The principles to successful online trading are a simple trading system and the self-discipline to run it.
The keys to successful forex trading are self-discipline and a trading system that works for you. A trading system is a set of rules that a trader should establish up front. These rules include goals that are achievable, manageable and realistic. It is keeping to these rules that require self-discipline. A trader, who changes his system after each setback, is not going to be successful.
The Principles of Successful Trading:
Firstly keep things simple. Remember that you are running your own trading system so there is no point in having a set of complicated rules which you can’t remember or can’t trade from. Choose a system that fits your own personality and style of trading. Start slowly; no one ever made millions in their first months of trading nor were all their trades winners.
Aim to trade 5 or 6 times a day in liquid markets which will provide you with a good number of trades each day. Ask yourself if you want to be financially independent? If so how much money should you be trading to get there? If you set yourself a realistic goal of a winning ratio of 60:40, how many trades, how much capital and in which markets should you be trading?
Make sure you have a trading system that makes small gains every day rather than huge profits a couple of times a month. Most traders risk a maximum of 5% of their capital per trade. If you are willing to lose 5% or less of your capital, then your definition of success should be either the same or slightly higher.
Never stop learning and practicing. Even professional traders learn new things every day. Make a note of every single trade you make and why you made it. Analyse every losing trade and try and find out why it lost. Above all discipline yourself to follow your rules and not be a slave to your emotions.
How to use principles of trading and apply them to a possible trade?
Let us assume a newbie trader has a Euro short position and is studying the EUR/USD chart (below) on the 9th June 2011 and is anticipating the European Central Bank’s rate announcement to keep the rate at 1.25% and due to inflationary pressure in the Eurozone the ECB chairman would indicate that rates might be raised in July.
Therefore the trader was expecting the Euro to appreciate after the rate announcement in anticipation of a bullish speech and after the speech appreciate even further. After the rate announcement the Euro became bullish as expected and the trader’s emotions were telling him to go long. His trading system rules however were based on not trading on one set of fundamentals alone, so the trader kept his discipline and his short position in place. As the chart shows Trichet’s speech was not bullish and the Euro fell 70 pips.
In conclusion to be successful there are two important elements that a trader must have; a simple trading system and of course the discipline to keep to the rules.
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