The first key element is one we have mentioned already, it is also the one element of trading that seems to get the most attention – The Trading Strategy.
1. The Trading Strategy
Your Trading Strategy is basically how you trade, what must happen in order for you to pull the trade trigger? Most trading strategies are based upon indicators such as RSI, Moving Average or a combination of a few different indicators, personally I prefer not to trade based upon indicators. Being able to simply read the Price Action off the charts will provide you with a much stronger base in determining your trades.
Whatever your choice, having a good trading strategy is very important when trying to become a profitable Forex trader. The question is what do I mean by ‘good’? What constitutes a ‘good’ trading strategy? Most traders define a ‘good’ trading strategy as one that has a high rate of success. The truth is you need to ask, how has this ‘success rate’ been established? Over how many trades was it determined, 10 trades? 100 trades? And what about asking the question were all trades taken following the precise steps of the trading strategy?
It is not as simple as finding a trading strategy that claims to have a 70% success rate and then just running with it, chances are if you’ve been in the trading game for some time you will know that it is never that straightforward.
A Trading Strategy claims to have a success rate of 70%
However when you trade it, your success rate is only 40%
Why is this?
Of course it could be that perhaps Trading Strategy A does not have a 70% success rate to begin with, but let’s say for this example that is does. So, what else could be the problem? The answer is you are lacking the other two key elements of a successful Forex Trader, let’s take a look at the second one.
2. Trading Psychology
There is one key component that affects every single trade you take… you. Your Trading Psychology very often is the difference between a successful trade and an unsuccessful one.You can be the strongest minded human being on the planet, but you are still human and as a human you have emotions.
Trading is a very highly charged emotional game, especially when you are trading large amounts of money, naturally your emotions can overtake and influence your thinking/behavior as a trader. Sometimes you will subconsciously take a trade based upon your emotions, whether you are ‘Revenge Trading’ or just being plain greedy, it is all down to how strong your Trading Psychology.
You could have the best Trading Strategy in the World, but if you have a weak Trading Psychology then it counts for nothing. Let’s take a look at some of the ways in which your emotions may affect your trading decisions.
- Emotions that hold you back from taking the trade
- Emotions that entice you to take a trade
- Emotions that cloud your judgement
Your Trading Psychology will improve as your exposure to the markets improve, of course I am referring to LIVE Trading with real money. Trading a DEMO account is fine to start off with, but you do not want to get too comfortable trading DEMO funds, when you are able to start trading LIVE. Please of course ensure you understand the risks involved, and NEVER trade with money that you can not afford to risk.