The forex market is the world’s largest financial market, where traders engage in buying and selling currency pairs and other assets. Adhering to trading principles in forex is of utmost importance. This is because the forex market is highly volatile and filled with ups and downs, where many individuals compete against each other. Without understanding professional trading principles and without considering specific strategies and techniques for trading, our chances of success become very limited.
What is Trading?
Trading, in simple terms, refers to the buying and selling of financial assets such as stocks, currencies, commodities, and bonds. In trading, individuals or institutions purchase a currency or asset at a lower price and sell it at a higher price to make a profit. To engage in trading, you must be familiar with technical analysis, fundamental analysis, and risk management, and commit to following a specific strategy and principles.
Initial Steps to Become a Trader:
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Learning Trading:
To enter the forex market, you must first familiarize yourself with trading principles, trading methods, various strategies, and capital and risk management. There are multiple ways to learn about forex, including reading articles, attending in-person or online courses, and other resources to grasp forex trading principles.
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Choosing a Broker:
After becoming familiar with trading principles and methods, for practical execution and real engagement in the forex market, you need to choose a reliable broker or intermediary. The broker should be trustworthy and adhere to forex regulations and standards. Additionally, the broker should provide a variety of tools to traders. The broker essentially serves as a trading platform and an intermediary between buyers and sellers.
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Practice with a Demo Account:
Every broker offers a demo account to users upon account creation, allowing them to practice their trading strategies and skills before entering the forex market seriously. Everything in this demo account is similar to the real forex market, except you use virtual money instead of real funds. Practicing with a demo account greatly helps strengthen your trading skills and prepares you for the forex market.
After completing these three stages, you will be ready to enter the forex market seriously. Keep in mind that a significant portion of learning in the forex market and during various trades occurs as you engage. Therefore, do not fear entering the market and understand that both losses and gains are part of forex trading.
Principles of Professional Trading
Traders with professional trading principles have better control over their emotions during trading and avoid impulsive reactions. On the other hand, professional principles bring order to your trading activities and commit you to a purposeful and realistic trading plan.
Key Characteristics of a Successful Trader
Organization and Discipline:
Principles of organization in trading are one of the most important factors driving a trader toward success. Every trader needs order and adherence to a plan to execute profitable trades. When you follow a set of rules, your emotions are less likely to interfere. Disciplined traders are fully aware of their risk tolerance and use risk management techniques such as stop-loss and position sizing to minimize losses. Adhering to a structured plan prevents unexpected market events from derailing you.
Patience:
Another hallmark of a successful trader is patience. Successful traders understand that trading is not about making quick profits; it’s about waiting for suitable opportunities. Impatient traders engage in buying and selling currencies at every small or significant occurrence, exposing themselves to high risk. Professional traders, however, know that proper entry conditions must be met, and they act based on their pre-defined goals. Practicing patience helps identify profitable trades and prevents impulsive decisions.
Risk Management:
For a successful trader, risk management takes priority over profit. Every trade involves a certain level of risk, and you must employ specific strategies to manage it. Effective risk management allows successful traders to safeguard their capital and remain active and profitable in this intriguing game over the long term.
15 Important Risk Management Tips Every Successful Trader Follows:
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Know the Market:
Before entering forex trading, gain a good understanding of the market, its fluctuations, and existing risks.
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Set Realistic Expectations:
Having realistic expectations is crucial. Avoid being overly optimistic or pessimistic about potential gains.
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Have a Trading Plan:
A well-defined trading plan helps you manage your risks better and make informed decisions.
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Use Stop-Loss Orders:
A stop-loss order automatically closes your position when the price reaches a specific level, helping limit losses.
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Utilize Take-Profit Orders:
A take-profit order automatically closes your position when the price reaches a predetermined level, securing profits.
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Diversify Your Portfolio:
Diversifying with different currencies and assets reduces overall risk.
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Monitor News:
Pay close attention to economic and political news that can impact currency markets.
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Avoid Emotional Trading:
Emotions can cloud judgment and lead to impulsive decisions. Stick to your trading plan and avoid emotional reactions.
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Use Leverage Wisely:
Leverage is a useful tool that can amplify both profits and losses. Use it judiciously after thorough analysis.
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Understand Margin Requirements:
Margin requirements vary based on brokers and currency pairs. Understand them well before trading.
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Choose a Reputable Broker:
Opt for a trusted broker with a good track record to ensure the safety of your capital.
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Practice Risk Management Techniques:
Learn and practice risk management techniques such as hedging and position sizing.
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Maintain a Trading Journal:
Keeping a trading journal helps identify trends and patterns in your trading decisions, allowing adjustments as needed.
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Take Breaks:
Regular breaks during trading can reduce stress and prevent burnout.
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Stay Informed:
Continuously update yourself on the latest trends, news, and advancements in forex trading to make informed decisions and manage your risks better.
