Building a successful trading career in the forex market requires both time and effort. It is not something that you can achieve within a day or two and those who lack patience will struggle to realise their trading goals. Many people think that trading is easy as you just need to sign up with a broker and join a trading platform like MetaTrader 4. This electronic trading platform has simplified the process of trading with its user-friendliness and powerful tools. But the end result will depend on your abilities and how well you can use these tools.
So, before you get started, you need to learn a lot and develop your trading skills. In this article, I will talk about the top 4 skills that you need to develop to become a profitable and successful trader in the forex market.
Learning Ability
As I stated earlier, forex trading has a steep learning curve and the first skill you need to get past the beginner phase is grasping power and learning abilities. You should be able to do your research and gather knowledge about the forex market and understand how it functions. Finding accurate data about currency trading and strategies is easier than ever with all the online platforms that provide reliable information and education resources for free.
You can also indulge in offline learning by reading books on the topic of forex trading and you will see a lot of good books written by professional traders. You need to start by learning the basics and get used to the popular technical terms that are used by forex traders. Words like pips, position, shorting, going long, lot size, margin, leverage and drawdown are the basic jargon that you should know the meaning of before diving deep into the technicalities of trading.
But just reading about forex trading or watching video tutorials will not be sufficient to gain practical knowledge about the trading process. For that, you will have to experience trading in real-time market conditions. However, you are still not ready to risk money in the process. Thankfully, all forex brokers provide a demo account facility where you can trade with virtual funds and practise well without any risk. This is a perfect place to learn and enhance your skills.
Strategic Approach
Another skill that you need to develop to become profitable in forex trading is the ability to trade with a strategic approach. For this, firstly you will have to choose a strategy that you can follow to find trading opportunities. When you find a simple strategy that fully aligns with your trading goals, you can personalise it to suit your requirements better. You should never blindly follow someone else’s trading approach or strategy as the results will not be the same for all.
Hence, you need to build a trading system that fits well within your trading plan and set some clear rules to make sure that you don’t deviate from this plan. When you set realistic trading goals, your trading plan will also be logical and you will be able to get the desired outcome by sticking to your strategy. Your strategy keeps you on the right track while navigating the frequently fluctuating forex market. You need to keep your emotions in check and always make rational trading decisions.
If you are trading with a small amount of capital, your expectations for profit should also be small or else you will end up being disappointed. This does not mean that you should not set bigger goals. You can follow a long-term approach for the big goals and then break them down into smaller goals that are time-bound. Backtesting your strategy is important to detect any shortcomings and fix them in time. You should always have a backup plan to rely on if your first plan does not work.
Risk Management Skill
Risk management is a survival skill for traders as the forex market can be unfavourable at times and even an expert trader cannot make accurate predictions when the market becomes too volatile. Your analysis can be wrong at times and losses are a normal occurrence. But the losses that you encounter as a trader can be minimised to a great extent by not taking excess risk. To manage the risk, you should understand your risk appetite and devise a risk management plan.
Based on your risk tolerance, you can decide how much money you can afford to lose in the trading process. Your risk per trade should be decided in advance considering your risk/reward ratio and profit targets. Your risk for a single trade should never go beyond 2% of your account balance. The risk/reward ratio should be optimal for reducing your losses without compromising with profit potential. You can also use tools like trading calculators to calculate important metrics related to your trades.
You should also assess the margin requirement of your trades in advance and make sure that there are sufficient funds to maintain the margin level. If there is a margin shortfall and you fail to deposit more funds, your trade positions will be automatically closed following a margin call. To avoid such a situation, you need to be careful about how much leverage you use for trading as excess leverage can put your trading account in a dangerous position when you lose the trades.
Emotional control
The last skill that I want to focus on in this blog is emotional control and it is also something that many traders fail to develop even after all the learning and practice. How you manage and control your emotions also determines your attitude and mindset when you start trading for real. A trader who gets easily overwhelmed by emotions like fear, greed and excitement will often fall into the trap of emotional trading and end up making poor trading decisions.
Because the decisions that are driven by your feelings and emotions will lack logic and they will not yield good results in forex trading. Even habits like impulsive trading and overtrading are linked with the mental state of a trader as they are unable to think rationally due to the stress of trading. You will often experience a dilemma and this indecisiveness can affect your performance as a trader in the fast-paced forex market where timing is crucial.
You need to accept the losses when they happen and refrain from revenge trading. You should also get rid of the FOMO which convinces you to deviate from your trading plan as you are afraid of missing good trading opportunities. You need to build trading discipline and be patient when you don’t get the expected results right away. Many beginners enter the market to make quick profits and this can turn into desperation, which ruins your plan.
Summary
In a nutshell, your success as a forex trader is defined by your ability to learn and follow a strategic approach while managing the risk and taking control of your emotions. All these skills can be developed over time if you stay committed to your goals and make an effort because anything can be achieved with patience and persistence.
