Profit is the chief reason why people join the forex market. But it becomes a folly if profit is all you want to chase. Forex trading is a game of strategy where the best strategy returns the highest earnings. Developing a strategy is a process that feeds on many things, where the most important is market data. Ultimately, the idea is for strategy to lead to profits.
The painful truth is that few retail traders make profits consistently. It dismantles the notion that successful traders never make losses. Contrarily, chasing after profits often results in massive losses. In a bid to gain more, you might end up overtrading and set yourself up for significant losses.
In reality, forex trading is a game where you win and lose in some instances. Fortunately, you can work towards stacking the winning odds in your favor. Firstly, turning the game in your favor calls for effort and dedication to gaining strategizing skills. Numerous tools exist to help you develop the best strategies that sharpen your edge in the market. It means developing the market analysis ability to the utmost best.
Secondly, gaining an advantage over other market players boils down to discipline. As a trader, you need to cultivate excellent skills and habits, just like players in other high-intensity professions. An essential unwritten rule in forex that all retail traders are is that you either take your money, or someone takes your money. Only the disciplined players will gain superiority and hence the ability to take other players’ money.
Elements of consistent profitability
Nonetheless, earning profits on a consistent level is possible. But this assertion is conditional. The condition here is that you must establish a consistent edge over everyone else. In forex, as earlier stated, someone else is losing when you gain. Therefore, a trading edge ensures that you are on the winning track all of the time, if possible. The best way to approach consistent profitability is by adhering to the following elements:
- Plan your trades!
For the third time, let us remind you that forex trading is a game. Typically, players who win games do a lot of prior preparation, as well as planning. Even Sun Tzu of the ‘Art of War’ never fails to remind his readers that they can win battles even before its onset. Expert traders also refined this concept further to suit the forex environment by insisting that you first plan a trade and then trade the plan. Planning ahead of time implies gathering market data into the future because you will spend time planning what steps to take in the future. Specifically, planning trades entails developing a strategy for initiating positions, specifying stop loss and taking profit levels, and closing positions.
- Risk management
Managing risk is the market’s most demanding task because traders are always after profit optimization. Flippant traders still fall into the ‘overtrading trap’ to reduce risk. Often, this arises from the wrong notion that the more trades you open, the lower the risk of your ‘portfolio.’ This concept is plausible in stock trading and some other markets but not in forex. In short, managing risk entails limiting the amount of funds one is willing to lose as a fraction of the trading account’s size. Capping losses enables you to come back from losing positions faster so that you can strategize for the next profitable trade. Remember, the goal is to gain consistency in profitability.
- Think long term/mindset
Great traders do not make trading decisions based on short-term information. In the short-term, many things can happen, but the picture could be quite different if viewed from a long-term perspective. Say during a trading session, and your account experiences a sharp decline because the market took the opposite direction. Trends might yank in the opposite direction in the short-term. However, this should not be enough to convince you to change your position. As long as the drawdown does not break your account, short-term direction changes should not be a big issue.
Thinking long-term allows you to deploy several indicators to tell you how your activities are faring. Focus on the overall profit factor of your account as well as the market curve. You will notice that your strategy is profitable in the long-term hence no need to alter a thing.
Steps Towards Consistency
If you have not attained the consistency yet, here is a little nudge in the right direction:
Step 1: Learn to work with detailed plans.
We will never tire of asserting that forex trading is a game that favors the prepared. Detailed trading is the best place to start your activities. The plan has four primary elements. First, it details your mission. Why are you in this game? What is your ultimate goal? It provides the canvas on which you can design and implement your trading career.
The second element is a concept that refers to your preferred trading style. Thirdly, the strategy element entails how you will implement your trading style in real life. In the last place is the structure of your trading concept. It outlines the type of analysis you will rely on, as well as the crucial indicators.
Step 2: Develop a risk management strategy.
Often, this part of the strategy and structure elements of your trading plan.
Step 3: What is your mindset?
Typically, a mindset begins to develop after some time of hands-on trading experience. For example, learning to see the big picture is a mindset. It is the mindset that ensures that you stay on course in terms of implementing your trading plan.
Consistency in forex trading is a hard thing to come by, but it is possible. It is the ultimate level at which one can claim professional status. Besides, generating consistent profits is the goal of all traders. But it must not be lost on you that consistency is not easy to achieve. However, you can reach that point if you plan your trades, implement an effective risk management strategy, and develop a big picture or long-term mentality.