Struggling with your forex trading? Chances are you neglecting one of the three pillars of successful forex trading. A solid strategy, sound money management and the right mindset (psychology) are essential if you want to be a successful forex trader. In this quick piece we will discuss each of these elements in more detail and highlight why each pillar is so important.
You need a solid forex trading strategy
Some gurus say strategy isn’t important, but this really isn’t the case. Having a solid trading strategy is at least as important as, if not more important than both money management and psychology. If a guru tells you strategy isn’t important, it’s because they don’t have a profitable strategy to sell you.
No matter how detached you are from the results of your trading and how good your risk management system is, if your system is not profitable, that’s the end of it. Adhere to it all you like, no amount of risk management or detached determination is going to turn the strategy profitable.
Successful forex trading means managing your balance
Alright so you have a solid strategy? Great, but you still need to manage your risk. No matter how good your strategy is, if you risk too much per trade, you will eventually experience unacceptable drawdowns or even blow your account. In general, you should never risk more than 2.5% on a single trade, and you should also try to limit the number of simultaneous trades.
Setting your maximum risk is the easy part though, it’s sticking to it that is the difficult part. Which brings us onto the final pillar…
Successful forex trading requires discipline and indifference
The third and final pillar of successful forex trading is psychology. No matter how good your strategy is, or how sound your risk management plan is, you will not be successful if you don’t have the discipline to stick to your strategy and plan. It’s not just discipline that’s required though, you also need to be able to remain calm and collected; not just when things go wrong, but also when you win!
Getting upset when you lose can lead to revenge trading and hubris is the best leading indicator of a downfall. Successful traders need to be indifferent in the event of a win and loss. Keep calm and carry on trading your strategy and risk management plan.
Respect all three pillars and you will beat the forex market
There was a common thread above which you may or may not have picked up on. Neglecting just one of the pillars will adversely affect your trading performance. Neglect two of them, and the whole building is bound to fall down. If you want to be a successful forex trader, find a solid forex strategy, settle on a sound risk management plan and keep your emotions in check. Pay the three pillars the respect they deserve and you will be beating the market in no time!
Source: Vantage FX Blog