottom of the trend expecting a price reversal.
It is far more sensible to get on board the current trend and run with it till just about when it is turning.
2. Make Fewer Trades
It is exciting to get in front of your computer and make as many trades as possible to reap higher profits. However, this is neither practical nor sensible.
It makes much better financial sense to watch the charts and identify ideal trading conditions before you place your trade orders.
Remember that while every trade increases your opportunities for winning, it also increases your chances of losing.
By focusing more on your analysis and price chart action and trading less, you will be minimizing your risk and increasing your profitability since you will only enter into trades that have a very high chance of winning.
3. Do Not Enter Multiple Trades
Another temptation is to diversify your investments by entering as many trades as you can. This only works to earn you small profits while affording you only very tight stop loss levels.
Additionally, it makes it difficult to conduct thorough analysis on each trade as your focus is spread through multiple positions. Having too many open positions simultaneously can also make you get emotional.
For instance, when your GBPUSD position starts failing due to a shift in Euro prices, you may panic and take drastic action on your USDJPY trade which would probably have gained.
The opposite happens when greed takes over and you increase your take profit levels on other trades based on gains on another trade.
4. Wait For the Best Setups
It is not only enough to make fewer trades, but you have to make the best trades to increase your winning chances. Making fewer trades does not mean you watch your price charts less or focus less on your analysis.
You need to be attentive to currency fluctuations at all times in order to recognize the best setups that present profit opportunities.
5. Have a Clear Strategy
Failing to plan is planning to fail. This may sound too cliché but that does not mean it is wrong or outdated. Forex trading needs a clear, well thought out plan. You need to know what kinds of positions offer the best setups.
You also need to know the best times to enter and exit a trade and how best to manage each trade. By having a clear strategy and following it to the latter, you increase your chances of winning at every trade.
6. Understand the Market Is a Coin Toss
The forex market reacts to very many factors beyond the control of any one institution, government, or individual. What may seem as a perfect setup one minute may change drastically without warning.
This does not mean you should disregard your strategy. You have to have an attitude of graciously accepting your losses and learning from them.
In the same vein, when you should avoid launching into greed mode and making erratic trades feeling like you are on a winning streak.
In fact, most professional traders will advise you to walk away once you have earned your profit from a well laid out trade.
This is because the very strong emotion of greed will most likely cause you to enter new trades without conducting the due diligence that got you on that winning streak in the first place.
7. Keep Emotions in Check
Fear, greed, panic, and anxiety are some of the emotions you will feel when you have invested a substantial amount of money in your trades and the price charts start shooting all over the place.
Your eyes will stop blinking, your heart rate will go up, and your fingers will be itching to make adjustments to your trades. Do not fall into that trap.
Trust your initial strategy and let the trade run its course. However, once you start tinkering with your stop levels and take profit levels, then you run the chance of losing far much more than you can handle.
8. Trust the Market
As mentioned earlier, the forex market is too huge for any one individual, institution, consortium, or government to control. Forex prices are purely market driven and you need to trust in the market factors of supply and demand.
Do not give in to hype or fall for “expert” opinion as these may not augur well with your particular strategy and your traded forex pair.
Conclusion
Having a plan and following it is fundamental to winning forex trades. Stay focused and do not let market commentaries sway you if they go against your tried, tested, and proven strategy.
Stay calm and professional and keep your emotions in check. Leave the fear and greed to the uninitiated gambler as those are not part of the professional investors’ arsenal to long term profitability.
