Boosting Your Forex Profits Is a Virtue

08/15/2012 7:00 am EST

Focus: FOREX

Nial Fuller

Founder, Learn To Trade The Market

Nial Fuller of Learn To Trade The Market explains how patience can help forex traders more money trading currency.

Whether or not a trader has patience is perhaps the most important factor in determining their success or failure in the markets.

Patience is the most potent weapon we have in our trading arsenal to defend against making emotional trading mistakes. Unfortunately, most traders come into the markets with very little patience, and it’s usually the reason that they ultimately blow out their trading accounts or give up trading altogether.

For the smaller amount of traders who manage to understand that they must have patience to trade successfully and who actually use this knowledge, making money in the markets is remarkably easier. Here’s some more insight into how patience can improve your Forex trading.

How Trading Less Can Make You More Money Faster
Sound too good to be true? Well, it’s not. Trading less is actually the fastest way to make more money from the markets.

Consider this: you probably are guilty of overtrading—meaning, you have probably traded when you knew you shouldn’t have. Why did you do that? You did it because you got emotional; you had an itch to trade the markets because you got greedy and you wanted to make money fast.

Now, did you enter the market on a high-probability trading edge, or did you simply rationalize an entry in your mind because you just really wanted to trade? I’m guessing it was the latter and not the former.

Most traders do not think long-term enough to see the power of patience in their trading. They feel like they are “missing out” on opportunities to make money by not being in the markets all the time. This is the wrong mentality to have because there will always be opportunities in the markets, but each opportunity is not created equal.

What I mean here is this: if you have a high-probability trading edge like price action trading, and it has a 60% win rate, for example, if you trade when your edge is not truly present you are going to have more losing trades than normal, obviously. Thus, your overall win percentage will go down, say to around 40% or 50%.

This is going to put you further behind from where you would have been had you just stuck to your edge, and this means it will take you longer just to get to where you would have been had you just not traded at all. In other words, taking trades that you know you should probably not take does not do anything except make the overall process of profiting in the markets take a lot more time.

So, we could say that trading with patience increases your accuracy as a trader and makes you into more of a Forex trading “sniper” than a “machine gunner.” When you begin trading with patience, you will find that it gets easier and easier to ignore the desire to be in the markets all the time.

After your execution of patient trading gets reinforced by a higher winning percentage and less frustration and emotional trades, you will begin to enjoy not being in the markets, as well as the process of “stalking” and waiting for your next trade...

Becoming a consistently successful Forex trader depends almost entirely on the concept of reinforcing positive trading habits and eliminating bad ones. However, most traders end up reinforcing the bad habits, and thus they never get a chance to reinforce the positive ones. This is why most of them fail.

Most beginning traders end up reinforcing the bad habits of overtrading and overleveraging because they get lucky a few times doing this and make a lot of money in a short amount of time. They then spend their days trying to “recreate” the lucky trade they had before that netted them a big winner. In the process of this futile quest, they typically lose all of the money they made on their “big winner,” or more.

How to Become a Patient Forex Trader
Let’s discuss how to actually become a patient Forex trader. First off, it really is not that difficult; it simply requires that you are 100% certain of what your trading edge is and when it appears in the market.

Also, you have to commit to only trade when you are certain that your edge is present. If you can actually do this, it is going to naturally cut down on the number of trades you take per month while simultaneously boosting your overall winning percentage.

This will do two things:

  1. It will reinforce the positive trading habit of patience, which will allow you to stay calm and objective as you trade the market, thus avoiding most of the emotional trading mistakes that many beginners make
  2. It will allow you to make slow and steady gains from your trading, instead of the rollercoaster of an equity curve that you probably have now, because you are basically cutting the emotion out of your trading

The key to becoming a patient Forex trader lies in having your expectations based in reality and not in the clouds. What I mean is this: don’t think you’re going to make 100% on your account every month. The top hedge-fund traders in the world are very happy making 100% in a year.

I find that most beginning traders think they are going to double their accounts every month on some exponential trading escapade that is going to make them a millionaire or billionaire in a year. This is just not how it works.

Remind yourself that even if you make a 50% return on the year, that’s very, very good; most savings accounts don’t return any more than 6%, and the buy and hold strategy of most mutual funds in the stock market historically returns around 10% to 13% a year. So, if you think in realistic terms, you are much more likely to remain patient with your trading, because you won’t feel the need to make some unrealistic return each year.

If you do not learn to exercise the proper amount of patience while trading the markets, you will begin doing all kinds of self-destructive things to your trading account—overtrading, trading off five-minute charts, risking too much per trade, etc.

Simply put, you cannot become a consistently profitable Forex trader if you don’t understand why patience is a necessary component to Forex trading success, and make it a habitual part of your Forex trading routine. If you want to drastically improve your Forex trading, I suggest you slow down, take a deep breath and become a patient Forex trader, instead of the frustrated and emotional trader that you probably are now.

Nial Fuller is CEO and founder of Learn To Trade The Market, the Web’s foremost trading education community. Learn To Trade The Market is a global leader in forex trading education and training. The Learn To Trade The Market Forex Price Action Trading community has become a vital education resource for aspiring forex traders.

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