Improve your trading in seven easy ways
Treat your trading as a business
Review what your attitude has been to your work as a trader. Did you look back at each transaction and work out your profit and loss? Every trade is in effect a transaction in your business and like any business transactions you should be considering risk and reward. Think about each trade, each venture into the Forex market as a business move – when you make a profit that is revenue and when you lose out that is a cost. You should aim to keep costs low and revenue high by managing the risks on every trade.
Position sizing pays
Position sizing basically refers to the size of a position within a particular portfolio, or the dollar amount that an investor is going to trade. Forex traders should employ position sizing for managing both risk and reward on each trade. Just as we said in the previous paragraph it all goes back to treating trading as a business so that you know, before entering a trade, what it’s going to cost you to do business with the market and then you can have a fair idea of a viable reward as a multiple of your risk (revenue). Go for a reward of twice the risk but if you can obtain three or four times, well so much the better.
Don’t over trade
There’s always a temptation to go full pelt but it is fraught with danger. Overtrading is an occupational hazard with most traders so it is vital that you become aware if you are doing it and call a halt – likewise if you haven’t caught the habit, don’t!! All Forex traders are there to make as much profit as possible. (No surprises there!) Overtrading is the same as a business (which we/you are) running up costs unnecessarily and thus bringing monthly revenue and profit down.
Training before trading
Forex trading is not a get rich scheme – indeed if the wrong steps are taken it can bring about the opposite effect very quickly. You need to learn your “trade”, acquire simple and straightforward trading strategies and master them which, among other things, should give you the skills to avoid over trading. It is really important that you demo trade for several months before letting yourself loose with real hard cash. Patience and the passing of time will give you the discrimination to make profitable decisions.
Plan your path forward
Sorry to keep saying this (although it bears repetition) but your trading is a business and every business needs a plan. Hence the old saying “failure to plan is like planning to fail”. Why do businesses have plans? So they know how to react to different situations that may arise. Same thing applies to you! You need to define your approach to the market so that you don’t “fly by the seat of your pants” and make emotion-based decisions that you will almost certainly regret.
Write your plan afresh each day
Along with your long term planning for your career as an FX trader, you need to reaffirm your situation each day in order to ensure that you don’t go (or act) off-message. Having something written down and displayed where you have almost no option but to read it is a virtual guarantee that you will be conscious of what are good and sensible trading practices.
And finally, act out of knowledge and not out of regret. If you find yourself angry or upset, take a walk or at least a deep breath before getting pitched in again. You need a calm head in a stormy sea.