Despite all the numbers, charts and ratios involved, trading is actually more of an art than it is science. Like art, there is talent involved, but that will only take you so far. The top traders train their skills through practice.
This article takes a look at the five steps a beginner can use to help perfect their craft in forex trading. Even those experienced at trading may even learn something new, to make more profitable trades.
1) Choose a methodology
Before you enter any market, you’ll need to have some idea of how you will make your decisions before executing a trade. You need to know what information is required in order to make the best decision for yourself. It’s the fundamentals that will drive the trend in the long term, whilst chart patterns tend to offer trading opportunities in the shorter term. Whatever methodology you choose, you’ll need to be consistent.
2) Calculate your expectancy
Check all of your previous trades that were winners against all your trades that were losers. Next you should determine how profitable your winning trades were against how much your losing trades lost. Looking at your last 10 trades should be sufficient. Or if you haven’t made an real-life trades just yet, you can go back to your chart to where your system would have determined when you should enter or exit a trade. Then you can determine when you would have made a profit or a less. Note down these results.
Your formula should look like this:
E = [1+ (W/L)] x P – 1
E = Expectancy
W = Average Winning Trade
L = Average Losing Trade
P = Percentage Win Ratio
3) Focus on your trades
After funding your account your money is then at risk. While you should learn to accept small losses, your ultimate aim is to focus on making profit. You should only leverage your trades to a maximum of 5% of your total funds. Therefore, if you had $1,000 in your account, never let any trade lose more than $50.
4) Conduct weekend analysis’
Advanced preparation is always a useful idea. Therefore, when the markets are closed on weekend, you should study the weekly charts to look for patterns or news that could affect your trades. This exercise will help your formulate your upcoming trades for the week
5) Keep a record
Keeping a record of your trades is one of the best learning tools anyone can have, and something you should keep adding to throughout your trading career. Your record book should list the reasons for the trades, your entry and exit points. That way you can look back
on it in the future and learn from any mistakes you may have made.