10 Tricks for Profitable Forex Trading
It’s not very uncommon when someone asks whether you can make a living and make profit from Forex trading.
This article offers 10 tricks that will help to make Forex trading profitable. Earning in trading is not always possible, but what is possible is to make your investment profitable.
Training is, without a doubt, the best strategy to gain in trading.
So here are the tricks to make currency trading profitable.
1) Leave expectations aside
The problem starts with obsession. i.e. investors become obsessed with making a profit. So this anxiety is one of the reason for loss.
So the first rule is to forget unrealistic goals and objectives. The idea of making money on Forex with just a few quick trades is extremely unlikely. Trading risky and being overconfident is one of the cause that can lead to loss in the very first initial investment, resulting in lost interest and motivation.
This often happens when beginners who follow the action of the price in the very short term exposing themselves in a very risky way. So in many cases overexposure of traders belonging to this group is high and they lose their capital in a matter of a few months.
Generally the most veteran traders focus on a single thought “Earn the money needed in Forex and forget about making more money”.
By setting a high earning target, a lot of emotional pressure arises, resulting in one of the biggest possible mistakes, i.e. falling into over trading.
As an alternative to focusing only on how to make money on Forex, try to focus on learning a trading strategy and researching all the trading tools at your fingertips.
2) Define your risk profile
Gain a good understanding of the fundamentals of the market. If you’re not comfortable with the dynamics, don’t invest in Forex even if it’s profitable. This applies to any market.
But if you believe that your investor profile is in line with the Forex market, go ahead!
But keep in mind the following:
- Invest only what you can afford to lose without affecting standard of living.
- Diversify investment. It is recommended that you do not invest more than 20% of your total investment in Forex.
- What’s your risk profile: Moderate? Aggressive? Conservative?
- Be prepared to lose. If after a series of bad trades, you are willing to keep trying, Forex is your market!
3) Choose a trading strategy
A well defined strategy is needed to make currency trade profitable. There is no right or wrong way to trade, what really matters is the strategy you will adopt.
Sometimes you will see that one trading strategy works well for one currency pair in a given market, while another strategy is more suitable for the same pair in a different market or other market conditions.
To make Forex profitable, try to focus on learning a trading strategy in line with your risk profile. Research all the trading tools at your fingertips. Study the techniques that seem to have logic and think about how they are used in your strategy. In addition, you can study how markets behave and learn how the industry works.
Finally, if you want to win in Trading, don’t forget to perform back testing until you trust your strategy.
4) Put emotions aside
This may sound very easy, but it’s true. Emotion is the worst enemy of a trader seeking profit. Some people try to see trading as a game in which they have to beat the market and when they start losing, they feel let down by their emotions.
First of all, do not consider trading as a game. Currency trading is an interesting activity having its own mix of analysis and discipline. You shouldn’t blame the market or worry about the losing trades.
To frequently make money in Forex, at least make investment profitable, understand how Forex works, trust your analysis and follow the rules you established. This is the definitive key to making profits in Forex. Emotions can ruin a trader’s experience, so it’s vital to put them aside and not involve them in trading.
If you’re sad, don’t trade. Do you feel very happy and excited? Don’t trade either. Overconfidence in trades can cause large losses.
5) Set a Stop Loss and Take Profit
No matter what your trading strategy is, you should always set a Stop Loss. This type of order allows you to define the closing price of the trade. The order will close at this level, even in your absence. In other words, setting a Stop Loss will give you the peace of mind of not losing more than expected.
However, there may be scenarios when the market behaves erratically and price gaps are present. If this happens, the stop loss will not be executed at the predetermined level but will be activated the next time the price reaches this level. This phenomenon is called slippage.
Take Profit is the most frequently used order in the Forex market. This order allows the trader to close a position automatically when prices reach a predefined level.
The Take Profit order is an order that limits the initial position and is placed in the opposite direction.
6) Stay Updated
Another way to make Forex trade profitable and make money is staying abreast of news. Many market movements are given by news and announcements. This is also called fundamental trading.
Even if you are a technical trader, you should pay enough attention to the fundamental events, as they are a key factor in market movements. For example, if you have a reliable trading strategy and several technical indicators pointing to a long trade, check the Forex calendar to see if your order matches the current news. Even if your technical trading strategy works perfectly, fundamental news can change everything.
7) Never Over Trade
Over trading is the result of seeing opportunities to make money in Forex when there aren’t any. Many times traders may or may not realize this and this is where the self-deception of our mind is at stake.
