How to be the Warren Buffet of Forex market
Many traders come across the endless sea of the internet and searched a name like Warren Buffet in Forex market but sadly failed. A lot of beginner traders in Forex try to find someone who made millions and billions from scratch in the Forex market but they never found someone who made fortune by only trading in Forex market.
That doesn’t mean that the Forex market is not capable of making money but it is a very liquid and active market place to work in and it is not for everyone out there. Unlike investing in stock where quarterly earnings of a company and dividend and other easily available data help an investor to make investment decisions Forex market and the movement of any currency pair is affected by various global factors and this is the thing which makes this market so impressive and different from other markets. Forex market is a market with endless opportunity and with a systematic and serious approach, one can defiantly emerge as the Warren Buffet of the Forex market.
Here we list out few basic but most crucial things Forex traders should always keep in mind which will help the traders to achieve the ultimate target of capital appreciation from Forex trading.
1. Trading system :
2. Discipline Trading
3. Trading is a full-time business
4. Always use stop loss
5. Find the trend and follow it Do not go against the flow
6. Entry and Exit Timings according to the behavior of the currency pair
7. Keep your correlation table on check
8. Maintain a healthy risk reward ratio
9. Always test and re evaluate your trading system and make changes if required
10. Keep learning
1. Making an effective Trading system:
Forex market is a dynamic and very volatile market where you don’t have to be worried about the volume but that comes with a cost you don’t have much time to think because most of the big movements happen very fast. So you need to make a trading system which is focused on price action and conversion diversions also it depends on traders to traders what they prefer to read from a chart and what are the tools and indicators they prefer. But the key point is in order to be a successful trader in Forex market one should make a trading system and he has to stick to it and always back test the trades it enables you to find mistakes which you can rectify and that will make an effective system which will help you to make money in the market.
2. Discipline Trading:
As George Washington said “Discipline is the soul of an army. It makes small numbers formidable; procures success to the weak, and esteem to all.” That is the same thing we can experience in trading as you can always make laws and rules and you can have a lot of knowledge like a very powerful army but without discipline all the things you have are useless. Because without discipline one cannot use the knowledge effectively and the rules and laws you make for trading will never be followed. Again one great quote by Jim Rohn shows the importance of discipline as he said: “Discipline is the bridge between goals and accomplishment.” This is absolutely correct as if you are disciplined and follow the pre defined trading rules you will definitely become a successful trader and achieve your goal of the capital application.
3. Trading is a full-time business:
Many traders fail and lose their capital because of less dedication and taking trading as a hobby instead of a full-time business. If you want to make money out of the market then you should always take the market seriously. All the successful traders share a common thing which is they work full day as a professional business man and they devote all the necessary time in trading and that is the thing which give them a title of Professional trader as if you are not committed to the market then the market will not give you money because forex trading is not an easy way to print money it is a very complex market place where you need to understand and constantly update your knowledge and learn to make money out of it.
4. Find the trend and follow it do not go against the flow:
In forex market finding a defined trend is very difficult but if you have found a trend then keep a track on that and try to find the best entry point to join the ride and then stick with it. Do not try to go against the flow before any strong indication of revival in the market.
5. Always use Stop Loss:
Maintain stop loss is very important in trading because before making money you always have to save your capital and stop loss is not a thing which will stop the loss but it is a very effective tool to minimize the loss in a losing trade which is the key to surviving as a day trader. You should always keep your stop loss under the cap of 2% of your trading capital which is an ideal level of risk taken on a single trade.
6. Entry and Exit Timings according to the behavior of the currency pair:
After you have identified the major trend and now you all set to get on board you have to be very cautious about the entry time. You just cannot enter in a trade immediately after the break out because every currency pair is different and they have their own and different movement pattern, you should always consider the behavior of the particular pair before entering in a trade.
Knowing the price at which you wish to enter at or exit and knowing the behavior of the particular pair will enable you to book profits as well as it will also save you from a wrong trade caused by unnecessary confusion.
7. Keep your correlation table on the check:
In the Forex market, we trade on currency pairs where we go long on one currency and short on the other currency in the pair that means we trade one currency against the other currency for example if we trade EUR/USD then we are trading euro against US dollar. So you need to know the correlation of the currency pairs in order to identify the best available pair to trade with. For an example, if two currency EUR and JPY are perfectly correlated with each other than trading in the pair EUR/JPY or JPY/EUR will not be an ideal trade because if one currency is going down the other will also follow that and that makes the movement in the pair less.
In order to find the perfect pair to trade first we need to identify the strongest currency and then we identify the weakest currency and after checking the correlation between them we can trade on them and make money out of the market.
8. Maintain a healthy risk reward ratio:
Maintaining a healthy and well-researched risk reward ratio is very important in forex trading. As we all know nobody is perfect and no one can ensure 100% accuracy in any financial market and to keep in mind that few trades can go against the trader one should always maintain a good risk reward ratio. A risk reward ratio of 1:1.5 to 1:2 is ideal for forex market as the volatility in the market is very high and the movement depends on various factors the risk reward ratio above 1:1.5 will ensure a profitable month even with a low accuracy rate of 60% this will help to make constant growth month on month from trading business.
9. Always test and re evaluate your trading system and make changes if required:
Now you know the trading basics and you know how and when to trade and your trading system is working just fine but now it comes the time where you need to sharpen your blade and re arrange and make necessary tweaks in your trading system as Forex market is a dynamic and constantly changing market where you always need to make necessary changes in your trading pattern and style to keep up with the market.
10. Keep learning:
As we have already mentioned the fact that nobody is perfect and learning is a life long process that is totally relevant in case of Forex trading. A trader should always keep the learning mode on and this is the most common characteristic of successful people that they never stop the process of learning they always try to find a new way to learn something new to enhance their knowledge.
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