Forexer: 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.

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.

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.

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.

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.

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).

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.

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.