When learning Forex, or foreign currency, trading, it is certainly important to choose the right system, or trading strategy, but in fact this is not the primary factor in achieving success. What is even more important is your mindset — the attitude with which you approach your trades. Every Forex trader needs to learn consistency and money management in trading, to have any hope of long-term success.
The idea of Forex trading is to buy and sell foreign currencies, so that you profit from the movement of one currency against another. Currencies are always traded in pairs – for example, if you place a trade to buy the USD/GBP pair, you are buying the US dollar while selling the British pound – and you do this when your market analysis leads you to believe that the currency you are buying will rise against the one you are selling. If you are correct, you make a profit, and if you are wrong, you take a loss, so your overall aim in trading is to ensure that your winning trades outnumber your losing ones.
In order to do this, it’s essential to enter the market from the very start with the right mindset, and the first and most important element of this mindset is discipline. Forex trading is not gambling, and it cannot be done with your emotions. You need to decide on a trading strategy, master it, and then stick to it – jumping around from one system to another is a sure way to lose. Use a journal to log and track your trades consistently. This way, rather than being plunged into despair by your mistakes – and you certainly will make them – you will learn from them and improve your trades.
Another element of this mindset is money management, or risk management – that is, keeping control of your trades. One golden rule is never to risk more than 2% – some say no more than 1% – of your total equity (the balance of your account) in a single trade. For instance, if you have an account balance of $10,000, you should ensure that no trade risks more than $200. This means you can be wrong 10 times in a row, and still have 80% of your equity left.
The other major aspect of money management is the stop loss, otherwise known as the exit strategy, which prevents any potential loss from running too far. It is absolutely essential to set a stop loss before making any trade. This is something people who trade with their emotions find very hard to do, and they often find it even harder to keep themselves from removing a stop loss when they see it’s about to be triggered. There are different types of stop loss, and as you progress in Forex trading you will learn which should be used for which types of trade, but they are an absolutely indispensable part of disciplined money management.
Although trading Forex can be extremely profitable, 90% of those who try it fail to make any money, and often lose a lot. This is not because they are using the wrong techniques or the wrong system, but because they are not observing the principles of good discipline and money management. By learning consistency and money management in trading, you will stand a good chance of joining the 10% who achieve real success.