Making consistent returns in forex trading can be a lot of work, but if you keep at it and always strive to improve yourself, you will almost certainly succeed. In this piece we will share six tips and tricks you can employ to improve your forex trading methodology and potentially yield some impressive performance increases!
Bear in mind these tips won’t suit every person and every strategy and these tips aren’t intended as investment advice, these are just general tips the Vantage FX team have picked up over the years.
Forex Trading Tip #1: Limit your risk
One of the biggest struggles traders face is keeping their risk parameters within acceptable bounds. New traders will often bet the house on every trade and may have a little beginners luck, but it nearly always blows up in their face. Generally speaking, you should never risk more than 2% on any one trade and 1% may even be a better option if you are still honing your skills.
Forex Trading Tip #2: Buy, low, sell high
We know it sounds obvious, but this simple trick is the key to getting into highly rewarding setups that pay out multiples of risk. Big declines are nearly always met with bounces and vice versa. You should avoid chasing moves you have missed out on. If there is a big move and you still want to trade in the direction of that move, wait for some intrabar weakness – surge candles often come down as much as 50% before closing – you should never be buying the top of a big candle!
Forex Trading Tip #3 : Wait for the signal
Buy low, sell high doesn’t mean you have to nail the bottom of the move right down to the pips. It means you should be looking for buying opportunities in the lower end of a range and selling opportunities in the upper end of range. By actually waiting for a trade signal, you can enter into low risk, high probability trades. Don’t pick bottoms and tops, wait for the market to tell you there is a bottom or top.
Forex Trading Tip #4 : Wait for the retest
Trading a breakout? Are you sure it’s not a fakeout? Is that really momentum? The vast majority of breakout setups come back to test the breakout level, even if this is just on an intrabar basis. Waiting to see the breakout level be retested and hold can save you a lot of pain, false breakouts and needless stop outs.
Forex Trading Tip #5: Let your winners run
If you are trading a trend, trade the trend. Get in early and ride it out til the market changes. Exit on a reversal signal price action that invalidates the trend. Though you should always aim to make more than you risk on each trade, if a market is moving in your favour, you shouldn’t just exit at some arbitrary number based on your entry risk. Lots of traders have great success with trailing stops and moving averages crossovers – this is called “letting the market take you out” and can lead to some insanely rewarding trades. Some trends last for months, if not years. If you get out early, you will be tempted to chase the trend when it keeps going or the next trade you pick could be a loser.
Forex Trading Tip #6: Cut your losers early
Letting your winners run is only half of the equation, you should also be cutting your losers early. There is no point holding on to a losing trade once it goes against you. As soon as hope comes into it, you are no longer in control. Before you enter a trade you should have a clear price level or indicator signal that will invalidate the position and cause you to exit. If it’s a price level, place a stop loss, if you are exiting manually based on indicator invalidation, you should at the very least have a protective stop loss that takes you out if you miss your signal. You wouldn’t be the first trader to fall asleep at their terminal and wake up to a trade you were planning on exiting!
Find what works for you and stick with it
We hope you have enjoyed this piece on tips to improve your forex trading process. Remember this is not investment advice and not all of these tricks will be right for everyone and every strategy. For example if you are scalping or day-trading, “letting your winners run” is probably not such a good idea – day traders don’t leave trades on overnight. Conversely, if you are “night scalping” the Asian session, these strategies often rely on not cutting your losers early. Understand yourself and your strategy, find what works and stick with it!
Source: Vantage FX Blog