For many forex traders (or any type of trader, for that matter), long gone are the hopes of making millions of dollars overnight, and all they wish to do now is stop losing money and begin to turn their trading accounts around. There are many mistakes that traders make that contribute to getting themselves into this situation, and this article is going to cover the top five things traders can do to turn their accounts and performance around!
Pick a Trading Method and Perfect It
Traders who come to forex in most cases are looking to make a lot of money and do so very fast. To achieve this, they begin to chase the "Holy Grail" that will make them all their riches. Instead of looking for a method that will give them gradual success, they search for the latest fancy indicator that will do all the work for them. I am here to tell you that we all would be rich if this were possible!
See also: There's No Holy Grail Indicator
If you are serious about making money in the forex markets, it is time you get rid of this mentality and settled into learning a method that you can use for the long term.
One method that can be used to trade the markets successfully is price action trading, which has been around for a long time and will be around for a long time to come. Price action trading will not stop working every time the market dynamics change.
Price action trading involves learning to read the raw price on a chart and focusing on high-probability price patterns that repeat themselves. Price action is a very simple method that most traders can get their heads around with a little help and the correct education.
Once a trader has picked the method that best suits their trading style, they need to give up on the idea of the "Holy Grail" and begin perfecting their chosen trading method. Chopping and changing trading methods only leads to confusion and frustration.
The only way to perfect your chosen trading method is to commit to it, and practice until you have perfected it!
Learn to Trade on Higher Time Frames
Many traders have the misconception that the lower the time-frame chart, the more chances they have to make trades, and thus, make money. While it is true that traders will get more signals on lower-time-frame charts, it is also true the lower the time frame, the more false signals there are and the harder it becomes to make money.
Traders can begin to turn their trading around by taking just this point on alone! The higher-time-frame charts are where most trading should be done for beginning traders.
One of the best reasons the daily chart is a lot more powerful than a lower-time-frame chart such as the one-hour chart is because of the time that goes into making the signals. An example of this is an inside bar.
If we see an inside bar on the one-hour chart, we know that price could not break out of the previous candle's range for one hour. If, however, we see an inside bar on the daily chart, it means price has gone through all trading sessions including the UK and US sessions and has been unable to break out of the previous day's range.
Obviously, a candle with 24 hours worth of information is telling us a lot more than a candle made up of only one hour, and because of this extra time that goes into making the daily chart signals compared to the lower time frames, the signals are much more reliable and powerful.
Stop Watching Charts All Day Long
Once a trader has committed to only trading the larger time frames such as on the daily chart, it is now time to get rid of one of the most widespread trading mistakes there is: Watching the charts all day.
This trading habit is a very serious mistake that many traders make. If traders were to watch the charts all day and not do anything, this would be fine, but from watching the charts all day, traders start to make mistakes like:
- Entering trades when they shouldn't
- Taking trades off when they shouldn't
- Taking profits when they shouldn't
- Tightening stops when they shouldn't
When a trader has committed to trading the daily charts only, they only need to look at their charts once a day. That is it!
When the market closes for the day, the trader should switch their charts on and look for possible trade set-ups. If there is a trade, they should set their entry, stops and targets. If there is no trade, they need to turn off their computer and walk away and do something else!
There is nothing more they can do. The market has to move, and it will do the same thing whether you are watching it or not. Walk away and let the market do its thing.
Only Trade with Money You Can Afford to Lose
In the forex market, scared money is lost money. A trader who is placing trades with scared money may as well just give it to a charity. The reason this is the case is because when a trader is fearful, they will make trading decisions that reflect that.
The trader who is playing with scared money will commit all types of psychological trading mistakes that will ensure that money is lost.
See also: 4 Trading Fears and How to Beat Them
The only money that should ever be risked in the forex markets is money that a trader can afford to lose. Traders should never risk money they need for their kids or to put food on the table! This rule is important.
Some people will be saying "But I only have $100 for a trading account." This is fine. Many brokers offer mini and micro accounts that will let you trade while risking only a few dollars at a time and continue to use correct money management. Over time, you can keep adding money to your account from savings to build it up.
Work on Your Mind
One of the most overlooked areas in trading is the psychology side. Many traders concentrate day in and day out solely on their trading method or system. This is why many people fail in the forex business, and as long as they don't work on their mind, they will continue to fail.
Many mistakes a trader makes are based on how they approach and think about the markets and their trading. Trading is a battle that is very much waged in the mind. If a trader doesn't have the correct mindset and way of thinking, forex will forever be an uphill battle.
Traders need to focus on this aspect of trading and begin to learn all they can. Reading books and blogs from professional traders is a great way to pick up on skills you can implement into your own trading.
A great book that will help you begin to think about the forex markets in the correct manner is Trading in the Zone, by Mark Douglas. I highly recommend buying this book and applying all the principles it contains.