When it comes to forex, there’s no specific skill set that can guarantee a risk-free trade. This, however, shouldn’t deter one from trying to make some money in the foreign exchange market.
Knowing where and how to look for trade opportunities, how to manage risk and minimize losses, and what long-term habits to form are elements that separate the profitable traders from the losing ones. By learning and mastering these three cutting-edge trading skills that every investment banker knows and practices, you’ll be able to see consistent growth in your bank account:
Risk Management
Perhaps the most important of all three is risk management. The ability to cut losses quick and let your winning positions run is one that can quickly grow your account, yet an ability that can be difficult to master due to several mental and psychological barriers.
The fear of missing out, greed, and other innate characteristics embedded in human genes can force people to cling onto losing trades far longer than they should, cut winning positions out of fear that markets will turn any second, and abandon every investing rule or principle that was set up to manage risk in the first place.
Regardless of skill level and experience, an investor should always have a predetermined stop loss and target profit before entering a trade. Moreover, the risk being taken for each trade should only be a fraction of the total capital you have.
Using too much leverage can lead to a margin call. A margin call is when your broker has to close your position due to insufficient margin requirements covering your trade. This is a preemptive measure that all brokers take to protect themselves.
Technical Analysis
Technical analysis is perhaps the closest thing traders have to predicting future market moves. Moving averages, Stochastics, Bollinger bands, and the powerful Heiken Ashi indicator try to predict future trend breaks or continuations using historical data.
Technical indicators, however, are sometimes lagging, meaning they are often late to give any actionable signals. That being said, technical analysis remains one of the most common and most reliable styles of trading in any financial market.
The use of technical analysis removes emotion from the equation and lets you focus on statistical data. It helps expose market patterns through visual signals on a chart i.e. when moving averages converge/diverge or when price breaks out from one side of a Bollinger band.
Technical analysis also helps identify the lows and highs of a financial asset. Finding the support and resistance levels is a simple but underestimated form of technical tradingand is actually one of John Murphy’s ten golden rules. Murphy is a legend in the technical trading realm, with over 35 years of market experience.
Mindset
The importance of the right mindset cannot be overemphasized. Having the right mindset protects your account from substantial losses that could stop your trading career dead on its track. What is the proper mindset?
Regardless of the type of strategy or the amount of money you can invest, the proper mindset for trading remains the same, or at least is identical enough to be reliable.
For example, all successful traders – both retail traders and those who work for investment firms – all know how to manage risk. They’ve genuinely accepted the fact that trading is risky and are comfortable closing losing positions as they know it’s all about probabilities in the long term.
To help you change how you think about trading, start by building a routine. Successful investors and billionaires have routines that help them get through the busy day in one piece. Take Warren Buffett as an example.
Buffett is at the top five of the richest men in the world, with a whopping $78 billion net worth. Every morning, he heads to McDonald’s to get some breakfast. His wife places a specific amount on his vehicle’s cup holder that determines which meal he orders. This minimizes the possibility of buying too much food.
Other Skills to Hone
These three trading skills aren’t exactly the sexiest or the most cutting-edge, but they are undoubtedly effective. Mastering them gives you the competence to trade any financial market or any investment size wisely and profitably.
Supplement these three main abilities with sub-skills that increase profitability of each trade or exposes possible opportunities that you can take advantage of. This includes diving into cybernetics analysis with stocks and futures, using social trading platforms and social networking websites to gather investor data, and keeping up with economic news to see any upcoming reports that could potentially move markets you’re trading.
Final Thoughts
Cutting-edge trading skills don’t always involve mathematical models and economic algorithms, which seems like corked bats and steroids. Keeping things simple and practicing fundamental skills including risk management, technical analysis, and sound mindset are what elevates traders to the next level of their venture.
