When it comes to trading on the Forex market, many people believe you need to have a head for numbers and charts – That you need to be able to look at graphs and calculate everything in your head and plan your strategies on when to get in and out of a trade.
But when it comes down to it, the key to successfully trading Forex is to think like a trader.
Thinking like a trader
You can have all the smarts in the world as well as the best software imaginable at your fingertips, but if your mindset is wrong, you’ll struggle to make money trading on the Forex market. To be successful, it’s important to think like a trader.
For example, we’ve been talking a lot lately about the pound and how volatile it is. Our traders have repeatedly said, “Wait. Once we see an actual trend, we’ll know how to trade Sterling. But at the moment, it’s all over the place.”
But there’s so much movement, you could make a lot of money
True, but you could also lose a lot of money. Imagine if a trader had followed the polls saying the Tories would win by a landslide and had gone long on the pound. They’re hoping for a positive shift. This is an emotional trade, based on feeling and not on facts.
The announcement of a hung parliament saw the pound fall, and this trader would have lost money. Hopefully, this theoretical trader had a risk management strategy in place, but we’ll get to that.
Pick the right winners dispassionately
The Forex market is constantly moving, whether up or down. These movements are dependent on news announcements and the release of reports from companies and governments. To think like a trader, you need to put your emotions aside.
You can’t place a trade because you have a ‘feeling’, like our hypothetical trader before did about the election – You need to look at the trends, look at the coming news results, and decide which currency is safe and when you’re going to get in and out.
Greed is NOT good
When it comes to trading, you need to stay well clear of Michael Douglas’s Gordon Gekko character – Greed is not good in Forex. If you trade without a robust risk management system, and the trade goes bad, you’re likely to lose a lot of money.
By using stop losses in trades, you may only be making two per cent on each trade, but you’ll also be protecting 98 per cent of your money. Don’t get greedy.
Learn to think like a trader with us
Learn to Trade has taught more than 250,000 people how to successfully think like a trader. The first step is to come along to one of our free Forex workshops. You can sign up for one here.