When it comes to forex, its numbers, charts and ratios, trading is more art than science. As an artistic endeavor, talent is mostly involved, but only talent will not take you there. The best traders hone their skills through practice and discipline.
These traders regularly perform self analysis to see what drives their trades and learn how to keep fear and greed out of the equation. Today we be sharing few nine steps from a successful trader, which a novice trader can use to perfect his or her craft; for the experts out there, you might just find some tips that will help you make smarter, more profitable trades, too.
- Define your goals and then choose a trading style that matches those set goals. Be sure your personality is a match for the style of trading you choose.
- Select a broker with whom you feel comfortable working with also he should be one who offers a trading platform that suits your style of trading.
- Select a specific method and stick to its application.
First and foremost, before you enter any market as a trader, you need to have some idea of how you will make decisions to execute your trades. You need to know what necessary information you have in order to make the appropriate decision about whether to enter or exit a particular trade.
- Select a longer time frame for direction analysis and a shorter time frame to time entry or exit.
Many traders get confused because of conflicting information that occurs when looking at charts in different time frames.
- Calculate your expectancy.
Expectancy is the formula you use to determine how reliable your system is. You should go back in time and measure all your trades that were winners versus all your trades that were losers.
E= [1+ (W/L)] x P – 1
W = Average Winning Trade
L = Average Losing Trade
P = Percentage Win Ratio
If you made 10 trades and six of them were winning trades and four were losing trades, your percentage win ratio would be 6/10 or 60%. If your six trades made $2,400, then your average win would be $2,400/6 = $400. If your losses were $1,200, then your average loss would be $1,200/4 = $300. Apply these results to the formula and you get; E= [1+ (400/300)] x 0.6 – 1 = 0.40 or 40%. A positive 40% expectancy means that your system will return you 40 cents per dollar over the long term.
- Focus on your trades and learn to love small losses.
Once you have funded your account, the most important thing to remember is that your money is at risk.
culled from investopedia