We have been teaching traders for over 15 years and below, you will find 20 forex trading tips to help you make bigger profits and trade with greater confidence and less stress.
Most novice traders don’t know most of these tips, let alone use them and they soon join the 95% of losers. However, if you use them, you can make a lot of money and join the elite 5% who make big gains trading currencies.
Keep in mind, you can make all these changes RIGHT NOW and if you do, you will enjoy better profits with less risk, in less time and with less stress. Let’s take a look at our 20 tips in greater detail and there is no order of importance – there all important.
Learn the Pareto 80 – 20 Rule
The principle was put forward by Joseph M. Juran and was named after the Italian economist Vilfredo Pareto, who noted that 80 percent of income in Italy was received by 20 percent of the Italian population.
The conclusion from this observation is – that most of the results in any situation are determined by a small number of causes.
The value of the Pareto Principle in life and currency trading is it tells you to focus on the 20 percent that matters. Of the things you do during your day, only 20 percent really matter in terms of making your life better and improving your financial future.
This rule is very popular in business, where its a known fact is sales that 80 percent of the income of a sales company is generated by just 20 percent of the client base – In Forex trading, its likely that 80 percent of your profits will come from just 20 percent of your trades.
The lesson in Forex trading is cut down your trading frequency and keep in mind that you will have a lot of marginal trades and only a small percentage which will give you huge gains.
Most traders trade too much and there is no correlation between trading frequency and profits so cut your trading back to only the best trading opportunities which offer you the best odds and also make sure that you are prepared to cut losses quickly and run your profits.
It’s a fact that trader’s who show patience and are selective in their trades, make more money than traders who simply trade the noise and the action. Also If you trade less, you can risk more because the trade has the odds on its side and is more likely to be successful.
Today traders think that they simply have to trade a lot to make money – but these traders aren’t focusing on making money, their focus on the thrill of trading and are gamblers.
Forex trading has simply one aim – making money if you like thrills and excitement then go to a casino and have fun if you want to make money in Forex forget about excitement.
The 80 – 20 rule is not just a rule applicable to currency trading, it’s a rule that can enrich your life in all areas and is one that if you think about, it occurs again and again.
If you learn it and apply it when trading currencies you will get – better odds, bigger profits and you will spend less time on your Forex trading strategy
Learn the Value of NOT Trading
This really leads on from the above point and its understanding that for long periods, your money should be on the sidelines waiting for the right opportunity.
In terms of traders trading too much, I am often asked how many times a small trader with a $5,000 account should be trading per month and as a ballpark figure, I would say – around 3 – 10 times a month.
I know traders who make triple-digit gains and they put on very few trades because they are focused only on risking their money when the right opportunity presents itself.
When you watch a good poker player, he will pass by far more hands than he plays and the reason is simple – he won’t risk his chips until the time is right and while he may not trade a lot, he makes a lot of money and you should take the same attitude.
If you want to make a lot of money trading currencies forget about diversification and also, forget the idea that it reduces risk – it doesn’t. In fact, if you diversify for the sake of it, you will end up diluting your profit potential and NEVER make any meaningful profits.
Common wisdom is to trade several positions at once, to reduce risk and I see many traders who put on a good trade, they really like and very often turns into a winner but they then put on trades for the sake of it just to diversify!
More often than not, they win on the high odds trades and the trades they put on to diversify cause losses. Diversification does NOT reduce risk and in most instances, increases it.
Diversification in most instances ensures you never make a lot of money in your trading strategy. The key to reducing risk is – to MAXIMIZE the best opportunities and use good risk control on your trade and this has nothing to do with diversification.
Always Bet Meaningful Amounts
Another commonly accepted wisdom is risk 2 percent and no more. Well if you do this, you will never make any real money. If you have a trade you believe in (and you have understood the points we have made so far) risk between 5 – 10 percent.
If you don’t risk enough you will never make enough and the pro trader this. The pro trader knows when to take a trade and load it up for big profits.
With risk goes reward so always risk enough to make enough – this is not being rash, it’s simply knowing when to take a calculated risk and having courage and confidence to do the trade.
