3 FX Trading Tips To Improve Your Trading
by Shane Daly
When Forex trading became open to the average retail trader, it brought out the sharks just looking to part the dreamers of a better life from their money. Trading currencies was made to look easy and many people lost their money by following Forex trading tips and tricks that were simply thrown together in pricey e-books and courses.
The sad part was those people that truly wanted to learn Forex trading, became disillusioned and never really gave themselves the chance to see if they have what it takes to make it.
You can certainly make money Forex trading but you need an edge. In simple terms, a trading edge is where, over time, you will end up making more money than you lose. Sounds simple enough. Well, I’m here to say that what it takes to get to that stage is simple. It is just not easy.
There are 3 categories that make up “what it takes” and these are something that successful forex traders have not only understood, but aimed to excel at. These 3 items when combined make up your edge:
- A Forex trading strategy
- Excellent money management skills
- An understanding of psychology as it relates to trading
All successful traders have taken these top 3 categories and mastered them to the extent that they are second nature. Most articles and courses on how to trade Forex cover the basics such as choosing the best forex broker for your needs, paper trading, and what trading platform you should use.
In this article though, I want to touch on the type of Forex information I feel has a direct impact on the type of success you may have.
Forex Trading Tip #1
Strategy. First off, understand that there is nothing that fits the bill as the best forex trading system regardless of how many times you hear any system described as such.
Your strategy for trading is generally comprised of two parts:
Setup – What constitutes a valid trading opportunity?
Trigger – Once the setup occurs, how are you triggered into the trade?
You want to find something that you understand, can replicate, and has the probability of making more points/pips than it loses over time. One of the simplest types of trading system is using support and resistance and trading any violation of either one of them. Keeping things simple in trading makes it much easier to be able to replicate it over many trading opportunities. Too many moving parts can often time give contradictory information which will do nothing but confuse you.
This is a quick example of the type of trading using simply market structure and price action.
This chart was not cherry picked and was the first chart I brought up for this example.
- You can see where price had historical significance as a support level that was then broken.
- Price revisits the area right to the pip and you can see price was rejected from a move higher.
- Price smashes through the level with thrusting price action.
- After a healthy rally, price returns to our original level and is rejected again.
These areas all represented a setup condition: price challenged a historical structure level
We still need the trigger. Due to space limitations I am showing the price action on a lower time frame at the number two arrow.
You can clearly see a muted rally into the resistance zone, a higher swing low marked by the red line. You could use a break of that level as your trigger or wait for a break and pullback as seen by the blue arrow.
There are other trading techniques that can be used using strictly structure levels and price action for your trading. An understanding of market mechanics and structure can open up an entire world of trading methods for you.
The bottom line is this Forex tip is all about keeping things simple. Don’t get bogged down in confusion.
The main drawback of this type of trading though is at times, people have an issue quantifying the setups and triggers. For those people, a trading system such as Trend Jumper may be preferable.
All the setups are mechanical which means when certain variables are met, you are informed of a trading opportunity. All targets, stops and entries are printed for you and that helps keep you consistent in your trading.
Forex Trading Tip #2
Money management is not the most glamorous Forex topics but without a full understanding of risk and leverage, you run the risk of account ruin.
Nobody is able to tell you what risk to use per trade but the standard quote is usually 1-2% of your account balance. I will add two things to that.
- .5% is conservative and allows new traders to take the losses without too much account damage.
- Consider using the balance +/- the p/l of any open trades.
This can be an in-depth subject with examples and “what ifs” however following two basic account management tips can go a long way in protecting your account from a string of losses.
- What you are thinking of risking, cut it in half.
- Ensure your stops are not just a suggestion….but a demand.
While the majority of traders simply use their account balance as a sign of success or failure, it does not go far enough pointing out where you can improve. It also doesn’t show you where the bleeding is happening with your trading.
A free software application is available called the Ultimate Trade Analyzer. Not only will it keep a log of all your trades but also give you scenarios surrounding risk per trade and contract sizing. This information is imperative to enable you to maximize your trading efforts. It will also show you how increasing/decreasing risk can have a measurable impact on your trading success.
Forex Trading Tip #3
If we were robots, trading psychology would not be an issue, we would have no issue sticking to any type of trading whether it is trend trading or any of the numerous mean reversion systems. Our trades would execute and either our targets or stops would be hit. We would risk the appropriate amount for our account size and trading system expectations.
Stating the obvious – We are human.
We are all subject to emotions and ignoring things that we know are not good for us. We make excuses why we do things. For instance, taking a few losing trades and then seeing price bounce back, we decide to ignore the stop the next time we trade. This one doesn’t come back and your account is drained.
This happens all the time!
Again, this is such a vast subject and there is no way to do it justice in a blog. However, what I am about to say was one of the most important forex tips I ever received.
Because it encompasses so many things such as:
- Follow the trade plan
- Take your stops when they come.
- Stick to your risk per trade.
- Don’t over-leverage.
Here it is: Embrace the fact that wins and loses come in random distribution.
This means that we don’t know if the next trade is a winner or a loser. In fact, we don’t know if the next five trades will win or lose. What we do know is that it will win OR lose.
Can you see how understanding that basic fact makes it crazy to risk too much on the next trade?
How it makes moving your stop further from price is not a smart thing to do?
How skipping the next setup even though it is a perfect trade plan setup is senseless?
You have to give yourself a fighting chance with every trade…with every opportunity. Embrace not knowing and do everything that makes up smart trading on every single play.
- You don’t know if the next trade will return the recent dollar losses back into your account. It makes no sense to skip it.
- You don’t know if price will bounce back so it makes no sense to not honor your stop.
- You don’t know if the next trade will be a loser (with slippage) giving yourself a larger pip loss. Makes no sense to increase risk.
In my opinion, how to trade Forex successfully means doing everything you are supposed to do on every trade.
Don’t improv. Improve.
Every trade, give yourself the goal to improve on every aspect of the three categories mentioned above. It is my hope that this assembly of Forex trading tips helps refocus you to act and think like a professional trader who enjoys the good life because of doing all the right things…at the right time….which is every time.