Forex Trading: 3 Keys To Success
There is a definite step-by-step process to becoming a successful Forex trader. Most would-be traders don't become profitable on their first try, or even the second or third. Those that have the determination and persistence to go through the process learn a lot of valuable lessons along the way. Here are three things you should know if you want to become a consistently profitable Forex trader.
There are a lot of distinct ways to trade Forex, from scalping the lower time frames to trading on the daily and weekly time frames. But in my experience, it is the traders that have the persistence and stamina to trade the higher time frames that do the best. Higher time frames are more reliable, take less time to trade and are a lot less stressful than the lower time frames.
When I started, I was drawn to the lower time frames. I thought I could learn quicker and make more money in a shorter period of time. I thought I could keep my stop losses super tight and use higher lot sizes to rake in massive money in minutes. The opposite was true. However, when I switched to higher time frames, success started happening more regularly. So, the first secret is to start trading on time frames from 1 hour to daily. (My favorite is the 4 hour time frame).
New traders want to make more money on each trade by using big lot sizes. A lot of times this means using too tight of a stop loss instead of the proper stop loss based on price action. As a result, they get stopped out a lot and lower their winning percentage.
A better way to trade is to manage your risk with your lot size. Adjust your lot size to manage risk after placing your stop loss where the market indicates. This way, you can determine a specific percentage of your account to risk on each trade, which will be the same regardless of whether your stop loss is 20 pips or 200 pips. So, the next secret is to use your lot size to manage your risk.
Forex trading is a serious business, not a get-rich-quick scheme. From the first two recommendations you can see that successful traders move away from the fast time frames and unrealistic stop losses searching for quick profits. Treating Forex like gambling leads to losing a lot of money and having your sporadic wins reward bad behavior that eventually destroys your trading account.
A better way is to have patience and treat your trading like a business. In the long run, creating a trading plan for slow, steady profits and developing the trading skills to trading the plan consistently is what creates a successful trader. Forex trading should be treated like a serious business, because when you do you can make serious money.
Article Source: FxTradingStock.com
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by: Edward Lomax
Total views: 25
Word Count: 485
Date: Fri, 14 Jan 2011
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