Here are 15 tips to Help you become a better Forex trader. I really hope this article helps you realise some of the mistakes you may be making and help you avoid them in the future. I personally keep the following rules in check to ensure I am able to execute my forex trading strategy as effectively and as professionally as possible.
1) Start Maintaining A Trading Journal
If you have been a frequent user at our site you will come to realise that we are big advocates of keeping a forex trading journal. We have mentioned it severally in our forex trading course as well. You should use your trading journal to record every trade you execute in the market. It should include entry rationale as well as analysis of the outcome of the trade. This will help you remove bad habits, as you will have a platform to assess the decisions you made.
You should always record your trades, good or bad, and nothing should stop you from updating your trading journal, not even many losing trades in a row. The only way to improve your trading is to have a good track record of the decisions you have made.
2) Stop Wasting Time Looking at Lower Timeframes
Many professional Forex Trades agree that lower time frames are a waste of time when performing price action trading analysis. Lower time frames meaning anything below the 1-hour timeframe. There is simply too much movement in lower time frames,they are far too erratic and require you to check your charts more frequently. Lower time frames are a big motivator for making emotional descisions and over trading. It’s important to make technically sound trading decisions and only act off the back of good price action setups. I firmly believe this can only be achieved by focusing on the daily, 4-hour and 1-hour timeframes and would strongly recommend you switch to this trading style too.
3) Write a Decent Trading Plan
Your trading plan is your bible; you should treat it as your guide to assist you when you need help in the markets. It should contain rules for every eventuality and you should assess every trading decision you make against it. If you do not have a decent trading plan then you cannot determine whether or not you’re doing your job properly as a forex trader. There is no-one else to assess your performance in the retail-trading world, you have to do that yourself. If you have a good trading plan you can determine whether your trading decisions meet your rules or not. This is essential when you lose a trade, if you are able to assess the rationale for taking that trade against your strategy and determine it met your rules it will massively help you when it comes to dealing with the emotional trauma experienced after losing money in the markets.
4) Start Using Clean Charts
We don’t use any indicators on our forex charts at all when trading price action. The only indicators we use are for trend identification and we use different SMAs to help us with this. It’s important to keep our charts as clean as possible so we can see what is truly happening in the market. Remember, we are price action traders and so we trade PRICE, nothing else. Indicators are lagging by their very nature and can only attempt to tell you what price has been doing in the past, not what price is doing right now. When trading price action strategies we care most about what is happening in the market in real-time, so indicators are of absolutely no use to us whatsoever.
5) Make Sure Your Charts Are In Sync With New York Close
The last major forex market in the world to close is New York at 22.00 GMT. You want your daily candlesticks to close at the same time as New York so the price action you observe on your charts is in sync with this. If you charts are not in sync with the New York close you may miss some essential price action trading setups occurring on the daily timeframe. You should also make sure your 4-hour candlesticks are in sync with London open, so you want your candlesticks to close at 8.00 GMT, 12.00GMT etc.
6) Learn How To Trade Price Action Setups
You should not be trading anything other than raw price action trading strategies. Price action trading is the method that offers the highest probability setups and greatest chance of success in the markets. It is the analysis of price in real-time by a trained human eye, which no computer, indicator or mechanical system can beat. This is the methodology I teach in my forex trading course and I would encourage you to learn how to execute this method of trading if you haven’t already.
7) Stop Making Emotional Trading Decisions
Price action forex trading is entirely technical. We do not trade based on things we read in the news, emotions or any ‘gut feelings’ we may have. You MUST stop acting based on the emotions you feel and make your trading decisions based on sound sensible technical analysis that meets your trading plan and strategy. If you have been making too many emotional motivated trading decisions then I suggest you switch to trading higher timeframes and learn how to keep your emotions under control.
8) Use The Right Moving Averages For Trend Identification
Whilst we do not use indicators to decide when to enter / exit trades, we do use exponential moving averages for trend identification. We use different EMAs on different timeframes to show us the direction of the daily trend. You should make sure you have the right SMAs plotted on the right timeframe so you can always keep the dominant daily trend in mind. You should only be looking to enter trades inline with the daily trend once price has moved back to the daily mean. You can learn about the indicators we use for trend identification in our forex trading course.