Trade the Crosses
Many traders simply restrict themselves to the majors but you are missing some great opportunities if you don’t trade the crosses. The crosses in many cases, offer you smoother trends with more manageable levels of volatility because there is less speculative interest in these pairs.
In conclusion, you very often get better risk to reward trades.
There only more expensive by a few pips and if you are trading long term, picking out the best risk to reward trading scenarios, this won’t impact on profits.
If you want bigger profit potential and better risk-reward, add some cross rates into your trading strategy.
Treat All Currency Pairs the Same
Don’t let a currency pair make you feel happy and fall in love with it and on the other hand, don’t hate a currency pair or get angry with it either. Just because a currency has given you a string of profits in the past, doesn’t mean the next trade is going to be good.
On the contrary, if it’s given you a hard time in several trades, it may give you a profit the next time. Never worry about what happened in the past, focus on the situation and risk to reward of the trade at the present.
Look at the Big Picture
Many people think currencies move in isolation from other markets but of course, they don’t – they also move in relation to other financial markets and here are some examples in terms of individual currencies:
The Commodity Currencies like the Australian and Canadian Dollar, are both influenced by the cost of raw materials.
For example, the Canadian Dollar responds to the strength or weakness in the crude market, as its such a big exporter and the Australian Dollar, is very responsive to the price of metals – particularly Gold.
In terms of times of high risk and geopolitical tensions, the Japanese Yen and US Dollar are safe haven currencies and will tend to strengthen in times of uncertainty.
When looking at individual currency you can gain clues to the countries health and interest rate outlook by looking at the domestic bond and stock market.
Looking at related markets and seeing the bigger picture is referred to as inter-market analysis and if you want to gain a trading edge, you should look at the bigger picture and you will get a clearer picture of where a currency could be heading.
Learn the Benefits of Positive Carry
Currencies which have strong interest rate earnings can help you so if you always take into account the interest rate earnings (especially in long-term trend following) they can make a big difference to your profit so if you get a good trade and it has positive carry to then it’s a great set up.
Interest rate differentials can vary widely and can make a significant difference to overall profits so always take this into account before buying or selling a currency.
Review Your Opinion Daily
Many people enter a trade with a specific view and then, they become biased and refuse to change their view, even if the facts or price action they originally entered on change.
This means, they get into trades and then refuse to get out because of their stubbornness and end up losing. If you are not prepared to change your view quickly, the currency markets will punish you with losses.
So review your trade each day in light of the facts as they are now and what the price action is telling you which leads me to my next point…
Learn to Place Stops Correctly
If you are placing stops make sure you learn to place them correctly! The worst error you can make is to use 10 – 30 pip stops because you are within the noise of the market and will lose your cash forget the nonsense so-called “gurus” tell you which say you can make money doing this you can’t.
It’s just a ploy to sell get rich quick systems and imply you can make money with no real risk in Forex but it’s not the reality of trading. If you want to make money you need to take calculated risks so use wider stops and if you’re worried about losses, cut your leverage.
Learn to Use Time Stops
These are not very popular but can be highly effective when you expect a big move quickly. Simply set a time period for the trade to do what you want and if it doesn’t – liquidate the trade.
You can use these a lot on breakouts. If the breakout occurs and is not following trough chances are it won’t and will come back to put you in a loss so use time stops to minimize risk.
Adjust Risk Exposure in Relation to How You Are Doing
If your account is doing well you can afford to leverage up and try and trade for bigger profits, when you are not doing well and taking losses, you should adjust your exposure and cut it back and focus on holding your equity.
In Forex trading, the key is to hold onto your core equity. All the successful poker players adjust bet size to preserve equity and it’s no surprise that great poker players also make excellent traders.
Simplify Your System
Do you use more than 6 different inputs to generate a trade or do you constantly add in or take out, indicators to see if your system works better?
If you do, you need to simplify your trading plan and cut the number of inputs and don’t be tempted to keep chopping and changing your system.
