While most forex traders leverage their free margin to maximize trading power—and, thus, their earnings potential—margin trading is only one aspect of their success.
9 Things You Didn’t Know About Successful Forex Traders in 2021
What is free margin in forex? Again, this is just one characteristic of high-earning forex traders. This is just an example, but top forex traders tend to earn six figures or possibly more per year, with the aforementioned explaining how that can come about. How much capital you have is going to have a direct impact on how much you can make when forex trading.
Build Capital To Build Wealth
You can absolutely build things up slowly, but large capital is intrinsically linked to the top traders for a reason. Mastering the use of leverage is also important for anyone who wants to successfully rank as a top-earning trader. When used, it means that you can make trades for more capital than you actually have. The use of leverage in any capacity is linked to your attitude to risk. Finally, the currencies you actually trade will have a huge influence on your profit and loss levels. It has been said before, but it certainly stands to reason.
This is because professional traders approach the market in a distinctly different fashion from casual traders. Looking at how professional traders differ from the rest, you will find that a large degree of this comes in the form of mentality and focus. Casual traders are known not to be selective when entering trades, showcasing impatience.
They also have a track record of letting emotion, fear, and greed take over, diverting away from what otherwise might be a solid trading strategy. When forex trading on a professional level, patience and discipline are unequivocally key. Arguably remaining stubborn at times, they stand by a system and follow a trading plan through. Rather than jumping on every common trend that comes along , buying and selling in a flash, they instead assess their success or failure based on series of trades rather than any single individual trade.
The above is just the tip of the iceberg when it comes to what professional traders do differently from the rest. But as you can see, mentality is what allows top traders to succeed and arguably gives them the edge over others within the forex market. While you might expect top-performing traders to rely on obscure indicators that have guided them to stunning success, the indicators featured in these strategies tend to be remarkably ordinary.
Top traders make use of the moving average for several reasons.
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First, moving averages can be customized to evaluate different timeframes for a currency pair, offering flexibility to match the trading window under consideration. Moving average is also easy to combine with other indicators to see if these indicators confirm the trends suggested by one another. And, with more than years of use in forex markets, the moving average has a large body of proof that its indications are valuable.
Developed in the s, this is one of the most popular oscillator tools because of its value in reflecting the strength of an emerging trend. Top traders use this to not only identify entry and exit positions but also to calculate when and where to place trailing stop-losses as they seek to maximize profit while minimizing risk.
While many forex experts question the reliability of Fibonacci extension and retracement levels as an exact forex science, top traders are always paying attention to not only the price action of a currency pair but also the trading activity around these positions. Given the widespread use of Fibonacci levels, top traders are more likely to play a psychological game in which they forecast price action by anticipating how traders will act based on these support and resistance levels.
Instead, top-performing traders built their success by developing an evaluation strategy that utilizes multiple indicators alongside other relevant forex data, including global economic news. Technical indicators are just one way top traders evaluating trade opportunities. Economic events are also crucial to follow, which is why you see many top forex traders displaying a broad knowledge of geopolitical and economic activity. The more you understand global events and their impact on currency values, the more equipped you will be to leverage this news to maximize profit potential. Here are some of the top economic events to follow:.
GDP reports are one of the best ways to gain a snapshot view of economic activity in a country. Jobs reports are another simple indicator of economic activity because jobs tend to be highly correlated with economic health. In many cases, declining jobs can be a harbinger of more economic strife to come, which could trigger a decline in currency value. The CCI is a metric quantifying consumer confidence in their own income and the economy as a whole. This metric can help top traders understand economic conditions based on information that might not appear on other economic reports.
If the consumers in a country are being more cautious with their money and cutting back on spending, there is likely good reason for that impulse. Perhaps the greatest pitfall of amateur traders—other than a lack of market knowledge—is the risk of making trades based on an emotional response, rather than a rational response. Forex traders invest a lot of time and energy into developing a trading strategy that takes an objective, data-driven approach to analyzing trade opportunities.
