You can find many news articles, blog posts, and eBooks talking about how specific traders make a fortune out of trading forex. Some of these are only designed to entice you to join the forex trading community. However, some of these are based on real traders who have actually earned millions trading this particular asset class.
Statistically, more than 80% to 90% of traders lose money in the market. Forex traders are not exempted from this, and they actually tend to blow up their accounts by using improper and untested strategies.
This article aims to convince you that forex trading is actually profitable when taken seriously.
What exactly is a forex trader’s job?
You may be thinking that being a forex trader simply means all you have to do is trade the asset. But to be an efficient forex trader, you need to do more than just enter orders on a trading platform.
One of the most important jobs of a forex trader is to manage their portfolio efficiently. In managing your portfolio, you will also be managing your risk aside from monitoring assets on your chosen time frame.
A forex trader must do their research properly by scanning for opportunities whenever they could so that they’d be able to compound whatever small gains they have. Retail traders are also lifelong students regardless of their experience in the forex trading scene. They learn from both gains and losses as well as from the knowledge passed down by other traders.
Like handling a normal business, you should be prepared for whatever negative event that might affect the assets in your business. Preparation for this does not only involve the products being offered in the market, but also the preparation you do mentally is more significant than you might think.
Being able to manage your risk effectively is a very crucial trait for traders to have. But they should also know how to manage their emotions. You read that right. Your emotions can have both a negative and positive effect on your trading performance.
As previously mentioned, entering orders is part of a forex trader’s job. It may sound like an easy task, but it involves more than looking for assets to trade and clicking on a few buttons on your trading platform. Traders absolutely can not just blindly open a position in an asset they are interested in without doing prior research. Calculations are needed to know how much you are going to put in and how much you can expect to earn.
Lastly, traders must enter orders with conviction by using a set of premade rules. This would serve as a guide for any kind of market condition. You can create your own set of rules, or you could also gain inspiration from successful traders.
Overall, forex trading is easier said than done. Although the end goal is to profit, the steps to become a successful forex trader require hard work, diligence, and patience.
How long can you keep making a profit by trading forex?
The possibilities are endless when it comes to trading forex. Since forex prices still move during global bull and bear markets, traders can still profit as long as they spot a favorable opportunity and take it. Although you will not always make a profit from each and every one of your trades, it is imperative to strive for consistency and to constantly improve your trading system.
The value of your trading system will determine profitability as a trader. There will be times that you will encounter losing streaks, and you might feel like you’re not cut out for this type of profession. But in reality, this happens to even the most experienced and knowledgeable trader.
You can not possibly know what will happen in the future, but you can be sure that if you improve your edge in the market, you will outperform your past self. In line with this, we will be talking about forging the proper mindset to prepare you for even the worst trading day.
What is Money Management when trading forex?
Money management when trading forex comes in many forms, but it all boils down to risk management. Through risk management, you will prioritize proper rules that involve your orders, assets, capital, and portfolio.
For orders, risk management has an appropriate RRR or risk/reward ratio. Having the ideal entry price for both long and short trades will ensure that you keep your losses in terms of price drawdown to a minimum. Ideally, RRRs of greater than two are sought for, but traders with a better hit rate will be able to take advantage of higher values for RRR.
Managing your assets simply means monitoring your current positions. From putting stop-loss points to taking profit at significant levels, you will be able to know exactly how much you’re risking or gaining at any point in your trading hours. Depending on the ever-changing market conditions, your decisions for the assets you’re holding might change as well.
Diversification is widely popular for a good reason. Having a lot of assets in your portfolio means that you’re not risking it all on a single trade. Aside from that, having multiple opportunities instead of one is good for your Mindset because the chances of having a trading slump will be lower.
Capital management is the most difficult of the four. Traders must know how to both scale in and scale out of positions to either secure profits or to even risk more if they know if a trade is going to go their way.
Likewise, it is important to only allocate a set amount per trade depending on risk. At most, forex traders should only risk a single percent of their portfolio for every trade. If you suffered a loss, a percent or two is easy to gain back on your next trade.
Overall, money management is not only important in profits, but it’s also your ticket to surviving in a market where most traders lose money.
