At first glance, trading in the financial markets is something mystical, because there is no specific formula for success. The market for a trader – like an ocean for a surfer – requires talent, balancing skills, patience, proper equipment and attention to events. Trading on the Forex market without proper training is tantamount to bathing in shark-infested bubbling water.Learning to trade on the Forex market does not differ from learning to surf. Good analysis and effective application of knowledge in combination with talent and hard work significantly increases the chances of success for brokers’ clients. In this article 4 basic principles are considered, which allow to create a successful strategy for any market.Principle No. 1 – PreparationBefore you start trading, you need to properly prepare for it. The first thing to do is to choose the trading instruments and markets that best suit your personal goals and temperament. For example, if you’re familiar with retail sales, it’s better to trade in stocks than in futures that you don’t know anything about. While selecting a trading instrument, it is necessary to analyze the following 3 components.Time periodThe choice of the appropriate time period depends entirely on your nature. Trading on 5-minute charts is suitable for traders who do not want to leave trading positions overnight. Weekly charts are suitable for traders who are able to take the risk of opening a position overnight and are ready to periodically observe movements against this position. In addition, you need to decide whether you will sit in front of the monitor and monitor the market, or prefer to calmly analyze the market situation during the weekend and preliminarily develop a trading plan for the coming week.Remember that you need to spend a lot of time to get a significant profit on the market. Short-term scalping, by definition, implies low profit or loss and frequent trading operations.Trading system.Once the time period has been determined, it is necessary to find a suitable system for you.For example, some traders buy at support levels and sell at resistance levels. Others prefer to buy or sell at breakouts, and others use various indicators, such as MACD or indicator crossing techniques.After selecting a trading system, it is necessary to test its constancy and make sure that it is really useful for you. If the system generates correct trading signals in more than 50% of cases, it is useful for you, even a small one.Test the system on historical data, and if the profit exceeds the loss, it is likely that it is a winning one. Analyze several trading strategies, and when you find one that generates a constant income, test it in several ways on different time periods. Market (instrument)Price movements of some trading instruments may be more orderly than those of other trading instruments. Trading instruments with irregular movements are the most difficult to make a profit. It is necessary to test the developed system with different tools in order to choose the most suitable tool.For example, for the USD/JPY currency pair, trading by Fibonacci support and resistance levels can be more profitable than other instruments. It is also necessary to test the system for different time periods and choose the one that suits you bestPrinciple No.2 – Psychological installationThe psychological installation of the Forex market must comply with the following 4 principles:PatienceWhen working with the system it is necessary to patiently wait for price levels, at which signals of market entry or exit will be generated. If your system points to an entry point that the market does not eventually reach, wait for the next signal. You will always have other opportunities to enter the market. In other words, don’t run after the bus that left, but wait for the next one.DisciplineDiscipline is the ability to be patient and take no action until your system generates a signal. Sometimes the instrument price does not reach the expected values. It is at this point that you must be disciplined enough to continue to believe in your system and not try to guess the direction of movement. It is also necessary to exit the market if the system generates an exit signal, especially if the exit should take place by a stop-loss.ObjectivityObjectivity or “emotional detachment” also depends on the reliability of the system or strategy. If your system is reliable enough to provide you with accurate entry and exit signals, you do not need to worry or give in to the influence of “Expert Advisors” who monitor their trading levels, not yours. Your system must be so reliable that you can safely trust its signalsRealistic expectationsIn spite of the fact that the market periodically shows big enough movements, it is necessary to estimate realistically possibilities and not to expect to earn on 1000$ from the transaction, having available 250$ of the initial capital. Short-term transactions provide less opportunity to generate significant profit, but the risk is significantly lower than that of long-term positions. In order to choose the preferred duration of the transaction, it is necessary to refer to the concept of risk/reward ratioLearn more about the right attitude of a trader in the article: Top 7 psychological tips for successful work in the Forex marketPrinciple 3 – Distinction of trading instrumentsTrading on various trading instruments has its own distinctive features. These features are determined by market participants and their initial objectives. Hedge funds have their own interests, which differ significantly from those of investment funds. The objectives of large banks trading in the foreign exchange market differ significantly from those of foreign exchange traders operating with futures contracts. If you understand the motivations of major players, you can repeat their actions and make a profit accordinglySelection of a trading instrumentDraw charts of several currency pairs, stocks or commodities for different time periods. After that, test your trading system on the received charts and choose the most suitable trading instrument for it. Repeat this procedure from time to time to take into account ever-changing market conditions.Principle #4 – Management (System Application)Since it is impossible to trade without losses, no system is able to give 100% result. Even a profit-making system with a profit/loss ratio of 65% is losing 35%. Thus, profitable trading depends primarily on the correct management and execution of trading operationsRisk managementProfit trading is only possible with proper risk control. You can’t be afraid to get hurt, even if it happens quite often. Try to catch the trend right away, but if that doesn’t happen, you can try again. Often, the right direction of the market is guessed on the second or third attempt. This practice requires patience and discipline. Once you have guessed the direction of the market, you can use a trailing stop to fix the maximum profit, or simply exit the market in case of unforeseen events.Learn more about the opportunities to reduce your trading risks in this article: 10 ways to manage risks in ForexResults.. Almost every trader in the market uses his own trading system. There is no correct or incorrect trading – trading can be either profitable or unprofitable. Warren Buffett mentioned 2 basic trading rules: first, never lose money; second, remember the first rule.Attach a note to your computer, which will remind you that it is necessary without regret to part with small loss-making trades and not to wait for larger losses
Principles of successful trading
01.11.2019Forex Psychology