7 Tips for Becoming a Successful Forex Trader

If you’re like most traders who have been at it with forex for at least a year, you’re losing money and beginning to wonder if it’s even possible to make money trading forex. I’m here to tell you that success IS achievable, but it’s going to require some mental conditioning to start thinking like a professional, successful forex trader.

1. Model after someone who’s already done it - You can avoid so much pain by just learning from someone who has been successful already. If you try to get creative and form your own strategy and you haven’t had the experience being successful, you may not trust your strategy or yourself. Don’t underestimate the roles of emotions and self trust in your trading.


2. Adopt a trading strategy that is based on how the market actually works (so you can trust it) - I’ve seen traders too many times who just buy a course/ebook/signals service that is just based on some moving average crossing over another on a chart and expect to make money from it. Other than statistics from the past, there’s nothing that says these strategies have any long term predictive value! If you want something you can trust in and be able to use even through the losing periods knowing that your money is safe, make sure that your strategy is based on the behaviors of the market, fundamentals, market sentiment, and not just some statistical pattern.


3. Learn to put price action into context - Many traders fail because they subscribe to simple rules of thumb that everyone else (i.e. the rest of the market, their competition) can see as well, and they call it an “edge.” For example, many traders think they can make money just by buying when price breaks above the highs of a sideways range. Yea, that might’ve worked 30 years ago in the futures market, but traders aren’t stupid. And neither are brokers- they’re aware of this habit of newbie traders as well as other patterns, and they push the market up just to sell to them at high prices and then price spikes back down giving them a profit. If you want to play breakouts (or other strategies for that matter) make sure that you put the price action into context. If price breaks above the highs, look for confirmation from some really surprising news such as retail sales or a Bernanke press conference that rocked the market.


4. Think like a contrarian - When the market makes a big move after a news event just because it is normally a big deal (e.g. Nonfarm Payrolls), ask yourself, “Is this move really warranted?” If there wasn’t really much of a surprise, or the economy is in terrible shape and this is the only positive news release, it may be a better decision to fade the move and trade in the opposite direction.


5. Think critically and adapt to the market - When the market is fixated on one concept, like the debt crisis in Europe, or if you’re a technical trader: like buying dips in a range, start to think, “what could change this paradigm?” and be ready to take advantage of that change. For example, if the market starts focusing on a recovery in Europe, be ready to start buying Euros heavily before the masses come in, and if price breaks strongly to the downside out of the range, start selling as all the slow turtles who are still stuck to the old paradigm of “buying dips in the range” are getting their stops hit. Remember, the most powerful and profitable thing you can take advantage of in the forex market is the element of surprise. During other times, the market is so big and has so many cunning players that the competition against you is impossible to deal with (which is the main reason why even the majority of traders who are even using good money management lose).


6. View each trade independently and trust your edge - There’s a psychological bias for us to feel more pain from a loss than a win even if they are the same size. This pain causes us to enter at the wrong time, not enter at all, or lose complete trust in the system and skip to another forex trading strategy in search for the “holy grail.” If you can stop yourself and realize that you will have losses no matter what, but your system has an edge that will be profitable over time, you will be able to execute every time a good opportunity comes up and you’ll win over time.


7. Detach yourself from your trades - Remember, YOU are not your trades; YOU are YOU. I remember losing trades in the morning and it would ruin my day and cause me to enter all sorts of bad trades. When I reminded myself that I’m trading forex to make money and not to be some grand master trader that knows everything about the market and is stuck in front of his computer all day and ignoring his friends and the outside world, I felt liberated and I was in the right emotional state to make good trading decisions and then walk away and enjoy life.
   

Source from Kris Matthews

How to Stop Following the Dumb Money in Forex

If you want to achieve forex success and profits you need to stop following the dumb money, which represents the majority of traders. You need to follow the patterns of the small percentage of traders who are dominating this market in terms of profits. These traders are cold, calculated killers who have studied the rest of the market (i.e. their prey) well and hard and no how to react when the market behaves in a certain way.

My intention of this article is to show you how to stop following the flow of dumb money, which is always on the wrong side of the market, and start recognizing valuable, juicy clues that the market leaves behind, in order to generate consistent profits.


Know your prey
’m sorry to keep on with this “predator-prey” depiction of the market, but that’s what it really is. No one is leaving money on the table for you to pick up, so it’s up to you to take it from the market, otherwise you become the prey. A couple ways to spot when the market is about to make a move are what are commonly referred to as a “dead cat bounce” and a key rejection.

A dead cat bounce refers to when price falls violently and doesn’t bounce (no cats were harmed in the writing of this article), but rather maintains a tight sideways range, as the figure below illustrates. Let’s get into the psychology and the mechanics of what’s happening here: If some stimulus, such as bad news, entered the market and caused traders to rapidly sell off a currency, liquidity was probably low during the sell off. In that situation we would expect price to pull back to fill orders that were missed and for traders to “test” nearby support levels to see if there was indeed enough selling pressure. However, if we see no pullback upward in the ensuing session we can expect that selling pressure is indeed very strong and traders are still trying to unload positions.

The second strategy I want to share with you is called a key rejection. Often when you see price in a strong uptrend price will pull back or even change to a negative trajectory. The talent in taking a contrarily trade by selling at high levels is in recognizing and differentiating which signals are indeed turning points and which are just temporary down moves. The way to do this to look at a candlestick chart and see price try to breach a key resistance level but get rejected (as can be seen by price breaking through the level for a very short time period). If the rejection happens a couple of times, it could be an even stronger indicator of a reversal. A key resistance level is often a level that has defined the high or the low of price several times in the past, or is a “psychological” round number level, such as 1.50, 2.0, etc. What’s the underlying psychology/mechanics going on here? Well, a key level is a very important benchmark for traders. If they see price break through it successfully, they may be convinced enough to put more money on a long trade. If it tries to go through and backs down (i.e. gets rejected), it’s likely that some buyers tried aggressively to push the market higher, but the other buyers said, “No,” so sellers get more aggressive.

These two strategies are very effective for analyzing the markets but keep in mind, like in any strategy, the random generation of patterns can deceive you. In order to reduce the probability of that happening I usually combine my technical analysis with fundamental news event analysis. For example, if I hear that the market fell due to the worsening debt crisis in Europe, I’m more likely to sell Euros after the dead cat bounce. Furthermore, if I learn that the rejection of price at a key resistance level after a long uptrend occurs after a better than expected employment number, that’s a powerful indication that despite good news, the market doesn’t have enough pressure to maintain upward momentum.

It’s always important to zoom out and look at the big picture and put your trading indicators/strategies into context. By adopting this style of thinking and these types of behavioral strategies for adapting to and trading the forex market, rather than becoming the hunted, you become the hunter. Happy trading.

by Kris Matthews (http://tradeforexfundamentally.com)