There is no perfect system and the reality of trading is – to accept imperfection! keep your system simple and robust and focus on trading it with discipline.
You will hear lots of people telling you that you can beat the market but traders have been trying to since trading began and never succeeded and you won’t either.
Ignore anyone telling you they have found some magical indicator or secret and focus on tools that work and focus on trading the reality of price action.
95% of traders lost 30 years ago and the same ratio lose today and this is despite all the advances in computers and forecasting – so accept imperfection, understand you can still make a lot of money, simplify your system and trade it with discipline and you will enjoy long-term trading success.
Focus on the Long-Term Trends
Professional traders focus on big trends – they get into them and they ride them for big profits and hold them for weeks on end. They’re patient and hit the best trends and ride them.
The loser focuses on trading random volatility and tries to scalp and he gets a lesson from the market which is obvious – don’t trade random moves unless you want to lose all your money and do so quickly.
Increase Your Profits with Swing Trades
The biggest profits are made from long-term trends but you can also swing trade within the trend when markets are not moving strongly or to smooth your equity curve when trend following for example:
Let’s say you are long a currency and it moves to overbought levels, you want to stay with the long-term trend but know a pullback will probably occur so what do you do?
Take 50% of your trade on a move to overbought and then place it back in on a dip to support and repeat the process. Not only will you stay with the long-term trend, you will also be active within it and be able to smooth your equity curve and make more money from the long trend.
Learn to Trade Low to High Volatility
Any trader needs to have a thorough knowledge of standard deviation of price to make money and understand volatility and I don’t have time to discuss it all here but one simple tip is to trade a switch from high to low volatility and simply, go with the direction volatility is tasking prices.
A switch from low to high volatility, after a period of quiet trading normally means, the supply and demand picture is changing and if there appears to be no reason for a currency to be going the way it is = get on board the move will probably be a good one.
Take the Cash and Run
On small accounts, in particular, you will at some point in the year see an explosive move that puts your account well in profit and when this occurs and increases your account equity by a certain percentage – take the cash and move to the sidelines.
If you have a profit target of 50% or 100% and if you make 25% of your target in a short space of time take it. Have a break and you will come back refreshed and with a sharper mind.
Focus on Equity Preservation at ALL times
Leads on from the above point and it’s been stressed in various points so far never allow yourself to fall too far behind. Take a big profit when you see it in relation to your target and also, focus on cutting exposure when you’re in a drawdown period.
When trading always keep in mind it’s a few big months which will make you big money and most of the others will be minor profits and losses.
I tend to find its 2 or 3 months only per year I make big profits in and the rest of the time its minor profits and losses – so long as you don’t fall too far behind and your system is sound you will hit big profits.
Learn to Love Being Uncomfortable
If you are uncomfortable taking a trade but your system tells you its the right thing to do – it probably is and its best most other traders and the news don’t agree with you.
If you have a trade that looks good on paper and all the logic and news adds up and you can see no reason why it will fail, it will probably give you a loss.
The fact is the best trades are the ones that make you feel nervous and on your own but when you get used to the feeling – it’s a good one.
You know you are trading in the minority and not taking easy trades – remember its the minority who can stand on their own and are not fooled by the fact a trade looks easy that make the big money trading Forex.
Always Expect the Worst
The currency markets don’t move to logic or value – they move in reaction to greed and fear and when people think a currency cannot go in a certain direction chances are it can and it will.
When entering any trade, see them all in the same light and make sure you work out, what the worst scenario is first and then you won’t be disappointed.
People talk about risk to reward – but any risk to reward ratio is an opinion ONLY. All trades have the potential to go wrong and if you are prepared for this things can only get better.
So there you have our 20 tips for bigger Forex profits instantly and while many of the stops are not conventional investment wisdom – they work.
The reason is a lot of so-called wisdom which traders think will make them money will not and never will and is based on the idea that you can make easy money in Forex.
If you want to make money you need to have a trading edge over the 95% of losing traders and the above list of tips if applied correctly, will give you an edge in your quest for Forex trading success.