Top 4 Forex Trading Tips To Make You A Better Trader
BY Chris Andreou
|January 18, 2021There are various statistics that you’ll have seen about what percentage of traders turn a profit versus the traders who make a loss.
If we take the rough figure of about 85% of traders who lose money against the 15% of successful traders, we have to ask ourselves what are these fifteen percent doing right that the losing traders aren’t paying attention to.
This is a long and complicated topic, and indeed volumes of books can be written on the subject, but in this post we’re going to cover 4 of the best tips you can follow to begin your journey to joining the ranks of the fifteen percent.
To kick things off…
#1 – Use Multiple Timeframes Charts
Whether you’re a day trader, swing trader or long-term position holder, one of the best practices to follow is to take a “top-down” approach to chart analysis.
This means that you should begin your analysis with a higher time frame chart and then drill down into lower time frame charts. Think of this approach as like looking at the markets with a wide lens before putting the market under the microscope. It helps you gain a critical big picture view, before magnifying the market to spot the opportunity.
It’s a mistake to make trading decisions based solely on your “favourite” time chart. Other charts might be trying to tell you something and you need to be listening.
Let’s say you wanted to enter a long trade based on what you see as a head and shoulder pattern on the 1-hour chart. It’s wise to check the 4-hour or day chart to see if the longer-term trend also supports your decision to open a long trade. If the trend does match your intention, you know you have a much better chance of success and you can be more confident in your decision. If the long-term trend looks like it’s opposite to your short-term analysis, you might want to rethink your entry as you’ll know your chance of success is considerably lower.
In addition, you’ll also want to zoom down to the 30-minute and 15 -minute charts to spot a more exact entry point.
To increase your chances of making a good trade, always look at at least 3-time frames. You’ll find that you’re often able to avoid especially dangerous trades by using the higher time frames or gain further confidence in your trade which will serve you well as the day progresses.
A top-down approach is a simple one that can help you win more and lose fewer of your trades.
#2 – Don’t Use Too Many Indicators
The world of technical indicators is a decadent place. Especially for traders new to forex, it’s easy to get lost in the promise of accurate signals and the sheer number of indicators that you believe can help you make the right trade every time.
Speak to profitable traders though, and they’ll tell you that the best indicator is in fact the naked chart.
In fact, every other indicator you could possibly use is derived from price, and is simply a lagging representation of price itself. In trading, where getting in at the right time is crucial to success, relying too heavily on indicators that are lagging behind the current price can easily hurt your bottom line.
Don’t overcomplicate trading. If you can learn to read charts without the use of indicators and understand certain fundamentals like the basics of supply, demand, and interest rates, then you’ll already be ahead of most traders out there.
That’s not to say that indicators don’t have a time and a place. But our top tip here is to narrow your indicators to a maximum of two that you will use to confirm you’re reading of the chart.
Using more than two indicators complicates you’re reading unnecessarily and, if anything, simply provides a distraction from the obvious price action that could be staring at you in the face.
Instead of technical indicators, consider leaning more on basic support and resistance ranges. This will allow you to simplify your trading, and will also more likely lead to a consistently profitable approach than chasing the “holy grail” of the world’s greatest indicator.
#3 – Check Scheduled News Events On The Economic Calendar
Scheduled news events and data releases are likely to increase market volatility, so it’s vital that you know which releases are coming up that may affect the currencies or other assets that you’re trading.
Tiomarkets has it’s own calendar that you can use for your easy reference of important upcoming events: https://tiomarkets.com/en/economic-calendar
Although very few profitable traders would recommend trading the news by trying to predict what the numbers will be for a specific release, it’s more important to be aware of these releases in order to manage and mitigate your risk.
If you know for example that the key unemployment statistic, the Non-Farm Payrolls data, is being released tomorrow, you might want to hold out on opening new trades on affected assets until after the data is released. Alternatively, you may want to close certain positions or increase your account balance in order to account for the possible volatility.
This is a basic element for forex trading that you absolutely need to take into account every single day you trade. Otherwise, you risk trading in a vacuum of ignorance that has the potential to make a serious dent in your investment ambitions.
Risk management should be on the forefront of your mind as a trader. As a way of anticipating highly volatile periods and extreme price movement, the economic calendar is one of the most important, and also one of the easiest, tasks you can do every day to help you preserve your capital.
#4 – Set Realistic Trading Goals
As every trader will know, there’s plenty of bad and misleading advice floating around in cyberspace regarding what you can expect to earn as a forex trader.
You’ll doubtless have seen countless claims of systems, strategies and bots that promises to return 100 or 200 percent a day in perpetuity while you’re basking in the Bahamas sun.
Of course if these auto-millionaire-makers really worked, the creators needn’t bother selling the system at all.
That’s not to say that there’s not money to be made in forex trading. There is. And potentially a lot of money for smart traders who also know how to control their risk. But part of being a smart trader is setting realistic expectations. Because when you have dreams of $500 a day returns on an account with a balance of $1,000, your trading plan and your mindset will quickly become derailed as you chase bigger and more unrealistic wins.
One of the keys to overcoming this mindset is to avoid looking at absolute returns. Instead, think about small percentages of your balance that you can risk and earn per trade, per week, per month or per year.
Also consider the drawdown you’re willing to risk in order to achieve your goals. Most traders can’t afford drawdowns of 75% in order to achieve modest, consistent gains.
Set realistic targets in order to set yourself up for success. It’s the only way.
We hope that you’ll take lessons from our top tips that can make you a successful trader. Use these pointers as a starting point from which you can begin to build a trading plan that works for your style of trading.
Different plans suit different traders, but the advice above applies to every trader, of every experience, risk-profile and trading methodology. Remember these assumptions, and try to accrue more as you continue on your trading journey.
We would be remiss if we ended this list of top tips without advising you that one of the most basic elements of success is to trade with a trusted and reliable broker.
TIOmarkets holds multiple financial services licenses and adheres to some of the strictest oversight in world finance.
We’re also an innovative broker who offer unique tools and services to help you make the most of your trading account, such as our VIP Black account type which lets you trade without paying any commissions, so you can keep every dollar of your earnings.
Open an account here to discover the benefits of VIP Black.
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