There is no actual right or wrong way to trade forex, there are however certain things that you can do that can make things a little easier or a little safer, these are the things that people would consider the right way to trade forex. Each individual trader will have their own ideas as to what it is that they need to do in order to trade things the right way. We are going to be looking at a few of the things that are widely considered as the right things to do when we trade. Some may be relevant to you and some may not be, but they are simply what many consider the right things to do.
The first thing comes down to your education, there is such a thing as too little information, but also too much information. There are three types of traders, those that learn the very basics and then jump in, those that try to learn everything before they touch their trading account, and those that learn as they go along. We would say that there is no right way to do it, but there are certainly wrong ways. Firstly, those that simply jump in with very little information, are setting themselves up to fail, you cannot trade with very little info, you won’t know how to manage your risks, or what certain events or patterns mean.
Then there are those that try to read too much, this can simply confuse you, there is a lot of contradictory information out there, info that makes it hard to work out what is right and what is wrong if there is a right and wrong. But if you try to learn everything, you will end up never trading, there is just too much information out there. You need to find a common ground, you need experience, such as a demo account, but you also need to read and learn a little about trading before going live. So try and find a balance of practical and theoretical learning.
You need to learn about risk management, this is how you will protect your account from losses and from the markets moving against you because they certainly will move against you at one point and on a regular basis. Your risk management plan should contain things like your risk to reward ratio, it should also contain details of where you stop loss and take profit levels are to be set. Your trade sizes should also be noted here, this will mean that you know exactly what size trades you will be making. All of these things combined work together to help protect your account, they enable you to trade in a much safer way. This sort of risk management is what can separate a successful trader from a trader that has just blown their account. So if you want to trade things the right way, you need to ensure that you have your risk management in place for the very start.
Learn one strategy at a time and learn one currency pair at a time. This goes along with the education that we mentioned but it is important that you concentrate on a single strategy to begin with. This will enable you to learn it completely and to properly understand it. If you start trying to learn multiple different strategies at once then it can cause you a lot of confusion. In fact, it can make you completely mess up the strategies when trying to implement them. We have seen this countless times in the past.
The same goes for learning different currency pairs, each one behaves differently, as if they have their own personalities, some of them you can interchange, but others you cannot use the same strategies on one as you can the other. You need to get to know the way they move and the way they react to different news events. Once you have grips of your first strategy and your first currency pair, you can then begin to try and branch out into additional ones.
Set your goals and expectations, many people come into trading with the idea that they will make ridiculous amounts of money very quickly, of course, is not the case and is not realistic. You need to set your goals at an appropriate level, think about things like your current capital and account balance, the strategy you are using, and other risk management things that you have in place. You should combine all of these to make more realistic goals. If you see them too high, then you will be risking too much with each trade, not something that anyone would recommend, so set your expectations at the right level and it will keep you grounded and will help to keep you consistent with your trading and risks.
Keep a trading journal, something you have probably been told before and also one of the things that a lot of people hate doing, simply because it takes a bit of time to do with each trade. You need to write down what you are trading, why you are trading it, and different things like the profit and loss, trade times, and more. Jot down as much information as you can to ensure that you have that information available. You can then use this journal to analyse your trades, to work out what you are doing well and what you need to improve on. It also helps you to work out whether you are sticking to your trading plan or putting on trades outside of it. You won’t know any of this if you don’t have a trading journal, so ensure that you have one, most successful traders have one, so there is no reason why you should not have one either.
The things that we have listed above are simply the basics, here are of course a lot of other things that you can be doing to trade in what you would perceive as the proper way, but this is all relative to the person that is trading. Ensure that you do at least some of them and you will be on the right track to becoming a profitable and successful trader.