There are two types of over trading and both are known to be in many cases the complete opposite of how to make profit consistently:
- Trading very frequently
- Trading too large volume
Trade Very Frequently:
In one of the speech, Warren Buffett has said discipline is needed when investing:
In investing, you have to wait until you see the opportunity clearly, because markets are not a game. You can sit there and wait… and if you don’t like price you don’t have to trade on that day. You can wait a day or two, and there’s no problem. You can just wait until once and for all you like the price, this is when you really know what you are doing, and this is when you can get into the game. You just need a couple of trades.
If same principle is followed in Forex, it makes even more sense. The conclusion is clear, a trader doesn’t have to trade a lot to be profitable in currencies, just do the required trades.
By the time you have a live account, you must have a strategy with pre-set conditions specific to the trade enttry. Just follow your own strategy and don’t trade when you just want to.
Trading too large volume: The other aspect we mentioned about over trading is trading with too much volume. For many people, leverage is the culprit.
But is this true?
As we all know, Forex brokers offer significant leverage on their trading accounts. In theory, this was originally to give traders the opportunity to make money with small investments. This allows more people to find the value of trading in this market and use the services offered by these brokers.
However, in practice, using high leverage is still very common in the most novice traders who are tempted to maximize their Forex profitability. Although, in reality, what they are doing is maximizing their real loss.
High leverage does not intrinsically mean falling into loss, as it allows you to trade with larger trading volumes, resulting in the trader having more free margin with which to handle a possible market shift against you.
Higher volumes mean more pip value, and pips are the engine of profit and loss.
However, this possibility of a trader being able to trade an excessively high volume makes an account more susceptible to Margin Call. The important thing is to learn how to avoid falling into over trading and understand leverage.
8) You will lose
In reality, the word consistent does not mean that you always win on all trades, but rather that in a high set of trades you get a positive balance. Closing each and every trades for profit is simply a myth.
If we talk about how to be consistently profitable in Forex over the long term, some professional traders may be consistently profitable on a daily basis, but no one will even be able to show a trading statement that does not include a single losing trade.
If you are now a losing trader, don’t start avoiding trading. Some of the most successful traders with decades of experience confess that percentage of loss making deals is always higher than the winning deals.
The trick is to make winning trades profitable enough so that they can cover up losses and net profit becomes high. Keep in mind that quality is very common in long duration traders. It takes a lot of mental strength to admit mistakes in decision making and to close an order with a small early loss.
On the contrary, it also takes a lot of strength to trust oneself and not close a trade at a profit too soon. You need to be patient and follow the trend.
9) Develop a Trading Plan
Everything in life starts with planning and the same applies to currency trading. A strict trading plan can only help you reduce the losses.
You should stay away from negative trading habits, e.g. over trading. In which if you start out lucky, you will continue to over trade and end up losing in a big way at some point.
In exclusive scenarios, traders see positive results due to chance or luck, which attracts them to negative habits.
Many traders believe that this luck will continue, but as everyone knows, luck is not infinite and will finally end, someday, generating consequent losses. Therefore, it is important to reinforce proper trading habits, as only these will help in achieving goals and be consistently profitable in currency market.
10) Choose a broker
The best broker is not the one who makes you make the most money. He is the one:
- Regulated by a relevant entity
- Safeguard investors money to largest extent possible
- Offers high quality customer support
- Treats beginners like a student
- Provides sophisticated trading platform
Had money making been so easy, there would have been millions of online traders and no one would have asked, if foreign exchange trading is profitable.
However, the situation is very different. Most Forex traders actually lose money and it is very difficult to start making money in the currency market.
There is no golden rule. Many people look for a direct answer to the question “how to make millions in Forex”, and almost all end up using a certain market signal provider.
The main thing to remember is that in order to be profitable in the Forex market, you must have more winning trades than losing ones.
This usually depends on your trading strategy and the risks you are willing to take. Trading in the Forex market takes place on margin, which means that the size of your trade can be much larger than the amount of your deposits.
In other words, you can trade with much more than you have. This can lead to a lot of money being made on the Forex, although unfortunately, the same applies to losses.
To trade profitably in Forex you must have a high level of discipline and a strategy to stay focused, with no emotions involved, which is the downfall of many traders.
Strategy comes with use and experience. For beginners, it is recommended to first practice trade on a demo account and understand how the market works. Once you have experience, a good risk management policy and a strategy that works for you, profit will be achieved.
Hi, I am Nikesh Mehta owner and writer of this site.
I’m an analytics professional and also love writing on finance and related industry. I’ve done online course in Financial Markets and Investment Strategy from Indian School of Business.