Learning to Win in Forex

Once you’ve lost, you’ve won. That’s how it is in forex trading. You have to lose before you can really win. That is the ante as well as the “dues” that all traders pay to play the game. Those that survive, graduate to the next level of trading, and that is where the winning really begins. How do traders get there.

Generally, it’s by applying all they have learned from their own trading, and the lessons learned by others. The first real step to winning however, is when traders answer a series of questions including: 

Where’s the goal line?

What does a trader reasonably and realistically expect from his trading? This always translates into money-gross amount or percentage gain-that a trader decides as his or her goals. There are no right or wrong answers. The definition of the goal must come from a logical appreciation of the trader’s own skills, trading methods, and finances. Expectations are always tempered by experience, and the understanding of what it will take to achieve. 

What’s your time frame?

When can you expect to achieve your goals? The trader with ambitious goals based upon shorter periods of trading is likely to be a risk taker, and will have to adjust his or her strategies to this means. Those with longer term horizons can be a bit more flexible, though ultimately, the time frame is not as important as the trader’s outlook regarding the time frame they have chosen. This also pertains to the parameters a trader seeks to use. Intra day versus swing trading, fifteen minute charts versus daily charts, weekly profit goals versus quarterly or annual ones. 

Can you wait for your trades?

The impatient trader is the losing trader. Winning at trading is the same as being a successful hunter, which is knowing when to let certain opportunities pass by in order to bag the biggest and best game. It also means controlling one’s emotions, keeping cool, and often endless waiting for news or confirmation of trends, before entering trades or exiting them. Trading is the ultimate discipline. 

Can you handle losses? 

Winners are often losers, and will sometimes hasten the process by taking the losses early. Another thing they do. They move forward without dwelling on their losses or bemoaning them. They’ve employed sound risk management, and understand the odds BEFORE they trade. They don’t second guess themselves, and if they cut their losses early and the trade winds up a winner after they are out, they don’t moan and groan. They focus on the next trade without resorting to feelings of “revenge” on the market. 

Do you really, really Want to Win in Forex? 

Everyone says they want to win, but the reality is that few people possess the determination and the grit to stick it out long enough to become winners. Forex brokers will tell you that a huge percentage of forex traders lose…up to 95%…and most quit after a few years of trading. The irony of course, is that is exactly when traders are about to make it over the hump and become winners. Essentially, they quit just before the finishing line. Traders whom really want to win, never give up, even if they have lost all of their money. They may restart with less or even a little, but they come back to the table humbled, wiser and more determined than before, and learn and do whatever it takes to be successful.  

Do you have a plan? Piss poor planning leads to piss poor performance. Even a half baked plan is better than no plan, especially with trading. A trader without a plan is a gambler, or a ship without a rudder, whom lets the markets determine whether he or she will win or lose. Sorry Charlie, but the law of averages means you’re gonna lose. Make a plan, work a plan, trade a plan. You can always change it as conditions warrant. Trading without a plan is suicide. 

Putting it all together into Summary

Trading is NOT about money. It is about psychology. Money is merely the measurement of value that can be traced to an aggregate of the way traders feel. Essentially, the market is a collection of individuals that reflects their state of mind at any given moment. The trader whom understands his or herself-and can see what he truly is, warts and all, and is honest without hesitation-will likely be able to understand and comprehend the motivations and methods of other traders in the vast marketplace. He or she will be able to figure out how algorithms are programmed, since they reflect the psychology and thinking of people. Markets are emotional. Doesn’t matter if humans are trading or machines, or some combination of both. Indeed, the trader whom understands the role of psychology in the mechanisms of the market, will also grasp the ways to take advantage of it. Markets that go into oversold or overbought conditions are an example. Why would they even be considered to be in this territory if it were not for over reactions of traders? That’s a direct reflection of the role that emotions play on markets, as well as economies.  

At the end of the day, the winning trader is the one whom recognizes his or her own weaknesses and works to lessen their effect on his or her trading, while taking advantage of the weakness of others. Sounds cruel, but that is what trading is. Consistent winning can take consistently long to master. The primary reason is that most people are imbued by their cultures and their upbringing, to be mediocre, and not to stand out. It can often take decades for people to overcome this handicap. Unfortunately, traders do not have this luxury. They have to learn quickly, but thankfully trading can be painful enough that the lessons are imprinted both rapidly and deep.

