Trading CFDs carries considerable risk of capital loss. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail investor accounts lose money when trading CFDs. You should consider whether you can afford to take the high risk of losing your money.
Many traders only have an idea of how they want to execute their trades, this leads to trader error and is a costly exercise. If you just have a trade idea, but you do not have a trading plan, you just have a wish and wishes costs us money. It is one thing to know which indicators you want to use, it is another thing to know how, exactly, you want to use them. You do need to know everything about your trade before you actually enter a position.
Through your Forex trading journey, you'll have both ups and downs. It's easy to get distracted by the different trading methods out there so you need to make sure you have a trading plan that you stick to whatever the circumstances.
The five golden rules for building a successful trading plan should include the following principles.
1. Keep it Simple
You don't need to be a quant, creating complicated algorithms or game theory scenarios for every single trade you place. Simply find a strategy that is straightforward and easy to execute for your particular risk tolerance and trading objectives.
The more you research the market and the news flow the more fluent you will become in understanding currency movements increasing your chances of identifying trading opportunities.
3. Have Realistic Goals
Simply stating that you want to double or triple your initial deposit is not enough. You need to learn to understand the risk-reward equation of your trades.
4. Manage your risk
Calculating how much risk is acceptable to you is the starting point of becoming a professional trader. Ensure that you’re aware of the risk management tools available to you on your platform.
5. Keeping a Journal
This might be silly, but your emotions affect your trading decisions sometimes in a negative way. If you write down your trades while you place them and the eventual outcome you can learn from your experiences.
First, consider which time frame you want to trade. This depends on work commitments and personal preference. There is not such a thing as a wrong or good time frame, however, the larger time frame, such as the daily chart can have more weight on the price action because it's the timeframe where the smart money operates.
Second, you need to know if you want to trade trends or be a counter-trend trader?
Third, you need to know what will you look for as a signal to enter. You can use either technical analysis and price patterns or fundamental analysis.
Last but not least, you have to consider the position size per trade. As a professional advice, it's recommended to use a maximum risk of 2% of the overall account value per trade. When you're first starting and learning a new trading system, trade much lower than this.
Giving an answer to these questions will define the type of trader you want to be and ultimately it's the first step that a trader needs to undertake to become a professional trader.
The success of your trading career has more to do with your money management. It's how you manage your funds rather than the amount of your funds. You can learn to manage your funds just like the most successful traders on Wall Street. If you can afford the risk, you take the trade because the risk side of the equation is all that you have absolute control over. Controlling your risk is what will make or break you as a trader. Therefore, your success is directly tied to how well you manage your risk.
There are two ways to manage your risk. First of all, you need to expect the worse and secondly, you should never risk more than you can afford to lose. A rule that you should always abide by is to assume you are wrong until the market proves you right, so playing a defensive game is a characteristic of a good trader. Assuming you're wrong makes you more sensitive to realizing a loss, and the ability to take a loss is a very valuable quality for a trader to have.
The key to controlling risk is only to trade a certain percentage of your account. Professional traders and money managers agree that you shouldn't risk more than 2% of your capital per any given trade. If you control your risk in that fashion, you're going to survive to trade another day.