Habits of successful forex traders
Many people are attracted to forex trading because of the perceived lifestyle that goes with successful trading – images of fast cars, luxurious holidays, or trading in some exotic places around the world. But becoming successful in this market takes dedication and hard work.
Some successful traders may show off their rewards but they don’t always tell you about the years of effort they put in before they found success. The fact is, like in any other profession or endeavour, becoming a successful forex trader takes time.
If you are just starting out in the forex market or have been forex trading for a while and need some extra tips, then this article is for you. We have built a list of habits that successful forex traders incorporate into their trading plans.
Discover our list of 20 habits of successful forex traders:
1. Be a constant learner
One thing that all the best and most successful forex traders have in common is an ongoing curiosity and the love of learning new things. So, if you want to be a successful FX trader, you need to constantly learn new things about trading and the market.
The forex market is one of the most dynamic and active markets in the world, so you have to be on top of what’s happening and what’s affecting it. Markets are constantly changing, so there will be times when you will have to adapt your trading strategy.
2. Be proactive
In his best-selling book ‘7 Habits of Highly Effective People’ Stephen Covey said being proactive is an important part of one’s success. As a trader, being proactive means taking action – doing something or doing the things that will contribute to your success as a trader.
Here are a few examples of the proactive things you can do to help your trading:
- Setting up a daily routine to help you become more efficient with your trading
- Set aside time for learning and training – e.g. trading webinars, learning technical analysis, trading education
- Reviewing chart patterns
- Testing and refining trading strategies
- Subscribing to or following successful traders like Brett Steenbarger, Steve Ward, Nial Fuller
- Keeping track and monitoring the global markets will also help your trading, so make it a habit to regularly check news sources like Bloomberg and CNBC
3. Develop a trading plan
You’re probably aware of the saying ‘failing to plan is planning to fail’. Though it might sound cliché, it’s true and it’s a very important component for trading success.
Whether you’re a new trader or someone who has been trading the markets for years, you need a trading plan that should be your guide in everything you do.
A trading plan doesn't need to be complicated. It can include some basic guidelines like:
- Entry and exit levels
- Position size
- Stop-loss level
- Take profit level
- Indicators to use to confirm your entry and exit
While having a trading plan is important, it’s also equally important to have the discipline to stick to and implement it.
Otherwise, what’s the point of having a plan if you’re going to ignore it? So, remember, if you have a trading plan it’s best to stick to it.
4. Control your emotions
It’s been said that fear and greed are the two strongest emotions that drive the markets.
Fear of missing out on a trade usually drives forex traders to jump into a trade without prior validation. And, at times, getting into a trade hastily can result in losses if it turns against you.
Greed is also something to watch and control. It can fuel your desire to chase multiple trades (over trading) or to allocate too much of your capital in a single trade. In either scenario, you put your trading capital in jeopardy if greed takes over.
If you want to become a successful trader, it is critical you put your emotions in check as much as possible. So, before you hit the button to confirm a trade, take a moment to think whether the trade is the right one by considering the following questions:
- Does it fit within your strategy?
- Is it within your limits of risk?
- Do you understand what it means if this trade goes against you?
5. Develop a risk management strategy
Every successful trader will tell you that trading is all about risk management. And it’s true, your success as a trader will depend largely on how robust your risk management is. At its basic level, risk management can be boiled down to a few components.
Here are some items to consider when building your risk management strategy:
- How much capital to allocate per trade?
- How much capital to risk per trade?
- What is your stop loss level?
- What is your take profit level?
- How much leverage to use per trade?
One of the best words of advice for traders is to preserve your capital. By protecting your trading capital, you’ll be able to trade the next day.
6. Start with a demo trading account
While most people want to rush into trading to have a taste of success right away, it’s advisable to start small and slowly. This is particularly true if you’re new to forex trading where one of the best things you can do is start with a demo trading account.
Using a demo account brings several benefits, such as:
- Opportunity to familiarise yourself with the trading platform and different trading products
- Start testing different trading strategies without committing real money upfront
- Gain confidence in placing trades
7. Practice money management techniques
Beginners usually learn the hard way that money management is one of the most important factors that contribute to your success as a trader. Having a successful strategy will not help if you fail to have sound money management rules in place.
The goal is to maximise gains and minimise losses. Before entering a trade, you should already know how much you are willing to risk on it and how much the potential profit is. While it is impossible to eliminate emotions from trading completely, money management strategies can help you control them.
8. Cutting losses earlier rather than later
It can be tempting to keep your losing positions running in the hope that the market will turn around and you will be able to exit the trade at breakeven or perhaps even at a profit. However, hope is a dangerous emotion in trading. Instead of letting your losing positions run out of control, you should have a sound risk management plan in place and already know how much you are willing to lose on that particular trade even before you hit the buy or sell button.