- Continuous Learning:
Professional and successful traders never shy away from learning. If you want to be a successful trader, you must always stay informed about global news and events and follow influential individuals in this market. Additionally, continuously study technical and fundamental analyses and adapt them to your strategies when necessary. The better a trader understands the market, the quicker they can identify profitable opportunities. - Being Rational:
One of the principles of trading is being rational. Professional traders don’t let their emotions dictate their decisions. Instead, they base their choices on real data and various analyses. Having a clear goal in your trades keeps you grounded in logic and prevents emotional influences. However, lacking a specific goal can lead you, like a confused individual, towards any emotional direction. - Self-Confidence:
A successful trader has confidence in themselves and their trading strategies. Without self-confidence, you’ll constantly doubt yourself and change your decisions. Confident traders can take calculated risks and execute profitable trades. Yet, high self-confidence doesn’t mean infallibility. Even professional traders make mistakes; what sets them apart is their humility and willingness to learn from errors. - Adaptability:
Professional traders have learned to adjust their strategies according to changing market conditions. They understand that markets are constantly evolving, and what worked yesterday might not be effective today. As a result, they maintain multiple strategies to utilize in different situations. Being adaptable to changing market conditions consistently positions professional traders one step ahead, making it easier to identify emerging investment opportunities.
50 Laws to Become a Professional Trader:
- Increase your knowledge about financial markets and trading strategies.
- Strengthen your skills in financial and technical analysis.
- Daily track financial news and updates.
- Create a trading plan and stick to it.
- Practice discipline and control over emotions when making trade decisions.
- Effectively manage risk through stop-loss orders and position sizing.
- Focus on long-term profitability over short-term gains.
- Utilize demo accounts to test your trading strategies before real investments.
- Be patient and wait for suitable opportunities to enter a trade.
- Avoid chasing losses or attempting to recover with bigger trades.
- Set realistic expectations for yourself and your trading results.
- Continuously evaluate and refine your trading strategies.
- Exercise restraint in overtrading.
- Learn from successful traders and mentors.
- Organize your trades and maintain accurate records of your performance.
- Always have a backup plan to use if your trades don’t go as expected.
- Be aware of biases and prevent them from influencing your decisions.
- Stay informed about market changes and conditions.
- Avoid unnecessary risks or overextending your investments.
- Diversify your portfolio and avoid putting all your eggs in one basket.
- Use leverage responsibly and only when necessary.
- Avoid getting caught up in hype or rumors.
- Keep your trading strategy simple and easy to follow.
- Refrain from emotionally-driven or external-influence-based decisions.
- Be flexible and adjust your strategy when needed.
- Utilize technical indicators and charts to identify trends and patterns.
- Prevent fear or greed from controlling your trading decisions.
- Stay aware of market-moving news and economic publications.
- Use fundamental analysis to assess the financial health of companies and assets.
- Invest based on market sentiment and emotions.
- Learn from your mistakes and use them as opportunities for growth.
- Stay updated with technological advancements in the trading industry.
- Take breaks to prevent burnout and stress during crucial times.
- Surround yourself with a supportive network of fellow traders.
- Seek feedback from experienced traders and mentors.
- Set realistic goals and milestones for your trading performance.
- Be patient and avoid expecting overnight success.
- Embrace uncertainty and be prepared for unexpected market movements.
- Avoid herd mentality and make independent trading decisions.
- Understand risks associated with different asset classes and investment tools.
- Practice good money management techniques, such as diversification and risk-reward ratio.
- Maintain consistency in your trading strategy and avoid constant changes.
- Don’t let past performance dictate future trades.
- Be logical and prevent personal biases from influencing your decisions.
- Stay focused on long-term goals and don’t get swayed by short-term market fluctuations.
- Be prepared to adapt to changing market conditions and economic realities.
- Utilize automation and technology to optimize your trading strategies.
- Take advantage of learning opportunities like webinars and courses.
- Build a strong support network to help you stay motivated and focused.
- Stay disciplined and avoid impulsive trading decisions.
Two Important Obstacles on the Path to Becoming a Professional Trader
Insufficient Income:
Before entering the forex market, you must clarify a crucial matter for yourself: whether your intention for entering forex is to earn recreational income or to pursue serious trading. When you approach forex trading as entertainment, you will be playing in this field like a gambler. You might achieve good profits in the early days, but due to not dedicating enough time to learn trading principles, you will face significant losses. Therefore, expecting unrealistic gains with very little money and waiting for it to increase, and not being familiar with capital management principles from the outset, is impractical.
Inadequate Capital Management:
Improper capital management in forex trading can lead to considerable losses and even wipe out a trader’s account. Forex trading involves risk acceptance, and appropriate capital management is crucial for effectively managing these risks. Overtrading, using excessive leverage, chasing losses, and not using stop-loss orders are some of the mistakes that result in losses and damages in trading.