9) Start Trading With The Dominant Daily Trend
Many newbie traders simply disregard the importance of trading in the same direction as the daily trend. The daily timeframe tells us which direction the big orders are placed in the market. The only orders capable of moving the market on the daily timeframe in the forex market are those that amount to millions if not billions of dollars. There is absolutely no point in trying to fight the flows and trade counter trend in the forex market because these orders are so large they will push the market in their chosen direction over 90% of the time. You can significantly improve your trading results just by making sure all of your trades are placed in the same direction of the daily trend.
10) Always Use a Decent Risk / Reward Ratio
Start practicing proper money management techniques. You need to start managing your risk in the forex market properly if you are going to be a successful forex trader. If you have been trading with no stop-loss or with a very low risk / reward ratio then you need to seriously reassess your trading strategy. As traders the number 1 priority should always be effective risk management, if you do not manage risk properly you simple can never expect to turn a profit.
11) Stop Blaming Someone Else For Your Mistakes
When you suffer a loss in the forex market it is YOUR fault, nobody else’s. You must stop trying to blame other people when your trading decisions don’t go your way. Whether you are blaming your forex coach or your broker you are taking the wrong approach. Everybody has their own method that works for them in the forex market, and you must develop your own method too. Make sure you record your decisions in your trading journal and refine your technique over time to become consistently profitable in the market. Unless you are using a broker that practices illegal behavior such as ‘stop-hunting’ or a broker that has ridiculous spreads it is not their fault either.
12) Stop Paying Attention To News Announcements
There is absolutely no way we can expect to know how the market will react to news announcements as retail traders. Our orders are totally insignificant when compared to market liquidity and order flow and the decisions we make have no influence on market movements whatsoever. It is much easier for a large investment bank to place an order for hundreds of millions of dollars that will move the forex market in their chosen direction and trick lots of retail traders out of their positions. Instead, you should wait for the chart to tell you what it’s doing by reading raw price action setups and sticking to your trading plan.
13) Limit Your Daily Chart Time
Limiting the time you spend each day analyse the forex market will force you to make decisions based on price action rather than emotion or stupidity. It will also ensure you only analyse the charts when you absolutely should do, by this I mean you will only be checking higher timeframes for a few minutes at the end of each candle. I personally only check my charts for 10 minutes or so after every 4-hour candle closes and for about 30 minutes after the daily close at 22.00 GMT. This will also help you with our next tip…
14) Stop Interfering With Your Trades
You should never interfere with trades, you shouldn’t move take-profit levels or stop-losses and you should avoid exiting your trades early (before your predefined levels are hit) without very good reason. I’m sure there are many occasions where you have exited one of your trades because you were losing money only to see the market reverse and end up moving the way you predicted. If only you had the ‘will-power’ to stay in the market, eh? Well, if you set your take-profit and stop-loss levels before you enter the market and leave them until they are hit, you will be sure not to deviate from your trading plan and I can assure you this will reap great benefits for your trading results.
15) Remember There Is Life Outside Of The Forex Market!
Last but not least, please remember there is life outside the forex market! If you spend hours and hours in the markets it can affect your trading mindset and negatively impact your trading decisions. Remember to spend time with family and friends, maintain hobbies and generally keep your life going away from the markets. You should only be trading higher timeframes anyway in which case there will be plenty of hours in the day to do other useful things whilst also managing a successful forex trading business.
If you already have a trading plan then you are on the right track to success, if you are making any of the mistakes I’ve outlined in this lesson you should go and update your trading plan so you do not make the same mistakes in the future. If you don’t have a plan yet you should create one right away before taking anymore trades in the market – I strongly encourage you to use this lesson as the basis for your strategy. I hope this lesson has helped you identify some of your flaws and set you on the right path to becoming a better trader. These are just some of the tips I have picked up over the last few years in the markets and by coupling these with your own trading experiences you will be best equipped to become a professional forex trader.