Three Successful Strategies

By now, you have identified a time frame, the desired position size on a single trade, and the approximate number of trades you are looking to open over a certain period of time. Below, we share three popular Forex trading strategies that have proven to be successful. 

Scalping

Forex scalping is a popular trading strategy that is focused on smaller market movements. This strategy involves opening a large number of trades in a bid to bring small profits per each. 

As a result, scalpers work to generate larger profits by generating a large number of smaller gains. This approach is completely opposite of holding a position for hours, days, or even weeks. 

Scalping is very popular in Forex due to its liquidity and volatility. Investors are looking for markets where the price action is moving constantly to capitalize on fluctuations in small increments.

This type of trader tends to focus on profits that are around 5 pips per trade. However, they are hoping that a large number of trades is successful as profits are constant, stable and easy to achieve. 

A clear downside to scalping is that you cannot afford to stay in the trade too long. Additionally, scalping requires a lot of time and attention, as you have to constantly analyze charts to find new trading opportunities. 

Let’s now demonstrate how scalping works in practice. Below you see the EUR/USD 15-min chart. Our scalping trading strategy is based on the idea that we are looking to sell any attempt of the price action to move above the 200-period moving average (MA). 

In about 3 hours, we generated four trading opportunities. Each time, the price action moved slightly above the 200-period moving average before rotating lower. A stop loss is located 5 pips above the moving average, while the price action never exceeded the MA by more than 3.5 pips. 

Take profit is also 5 pips as we focus on achieving a large number of successful trades with smaller profits. Therefore, in total 20 pips were collected with a scalping trading strategy. 

Day Trading

Day trading refers to the process of trading currencies in one trading day. Although applicable in all markets, day trading strategy is mostly used in Forex. This trading approach advises you to open and close all trades within a single day. 

No position should stay open overnight to minimize the risk. Unlike scalpers, who are looking to stay in markets for a few minutes, day traders usually stay active over the day monitoring and managing opened trades. Day traders are mostly using 30-min and 1-hour time frames to generate trading ideas. 

Many day traders tend to base their trading strategies on news. Scheduled events e.g. economic statistics, interest rates, GDPs, elections etc., tend to have a strong impact on the market.  

In addition to the limit set on each position, day traders tend to set a daily risk limit. A common decision among traders is setting a 3% daily risk limit. This will protect your account and capital.

Position Trading

Position trading is a long-term strategy. Unlike scalping and day trading, this trading strategy is primarily focused on fundamental factors. 

Minor market fluctuations are not considered in this strategy as they don’t affect the broader market picture.

Position traders are likely to monitor central bank monetary policies, political developments and other fundamental factors to identify cyclical trends. Successful position traders may open just a few trades over the entire year. However, profit targets in these trades are likely to be at least a couple of hundreds pips per each trade. 

Forex Trading Conclusion

Like any other investment arena, the forex market has its own unique characteristics. In order to trade it profitably, a trader must learn these characteristics through time, practice, and study.

Traders will do well to keep in mind the helpful tips to winning forex trading revealed in this guide:

  • Pay attention to pivot levels
  • Trade with an edge
  • Preserve your trading capital
  • Simplify your market analysis
  • Place stops at genuinely reasonable levels

Of course, that isn’t all the trading wisdom there is to attain regarding the forex market, but it’s a very solid start. If you keep these basic principles of winning forex trading in mind, you will enjoy a definite trading advantage. We wish you the greatest success.

FAQs on Forex Trading Strategies

What are Forex strategies?

A Forex strategy is a system of rules that help to consistently and objectively analyse market behaviour to gain insight on who is in control of the market and whether there is a high probability chance of buyers and sellers turning up again in order to take a trading opportunity. 

What is the best strategy in Forex trading?

The best strategy in Forex trading is really down to the individual person. Some individuals will need to be able to handle the fast paced, decisive nature of fast time frame strategies. Others will not be able to handle the slow paced nature of higher timeframes. It is important to under the best strategy is what works for the individual person. 

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