By Godfrey Kenneth Gobba
If you have failed miserably at something every time you’ve tried it, then perhaps you ought to try trading forex. The business of forex trading is one of those rare endeavors where doing less is ironically one of the main keys to success.
Here are what I believe to be the three keys to successful forex trading:
Successful forex traders are snipers who trade less and hunt like crocodiles. They have developed the discipline to sit on the sidelines as they wait for their trading edge to show up and when it does show up they pounce on it like a hungry crocodile that has been patiently lying in wait for its prey.
They sit and wait for hours or days for the perfect trade to come to them before pulling the trigger. The result of this patient and highly precise trading style is a consistently profitable trading record with less transaction costs.
Unsuccessful traders on the other hand are trigger happy machine gunners who over-trade. They lack the patience of the snipers and they will usually shoot at everything that moves in the market often missing the bigger picture.
The result of this insanity is blown up trading accounts, bankruptcy and a stock pile of transaction costs that erode even the little profit that they could have made.
Trade Risk For Reward
Profitable forex traders play a risk reward game while the losing traders are busy playing a casino game. Profitable forex traders think in terms of a 1:2 or a 1:3 risk reward ratio for each trade they take while the losing forex traders think in terms of risking 1% or 2% of their trading account per trade.
Successful forex traders know that if they stick to a 1:2 or a 1:3 risk reward approach, they will still make money in the long run even if they lose 60% of the time. So they focus on risking “x” number of pips or dollars per trade for a reward of “2x” or “3x” number of pips or dollars per trade.
On the other hand, unsuccessful forex traders who focus on risking 1% or 2% of their trading capital per trade often find that their stop loss placement is not practical which gets their trades stopped out quite a lot, eventually blowing up their trading accounts.
Trade Higher Time Frames
Most profitable forex traders focus on the 1 hour, 4 hour and daily charts (higher time frames) while most unsuccessful forex traders focus on the 15 minute, 5 minute and 1 minute charts (lower time frames).
The psychology is simple. Higher time frames move slowly and require you to sit and wait for the high probability trades to come to you which is what the successful traders love to do. On the other hand the lower time frames move around quite a lot which is the kind of noisy action that the trigger-happy unsuccessful traders crave.
But if you want to become a long term profitable forex trader, you need to start ignoring the noise on the lower time frames. You should focus on “sniping” for high probability trade setups on the 1 hour, 4 hour and daily charts.
This article is clearly gibberish to readers unfamiliar with forex trading. But for readers that know what a pip is, you will find that applying the 3 keys above will immensely improve your forex trading results.
Trade less. Trade higher time frames. Trade risk for reward.
The author is CEO, African Investor Academy