What mindset should a forex trader have?
Forex traders, in general, should have a calm and collected mindset. This mentality can be developed in every trader as long as they put their heart into it. When trading, even the best setups and even when using highly profitable strategies, a single deviation from the rules due to the improper Mindset will cause losses.
Remaining calm at all times has its benefits. The ideal trader will never close a position early, nor will they chase price if it surpasses their optimal entry point. Overall, they avoid the fear of missing out as well as panic that could be caused by price fluctuations brought about by economic events and sudden changes in volatility.
How to improve your edge in the market
Improving your edge means giving yourself a higher chance of winning or surviving in any kind of market. This advantage could be seen in either your Mindset or your strategies. Although not every trader is perfect, they are expected to constantly improve and find ways in which they could profit more or lose less.
In terms of strategies, a forex trader might have the best skills in technical analysis, and they could hone their skills even further. Analytical traders have the advantage when it comes to interpreting market-moving news and properly judge short-term and long-term effects.
Additional ways to test and improve strategies include backtesting and proper use of the risk-reward ratio. As for backtesting, traders can use modern technology to automatically test out their rules and strategies in both past and present market conditions.
This enables them to know which strategy works best for them and if further improvements could be made for their profitability and drawdowns. Adjustments in the system may come in the form of changes in the asset traded, in the indicators they use, or perhaps in their trading hours.
How to be a successful forex trader
One way to become a successful forex trader is to practice, practice, practice. As the old saying goes, practice makes perfect. But in this case, there is no such thing as a perfect forex trader, nor is there a perfect trading method. There are a lot of strategies and trading techniques available, but you need to know what suits you best.
Through backtesting and years of trial and error, you will be able to develop a system to which you can adhere. It’s important for you to follow your system no matter what happens. Knowing what kind of trader you give you an edge to your performance and learning process so that you could trade your best, especially on your preferred market conditions.
As stated above, a trader’s system is not everything. They must have the right Mindset and risk management strategies embedded in their executions. With the right risk management strategy, forex traders are able to rise above common traders.
Successful forex traders take advantage of any opportunity with a set goal in mind. This goal is both performance and outcome-based. Not only do they minimize their losses, but they also maximize gains through different strategies.
Although they are not able to capture the full move of any asset, having the consistency to accumulate small gains will make them rich over time.
As previously mentioned, successful traders should also have the right Mindset. With a proper system that brings more profits and a risk management strategy that only allows small losses, the only determining factor left for their success is how they tackle every hurdle that the market throws at them.
Through the ups and downs of the volatile forex market, they must, at all times, remain calm and follow their plan. With an effective trading system in place, they just need to open and close positions without second-guessing themselves. Successful traders do not allow their emotions to get the better of them even when things don’t go their way.
Furthermore, the best traders know when to take a break so that they could come back in the market as their improved selves.
Is trading forex really worth it?
If you do put a lot of time, effort, and money into this profession, it can be profitable and worth it. Trading always comes with risk, but you can minimize this by doing your research and utilizing all the available trading tools.
It may not feel like it’s worth it at first since you’re still learning the ropes and possibly losing more than you expected, but give it some time. Eventually, you will get used to how the asset works and devise ways on how to execute trades efficiently.
Will your forex broker affect your profitability?
Your broker can affect your profitability because of fees that you might incur from using their services. Even if your chosen broker advertises zero commissions on all of their trades, their fees will come in the form of your losses due to spreads as well as interest rates from the margin that you borrowed from them.
These brokers fight for clients by offering competitive spreads and other services such as margin and leverage fees. Although the value of these might not be all that big, once you trade bigger lots of any forex pair, especially with margin, your realized losses add up and create a significant change in your profitability. As a forex trader, you must make every pip count.
Will I get rich trading forex if I only invest $100?
It is possible but it is quite difficult to achieve. It requires both perseverance, knowledge, consistency, and a bit of luck. There have been some instances wherein traders boast of achieving unrealistic profits even with small investments.
If you are starting off with a hundred dollars, you will most likely be using margin and leverage to exponentially increase your gains. However, it is important to also temper your greed by properly managing risk and keeping your losses to a minimum.