25 Tips to Improve your Trade Profitability
Profitability in Forex trading does not come by accident. These tips covered here are tried and tested rules that will help you last long in this challenging market.
1. Do not trade with just any broker
It is important to make sure you have properly researched your broker. Are they reputable? Will they pay your withdrawals? Are your funds insured? A regulated broker with years of history in the industry is good for you. Similarly, a broker with funds insured will ensure you can get your money (usually up to a maximum $50,000) back in the unlikely event that they go bust.
2. Do not trade with money you can’t afford to lose
This is repeated everywhere but many traders ignore this. A huge chunk of forex trading success is dependent on your ability to have psychological balance. This is difficult when you are an emotional wreck as a result of trading with funds that you can’t risk.
3. Do not look at the money
It is difficult for struggling traders but successful traders know the importance of ignoring the money and focusing on trades. When you are looking at the money, it is easier to make irrational decisions. This is why you close a trade that has gone into profit a bit because you suspect a reversal on the way. A seasoned trader will stay in the trade till the end regardless of what happens.
4. There is no room for emotions
If you allow subjectivity and emotions to get in the way of your trading, you will fail. Follow your trading strategy judiciously and do not see a trade where none exists. It is not compulsory to have an open trade at all times!
5. Know when to take a break
The length of the time spent staring at the charts do not automatically translate to profits. Take a break when you feel overwhelmed. This is especially true for intraday traders who could face consecutive losses over the course of a trading day. Know when to call it quits or you could fall into the trap of revenge trading, thereby falling into deeper losses.
6. Plan all trades
It is important to always take carefully planned trades. If there is no reason behind a trade, do not take it. For successful Forex traders, the only justifiable reason for taking a trade, is that it is supported by their strategy. Wait for trades that fall in line with your trading plan.
7. Avoid poor Risk/Reward Ratios
The unpredictability of the Forex market is such that traders need a reasonable risk to reward ratio on all trades to stand a chance when it comes to sustainable profits. This means you should only take trades where there is the possibility of making back at least two times your risk amount.
8. Do not put the house on one trade
Excessive risk is one of the most common causes of a short trading career. There is no hard and fast rule to risk but having more 5% of your trading capital on one position is dangerous especially when you open multiple positions. Inconsistency in risk is also a problem as you will only end up distorting your strategy’s profitability.
9. Avoid narrow stop losses
Let all stop losses you place be determined by the market and trading system. The same applies for trailing stops. When you are in a trade, it is important to allow the trade some room to breathe. This is especially true for more volatile instruments or you stand the risk of leaving a trade that would have matured into nice profits far too early.
10. Do not ignore trailing stops
“Trailing Stops” is a code in most Forex trading platforms that moves your stop loss by a certain number of pips as your trade unfolds in profit. It comes in handy when you are not actively monitoring the markets. Other platforms have this provision as well but may be referred to by a different name.
11. Patience is a must
The Forex markets only move strongly in a particular direction 25% of the time. However, staying patient until such a time can yield all the profits you may be waiting for over the course of a trading period. Impatient traders lose money the other 75% of the time when the markets are stuck in a range or moving without conviction.
12. Do not experiment with live funds
This is what demo accounts are meant for. Do not test out new ideas with your money.
13. Do not trade with your instincts
It is good to listen to your gut most of the time in life. However, in forex trading, you must do everything according to your set rules. Listening to your guts in trading gives room to subjectivity.
14. Never extend your losses
Many traders make the mistake of holding on to a losing trade for far too long in hopes that it will reverse in their intended direction. This is dangerous. Close all trades as soon as you have exhausted the risk on the trade or as soon as your stop loss is hit. Do not move the stop loss or remove completely as the market may not return to your entry in time before you lose all your trading capital.
15. Do not have all your trading capital with one broker
This is to ensure your trading career is not solely in the hands of a single broker. As a rule of the thumb do not have more than $50,000 with one broker at any point in time. This is because the regulatory bodies charged with insuring trade accounts will not pay above this amount if a broker goes out of business.
16. Trade Strategies You Are Comfortable With
It may be tempting to become a scalper or to become a long term trader. However, the decision should ultimately come down to your trading psychology and what you are comfortable with. A scalper needs to have the mental dexterity required to manage dozens of trades over the course of a trading day. A long term trader needs to have the patience to sit through the up and down swings typical of the forex market without taking any irrational decisions. Therefore, before you decide what side you should take, you should take time to consider your individual peculiarities.
17. Do not try every new strategy
It is common to hear traders say they want to try new strategies to learn something new. There is nothing wrong with a little bit more education but do you really need it? The myth than no trading system can last over a period of time is not true, especially for manual trading systems. So why do you need to learn a new strategy when you already have a successful strategy? The strategy that made money the week you lost, will have its losing weeks.
18. Do not listen to analysts
Everything you need to make a trading decision is on your chart. Even when all the experts are in support of a trade in a specific direction, don’t jump in based on their opinions. Go against the popular take if your system is in support of it.
19. Be Ready to Take Losses
You may have heard it said several times that no holy grail exists in forex trading. This is the reality. You will have losses. Looking for a system that will make sure you no longer have any losses is a futile attempt. The bottom line is to make sure you have more winning trades than losses, every year.
20. Do not revenge trade
Struggling traders often try to “get back at the market” after a losing trade. Some do it in a bid to return their account balance to the previous state before the loss. This always backfires. The market doesn’t respect your emotions. It is futile trying to enact revenge. If you were wrong before, you can be wrong again.
21. Do not ignore fundamental analysis
Even when you are purely technical trader, it is important for you to always be aware of fundamentals. What news releases are scheduled for the trading day? The market often disregards technical analysis during these times and could be when you lose all the profits you have built up. Be informed about releases and protect your trades.
22. Trading without a stop loss is dangerous
When you are trading without a stop loss, you are exposing your account to sudden losses in the event of a major occurrence that doesn’t support your trade position. Think about traders holding a buy trade on the GBP after the BREXIT Referendum. Some GBP pairs fell by thousands of pips in a day. Additionally, not having a defined risk already puts your trade management on the wrong foot.
23. Do not trade pairs you do not understand
Before you open a trade on a pair, understand the daily ranges, spread, possible swap rates and general behaviour. Your first trade on a pair should not be on your live account. If this must happen, only use a fraction of your standard risk.
24. Do not practice martingale
In the martingale style of trading, traders double the risk after a lost trade. This is a dangerous approach that ultimately equates to doubling down on the original mistake. It will lead to an account failure in the long run.
25. Analyse your trade results
It is important to analyse your trade results after every trading month to see if there are things you should improve about your trading habits. When you find something worth changing, try the change on a practice account for the next two months of trading before transferring it to your live account.