9. Scaling positions
There are benefits of scaling in and out of positions - primarily psychological ones.
For example, if you have a large trade running that is already deep in profit, it might be beneficial for you to book some of the profit, making it easier to manage the position. You may also use scaling when entering positions. Finding the right entry point can be difficult and you might end up second-guessing yourself or wishing you entered the position at a better spot. With scaling, you take some of the pressure away as you will be entering the position at various points.
10. Maintain your trading journal
A trading journal can be a trader's best friend if maintained properly. It is not just a summary of your trading strategy, but also a tool where you can write down your observations and notes which will help you to build on your strengths and work on your weaknesses.
Learn how to use a trading journal and remember that it needs to be continuously updated so you can track your trading performance effectively.
11. Be disciplined (no overtrading or FOMO'ing)
The fear of missing out can lead to costly mistakes.
A lot of traders only share their positive experiences with the online world and keep their failures to themselves. If you notice that many people appear to be making large profits on a particular trade (for example, being long Bitcoin), you may feel the urge to jump on the train regardless of the price and what your trading plan says. This is dangerous, as you are purely driven by emotions instead of rational decisions, and the opportunity could be gone already.
Successful traders will never FOMO into a trade, as every trade requires research and setup to be effective.
12. Stick to your trading strategy
The markets are constantly evolving and your trading strategy will need adjustments from time to time.
However, if you keep hopping from strategy to strategy and fail to stick to the rules that you have set, it will be difficult for you to evolve as a trader. It is therefore important that you stick to your trading strategy and avoid making impulsive decisions.
Check out our guide on effective forex trading strategies and start to formulate your own strategy to incorporate into your trading.
13. Balance life outside of trading
Just with any other career or hobby, it is crucial to maintain a healthy work-life balance. If you find yourself awake at 3 AM watching where the Yen will move or stressing about a position you have open, you might need a break from trading for a while.
This will give you the chance to clear your mindset, recharge, and come back better than before.
14. Be prepared (stay up to date with news, announcements, upcoming meetings, interest rate changes, economic calendar, etc.)
There are plenty of factors that influence markets. Even if you are using purely technical analysis, there are still benefits of keeping track of major market events as it will help you to assess the overall market sentiment. Our economic calendar will help you stay up to date on the most important news happening in the forex market.
15. Adapt to the market
Market conditions change often, and can do so rapidly. For example, your range trading strategy might work well during a prolonged phase of consolidation in the FX market.
However, once volatility picks up suddenly and violently, you will have to react quickly and either switch to a different strategy or look at different markets where you may still be able to find the market conditions that enable you to be profitable.
16. Strong technical analysis approach
Beginners often think that they must choose between using technical or fundamental analysis. This is not correct, as many traders use a combination of both in their trading. Even if you are a fundamental trader, you could find value in being aware of the key technical levels (for example, to find better entry/exit points) or learning technical indicators (to help you identify when a market is overbought or oversold).
17. Understand trading psychology
This will probably be the trickiest part, but having a deep understanding of the common psychological traps and learning about trading psychology will give you an edge.
To learn more, find out what trading psychology is and why it's so important.
18. Trade your edge and stick to it
It can take a long time until you find your trading edge, but once you identify it, it is worth building on that strength and harnessing it. An edge is not just a magical trading system that outperforms all the time but can also be a particular skill set you have (for example, scalpers are skilled with numbers, time management, and handling pressure).
Find an area in the market you are good at and stick to it!
19. Watch other markets
You might choose to specialise in a particular market, let's say the foreign exchange market. This might be because you found that your strategy performs particularly well with certain currency pairs or simply because you prefer it over the others. It is still worth keeping an eye on the other financial markets too, as they can give you valuable insights.
For example, a major move in the bond market might hint that the short-term volatility in the stock market will spike as well.
20. Utilise a trusted and regulated forex broker
Using a trustworthy and regulated broker is important as it will ensure that you are being treated fair as a client, get the execution that is promised, and have peace of mind that your funds are safe.
How to become a successful forex trader?
Becoming a successful trader is far from easy, but as the old saying goes "Nothing worth having comes easy".
While the path will be full of challenges and obstacles, the outcome can be an extremely rewarding one. To pave the way for your success, you need to first identify your goals: do you wish to trade just to generate some extra income or do you intend to turn it into a full-time professional career?
The next step is to create a learning plan. There is an abundance of materials out there, and picking the right course/books/mentor is crucial and will save you a lot of time. After that, a lot of trial and error will follow.
Just remember, being a successful trader means being constantly alert and ready to adapt - even the best traders in the world cannot afford to become complacent.
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This information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. It has been prepared without taking your objectives, financial situation, or needs into account. Any references to past performance and forecasts are not reliable indicators of future results. Axi makes no representation and assumes no liability regarding the accuracy and completeness of the content in this publication. Readers should seek their own advice.
