Forex trading has experienced a resurgence in popularity in recent years due to the increase in volatility in the markets. Increases in volatility create more trading opportunities and when you take into account the significant leverage avaible in foreign exchange trading, its not hard to undestand the appeal. After all, if you could make a month’s salary in a single day wouldn’t you want to? Absolutely, yes you would! However, even though huge monetary returns are indeed possible, so is the risk of significant losses, perhaps even more than your initial deposit.
In reality, only a small percentage of forex traders enjoy long-term success. What is it that they know that most other traders don’t? What is it that they do that most other traders fail to do?
As a successful currency trader myself, allow me to shed some light on the habits of successful forex traders. After all, if you have knowledge you should let others light their candles in it. At least, that’s what I believe.
Here’s what I believe are the top 5 habits of a successful forex traders:
1) They develop a mindset of positive expectation.
In other words they expect to win and be successful. Now this doesn’t mean that they win every single trade. That’s not possible. Rather, they believe that over the long-term they will win and they do.
2) They use no more than 100:1 leverage and keep losses small.
These days there are brokers offering upto 500:1 leverage, which would allow you to control $100,000 worth of currency for just a $1,000 deposit. While this may seem tempting, to the undisciplined trader this is a recipe for blowing up your account. Having a smaller leverage setting applied to your account will help to protect you from yourself by limiting your ability to continually adding to a losing position by opening additional lots.
3) They pay close attention to the forex calendar.
One of the most unnecessary mistakes I see wannabe forex traders make today is they trade without referring to the forex calendar / schedule of economic announcements for the day. Ignoring the continual flow of market-moving international news is trading blind. It is only a matter of time that they will be caught on the wrong side of a trade because they were in the market during a critical news event.
4) They look closely at interest rate trends.
As interest rates of countries rise and fall so do the value of their currencies. As currencies trade in pairs, high probability trading opportunities can emerge when the central bank of one country is currently lowering interest rates, while the other country is currenty raising interest rates. Catching these trends early and going long the currency who’s central bank is raising interest rates (while simultaneously shorting the other) can yield incredible gains over the long-term. This is not just in capital gains, but in the positive carry (i.e. receiving swap payments).
5) They look to fade break outs and violent moves.
This is a big tip. Rookie traders try to catch break outs and big moves but as the forex market moves very fast, they are more often than not too late. The professional trader, however, knows that sudden, violent moves in price almost always reverse and therefore waits patiently for the move to exhaust itself before trading in the opposite direction of the initial move. This price action very often occurs during the monthly Non-Farm Payrolls (NFP) report and is therefore it is tradeable.
So there you have it. My top 5 habits of a successful forex trader. Of course, there is a lot more that profitable currency traders do that most other traders don’t, however that is for another post.
In the meantime, I wish you profitable trading!