5 Keys to Successful FOREX Trading

The vast majority of people fail to become profitable FOREX traders. Yet, the best ones often have similar traits.

Let’s be honest – if trading were easy then everyone would be rich.

Yet, the majority of traders in FOREX and other markets blow up their accounts within 6 months. More than 90% fail within the first year.

Some believe markets efficiently price value over time and that technical chart analysis and similar concepts are fruitless.

If that were true, then why are some traders successful year in and out?

And why do many of them share the same traits that make them successful?

You can form your own opinion as to whether it’s a bunch of hogwash.

For now, I want to discuss 5 keys that I see in common with successful traders.

Not every trader follows all of these steps, but the majority hold to most of them.

Set tangible milestones with dates

First things first. In order to be a successful trader, you need to treat it like a business.

This will be a common theme for this article.

Can you make a quick buck here and there? Sure. 

But over the long-run, statistics play out. Any lottery tickets you pickup along the way won’t overpower this fact.

Successful traders create the equivalent of a business plan…AKA a trading plan.

Within this crucial document, they identify goals and milestones that get them there.

Each milestone needs to have a specific date and action – ‘Do XXXX by YYYY date.’

How many and the difficulty of each is a personal preference. There should be enough that you can measure progress but not so many that you stifle it.

Think of it as a roadmap for your trading. You circle the important landmarks, figuring out which ones you should be passing by when.

One last point. These documents should be flexible. Sometimes we fail to hit our goals. When that happens, you need to sit down and realign the plans to where you currently are to where you want to go.

Find a mentor

All of us have to start somewhere. There’s more information about trading than books in the Library of Congress…well maybe not.

But it’s easy to become overwhelmed by the sheer volume of material.

And there’s as many trading styles as stars in the sky.

Regardless of which style you choose or strategy, having someone to guide you is an invaluable tool.

Finding one willing to work with you can be a challenge in and of itself.

Sucessful traders often enjoy teaching, but don’t want to waste their time on someone who gives up easily.

A successful mentor should:

  • Have a profitable track record
  • Mesh with your skills and style
  • Be willing to spend time with you

At the same time, you need to show your dedication for the business. That doesn’t mean having years of experience under your belt. But it may mean committing to a certain period of training.

Quite often, it may require a financial commitment on your part.

One of the mentors we work with is Abe Cofnas. He offers insights into chart analysis and trading for all skill levels and is a great place to start with your search.

Create a trading journal

No tool will serve you better than a robust trading journal. 

Journals log your trades including the setups, profit/loss, entries, exits, dates, symbol, and any other relevant information.

Many traders include freeform notes as well about what they thought or felt about the trade.

The purpose of the trading journal is to accurately reflect ALL transactions, not just the ones you want to keep.

By studying the data, you can spot opportunities and problems. At minimum you should be able to calculate:

  • Win-rate
  • Average trade length
  • Return on capital
  • Profit factor
  • Average trade result
  • Standard deviation

One of the best ways to use the journal is to compare your win-rate to the risk/reward. The interrelationship between the two determines your expected value per trade.

Expected value is the average outcome you should see per trade.

Looking at these statistics, you can get a sense of how dramatic your account swings, what to expect per trade, as well as benchmark yourself against other traders.

Here’s an example.

Say you have a strategy that yields 1% per trade on the total capital allocated with a 2% risk.

That means you would need to win 66.67% of your trades just to break even.

By calibrating entries and exits, you’re able to see its effect on the win-rate and risk/reward, allowing you to optimize your potential.

Here’s a great example of analyzing the performance of a good trade vs a bad trade.

Focus on one strategy at a time

Far too many traders bounce from idea to idea, hoping to find the one magic bullet that turns them a profit.

The fact is many traders turn a profit using strategies that have nothing to do with one another.

What matters is how it works for them.

Some traders make one trade per week while others make one every ten minutes.

Trying to become a success at everything quickly makes you a master of nothing.

Sticking with one strategy lets you become an expert in that area. Think of it like a doctor choosing a specialty.

Coupled with a trade journal, you can optimize the strategy and then make a rational decision about whether it’s worth keeping or not AFTER you look at the data objectively.

Once you have the data, treat your strategies like employees. When they stop performing for extended periods of time, and the data bears this out, fire them. Kick them to the curb and keep the ones that work.

Continue your education

Markets continually change. A strategy that worked for several years may stop. That’s normal.

It’s why traders continually educate themselves and expand their ideas.

If you fire your employee (strategy) and don’t have another one in the hopper, you’re back to square one.

Once you develop a strategy that you like, keep working to add others behind it. 

They don’t have to be completely different, but shouldn’t be highly correlated either.

Consider it strategy diversification. You don’t’ want your income and performance to rely entirely on one idea.

That’s fine when you start out, but not somewhere you want to be after a few years.

Final thoughts

Throughout this article, you should have noticed one consistent theme – structure.

Structure helps you drive a logic and data-based approach. It drives consistently and repeatability, making you more efficient and hopefully more profitable.