Determinants of Forex Trading Success
Forex trading success is the ultimate goal that all traders want to achieve. However, not a few traders lose their way when they are on the road to success. One of the reasons stems from the variety of elements and methods that are considered important in achieving successful forex trading. In fact, each of these components can conflict with each other and actually lead to fatal confusion for traders. Therefore, this article will describe the most basic elements in achieving successful forex trading.
Fundamental Understanding
Fundamental factors are the basis for making decisions for traders, investors and speculators. From here, traders can get a general understanding of what things affect the sentiment of buyers and sellers, or the main factors that move the market. Therefore, it is not surprising that this aspect is the first stopping point in the process of achieving successful forex trading.
If you want to be successful in forex trading, knowing important fundamental issues needs to be done by all traders, including traders who are inclined to technical analysis. At the very least, it can help traders be aware of market volatility at the time of major fundamental news releases. Remember, in forex trading there is an understanding that when the market is low on news, prices tend to be controlled by technicals. But when fundamentals play a role, don't expect traders to be able to accurately analyze price movements using technical instruments.
Technical Analysis
After knowing the importance of fundamental analysis and studying it carefully, now the next thing to consider is technical analysis. It's useless for a trader to be able to become a great fundamental analyst, if the trader can't determine the correct entry and exit points. Such a skill gap will only make it a reliable analyst, not a real trader who gets successful forex trading with consistent profit trading.
For this reason, technical analysis related to the ability to read and analyze price movements on charts is the second heading on the way to successful forex trading. This is where traders will be required to study past movement patterns and interpret them to predict the next price direction. The key to successful forex trading from technical analysis is to consider this method as a step to determine the trader's trading position going forward, not tracing the movements that have occurred. It's easy, always remember these 4 rules in managing a trader's technical analysis:
- Do not assume a system will always work all the time, because traders will be disappointed.
- Less is better. Indicators don't need to be too many, the important thing is that the trader understands and is able to interpret the signals easily.
- Choose a technical tool that suits the trader's understanding, test its suitability, then use it consistently.
- If you are confused about which indicator to choose, know that technical tools don't have to be indicators. Traders can learn about price action and chart pattern analysis, 2 basic methods of technical analysis based on price formations on charts.
Trade Execution
The next step in the process of getting successful forex trading is execution, which is the moment where the Trader presses the buy or sell order button, and sets when the position should be closed. In this case, there are several options other than direct buy and sell orders, such as types of pending orders and exits with stop loss or take profit. All trading execution models are important to learn because if a trader can maximize their benefits, there are many advantages and conveniences that can be obtained.
For example, if later the trader wants to be successful in forex trading with a breakout strategy, and entry only when the signal has been confirmed, the type of pending orders buy stop and sell stop will be able to realize the trader's trading plan.
Risk Management
Successful forex trading is not just about making profits, but also keeping funds from losses. The potential for profit in forex is limitless, but so are the opportunities for loss. Although forex brokers have provided margin call limits and stop outs that prevent losses exceeding capital, it would be much better for a trader to remain careful so that his trading funds do not run out quickly. Well, risk management is the type of action taken to work on it.
One of the most recommended risk management methods for successful forex trading is the risk/reward ratio. In this way, you can set your own risk and profit ratio for each trading position. However, there are also several other risk management techniques that are worth considering in your pursuit of successful forex trading.
Trading Psychology
No less important than fundamentals, technical analysis, execution, and risk management, is trading psychology. For most traders, this element is even the main determinant that ensures the achievement of successful forex trading. How could that be? This seems to be related to the area of trading psychology, namely emotional control. In forex trading, there are dangerous emotions that can cause destruction if not controlled properly. Some examples are greed, fear, overconfidence, and too pessimism.
Failure to control trading emotions usually results in a lack of consistency, which is the essence of achieving successful forex trading. Let's say you already have a trading plan with a combination of fundamental and technical analysis, and set entry and exit rules with risk management. However, when you see prices moving beyond expectations, you are tempted to open positions without taking into account the rules of the trading plan.
That's where the deviation from the consistency of trading begins to take root. When the execution and placement of trading positions are no longer according to plan, that's when you can no longer be responsible for trading results. Whether later trading ends in profit or loss, the results will only be chancy. This condition is certainly contrary to the real idea of successful forex trading that success is profit earned consistently within a certain period of time.
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