How to Become a Successful Part-Time Forex Trader
But when you allow your emotions to take over—ignoring signs you should exit a position in hopes of chasing more profits, for example, or making an ill-advised trade in an impulsive effort to win back your losses from a past trade—you can end up digging yourself into a much deeper financial hole. Top forex traders have learned how to avoid impulse decisions pushed by emotional, fear-based trading.
This emotionless approach to forex trading is something every professional trader should strive to achieve. Beyond a shift in mentality—which will take time—you also need to be willing to alter your trading approach. Any professional trader can implement the basics better than most, but what this should be used for is a foundation, not an end goal.
More complex trading systems and strategies are generally considered out of reach for a casual trader, but professional traders will know how to implement them at will. Research, education, and practice can help you acclimatize to advanced-level trading systems that can transform your forex trading success rate. Other factors that any casual trader with professional trading aspirations needs to address include the reuse of profits, investment capital levels, and risk management practices. Four Examples of Successful Traders Most successful traders normally shy away from publicity but there are a select few who have gained international recognition due to their immense success.
Such individuals have made fortunes thanks to their exceptional investment shrewdness, persistence, and risk management acumen. They are the traders we all can learn from and should aspire to emulate.
Soros earned the above-mentioned nickname back in during Black Wednesday in September of the same year. Bill Lipschutz is easily one of the most successful foreign exchange traders in history.
How to Become a Good Forex Trader
Instead of despairing, Lipschutz saw his failure as a valuable learning experience. In the early s, he began work in the newly established Foreign Exchange Department of the Salomon Brothers Bank and the rest, as the saying goes, is history. Stanley Druckenmiller started his career in finance in the late s as a trainee at the Pittsburgh National Bank. He then worked with George Soros for over a decade, from to The two worked together on the infamous Bank of England trade of Following the immense success of this deal, Druckenmiller was featured in the best-selling book The New Market Wizards.
In , he decided to part ways with Soros so he could fully concentrate on his own hedge fund, Duquesne Capital.
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Druckenmiller closed Duquesne Capital in the summer of because he felt worn-out by not performing on par with his high expectations. He explained handling such massive amounts of money made it difficult for him to generate satisfactory profits for his clients. Before you go live and start trading with real money, it is important to choose your timeframe, methodology, and the currency pairs you intend to trade.
The timeframe is essentially a reflection of your trading style and should correspond to your temperament and goals. If you are uncomfortable with exposing yourself to overnight risk, you might consider short-term day trading. If not, you may choose long-term position trading where you hold your positions for days, weeks, and even months. Short-term strategies like scalping are suitable for traders who are looking for smaller but consistent profits. This style requires you to trade with higher frequency, opening multiple positions within 24 hours. Once you decide on your timeframe, you should consider your methodology, i.
Test the system to ensure it is consistent and gives you an edge. The best course of action is to try several trading strategies to see which one works well for you and your risk tolerance. You also need to determine what currency pairs to trade. Beginners are usually recommended to start with major pairs where USD is traded against other stable currencies. Such pairs offer stronger liquidity. If you lack any previous experience whatsoever, it would be best to practice with a demo account rather than trading with real money right away.
The demo account also gives you access to the live market but the difference is you trade with virtual money instead of risking real capital. The trades you place in your demo account represent the profits or losses you would generate if you were using real money. Demo accounts enable beginners to build up experience through practice without the pressures associated with risking real money.
One thing Forex traders cannot complain about is lacking educational materials. There are various tools you can use to study and analyze the markets. Many major Forex brokers cater to traders with economic calendars that contain important and in-depth information about upcoming events from the world of economy. Traders have access to Forex live news feeds along with various tools for technical analysis that enable them to identify great trading opportunities. You can also subscribe to a signal provider to receive alerts about favorable trades.
These signals would tell whether you need to open a short or long position for the respective pair, at what price, and how to adjust your Stop Loss and Take Profit levels. Novice traders can also take advantage of various educational articles, videos, and webinars that can greatly shorten their learning curve.