You may already have come across Forex trading tips and lists of common trading mistakes, but what else do you need to know to be successful? What exactly sets successful traders apart and can you replicate that success?
While there are many paths to success, and every trader approaches the financial markets with their own trading style and perspective, successful traders tend to share common characteristics that others lack.
Choose the right trading platform
The choice of a trading platform is the first decision you’ll make on your path to becoming a successful trader. You’ll want a platform that’s free, easy-to-use and allows you to trade on the go, whether that’s from a desktop computer or your phone.
Since the turn of the century, numerous trading platforms have gained traction with retail traders. MetaTrader 4 was the first and remains the most widely used platform because it offered a wealth of features that appealed to new and experienced traders. These include automated trading scripts, a large number of technical indicators as well as graphical tools.
Alternative platforms include MetaTrader 5 (the successor to MT4), cTrader and JTrader. No matter which platform you ultimately chose, it’s always a good idea to spend some time testing their features through a demo account.
Choose the right broker
Once you’ve settled on a platform, you’ll need to find the best broker for you. MetaTrader 4 is supported by hundreds of brokerages and financial institutions, from hedge funds to banks. However, this isn’t to say that all MT4 brokers are interchangeable. In our opinion, the best MT4 brokers offer tight spreads across a large number of financial instruments. And if you have an interest in algorithmic trading, you’ll want to ensure that your chosen MT4 broker supports your preferred trading strategies.
Be prepared
Before performing any trade, proper preparation is key to your future success or failure. This includes both analytical preparation (such as setting goals, creating a trading plan with profit and loss targets) and psychological preparation. Trading is stressful and requires a great deal of concentration, so make sure you’re in the right head-space before you get started. You don’t want to go blind either, so make sure to stay on top of developments in the financial markets. As a rule of thumb, having a trading methodology and actually sticking to it will already set you apart from most newbie traders.
Be patient
Many people are drawn to Forex trading because of its fast pace and deep liquidity. But being a successful trader also requires patience. This is as simple as waiting for the right time to enter or exit a trade, as set out your trading plan. However, far too many people are driven by impulsiveness or the fear of missing out, which leads them to make the wrong decision when the market doesn’t immediately move in the direction they want. Remember that there will always be new opportunities for those who are prudent. However, it is important to note that patience does not mean stubbornness: one of the hallmarks of successful trading is the ability to re-evaluate and adapt to changing conditions.
Be disciplined
Being patient, like many other behavioral patterns, requires discipline. A disciplined trader is one who doesn’t let emotions get in the way of his trading plan; instead, he believes in his trading plan and is disciplined enough to follow it through even when price action isn’t what he envisaged initially. Making the right decisions takes discipline, even if it means getting out of loss-making trades when a part of you wants to stay invested in the hope that you’ll eventually return to profit. This is why discipline also requires a certain level of emotional detachment.
Be bold and persistent
No matter how many successful habits you have or how “correctly” you implement them, some of your trades will inevitably be loss-making. These could be big or small losses. Even trading legends like Stanley Druckenmiller have faced large losses at one point or another of their careers. Some events, like news announcements that happen outside of trading hours, are hard to hedge against when they cause prices to gap. However, don’t let these experiences put you off altogether. Instead, see these as an opportunity to learn and enhance your skills through a mastery of risk management techniques.
Be mindful of risk management
Ultimately, successful trading is all about risk control and preserving your hard earned wealth. It’s harder than you think to recover from large losses. For example, you’ll need to generate a 25% return on your investment to recover from a 20% drawdown in your account.
That’s why the best traders look for trading opportunities with a good risk/reward ratio. This means identifying trade ideas where losses are small relative to the potential upside. It also means implementing risk management strategies from the outset to cap potential losses. You could do this through a stop-loss order, whether you go long or short.
Importantly, successful risk management isn’t about avoiding losses altogether; it’s first and foremost about minimizing their impact so that no loss hurts your overall trading balance or wipes out your capital. To win big, you often have to risk big, but don’t let this encourage you to take on excessive risks. Instead, successful traders are nimble and seek to generate profits over time by applying a winning strategy time and time again, across a large number of small trades.
Final thoughts
As is the case with all things in life, being good at trading requires a degree of talent and hard work. But while some may have an innate “eye for the market” no amount of talent will replace the hard work required to develop the necessary skills. This requires practice, discipline, and motivation to succeed even when you fail. There’s a lot of truth to the following quote: “hard work beats talent when talent doesn’t work hard.”
