Who is a Trader
Before thinking about becoming a trader be it forex, stocks or cryptocurrencies i believe it is quite essential to understand the concept of trading and what a trader actually do.
In simple terms, a trader is someone who places orders on the market these orders may be on currencies, commodities, CFDs, cryptocurrencies or stocks and so on regards to his market preferences, sometimes on behalf of financial institutions (big banks, investment funds, hedge funds), or other times, as an independent trader. Exchange orders, such as purchasing or selling stocks, are either in the trader's own name, or on behalf of clients or for the financial institution or broker that employs them.
As a trader there are so much options to specialize or trade on: foreign exchange (forex), equities, cryptocurrencies, bonds, metals, coffee, meat, etc. In today's world, there is a trading market for almost all goods (meat, coffee, etc.) and commodities. Most existing contracts are settled in foreign currency(the united states dollar (USD) being the main currency for settlement) , and do not deal with physical delivery.
For example, A forex or crypto trader manages currencies based not only on client needs, but also on the various fluctuations expected in the short and medium-term of the market. An equity trader, on the other hand, trades shares in anticipation of market behaviour, as the trader's goal is to buy before the share price increases and sell before they fall.
A trader understands the risk involved in his every decision, likewise does he understands the dynamics involved in the market and with great understanding of the economy, money and interpreting the charts irrespective of him/her having a technical or fundamental approach, or both, he or she will be looking to build an understanding of currency pairs’ behavior and set up profitable trades.
The market as we know today, trading never sleeps, meaning there will always be action, in the crypto sphere the market runs 24/7 and 365 days non-stop uninterrupted wheeew! the thought of that surely sounds fun to all traders 😂, however due to its low liquidity trading on crypto hasn't been too attractive, forex on the other hand though with high liquidity yet these liquidity levels will peak and trough at certain points around the clock. For these reasons some traders will surely sometimes be forced to operate in unsociable hours to put them in a position to capitalize on international markets.
Now you have quite a fair understanding about who a trader is, in this article will teach you how to become a successful Forex and Crypto trader(as all principles discussed will be applicable to both forex and cryptocurrency), how to avoid costly beginners mistakes, how to setup a trading account and start trading on the live markets, best trading practices for beginners. The exciting thing is, since you're reading this, you are already on the right path to becoming a successful Forex or Crypto trader or both. Without further talks, let's dive right in...
How to become a successful trader
Believe in yourself
There's a well known research which you must have heard or perhaps hearing for the first time, "90% of traders lose and only 10% succeed" perhaps the margin has even increased 🤷🏽♂️ who knows?. I'm not saying this to get you scared or discouraged, but for you to know the game is hard and only the strongest survives, there's no point deceiving yourself about it or letting any other person deceive you, it actually takes a lot to become a successful trader.
Lt. Zig Ziglar once said "success is achieved by ordinary people with extraordinary determination". I believe the first step to anything great is believing in yourself, not others believing in you, or you believing in success, YOU MUST BELIEVE IN YOURSELF that you have what it takes and you can achieve it, the belief is what will drive your passion and keep you determined even when all things looks like it aint working out, cause believe me on your journey to becoming a successful trader you surely will hit hard rocks and fall several times.
You must be able to remind yourself over and over again about why you started the journey, getting up and putting yourself together after blowing up accounts over and over again, you must be able to withstand the psychological and emotional pain, like it or not trading could cause more emotional meltdown than relationship heartbreaks. You cant stand all of these if you don't even have a strong conviction in yourself.
The second thing that you need to do when it comes to trading is to understand what you want to achieve and how you define success. What is success to you?
Everyone has their own definition of success, just as our faces are different so also is our desires, however the case may be, in deciding what you want, you have to be SMART with your goals.
S- simple/specific- one mistake most wannabes make is saying or wishing to get rich with trading they all say i want to make money with forex without being specific on their desires everyone of course want to get rich or be successful but you must be specific to what you desires are otherwise you won't be able to focus your efforts or feel truly motivated to achieve it. When drafting your goal, try to answer the five "W" questions:
What do I want to accomplish?
Why is this goal important?
What is involved?
Which resources or limits are involved?
M- measurable - It's important to have measurable goals, so that you can track your progress and stay motivated. Assessing progress helps you to stay focused, meet your deadlines, and feel the excitement of getting closer to achieving your goal.
A measurable goal should address questions such as:
How much is needed?
How long do i need?
How will I know when it is accomplished?
A- attainable/achievable -Your goal also needs to be realistic and attainable to be successful. In other words, it should stretch your abilities but still remain possible. When you set an achievable goal, you may be able to identify previously overlooked opportunities or resources that can bring you closer to it.
An achievable goal will usually answer questions such as:
How can I accomplish this goal?
How realistic is the goal, based on other constraints, such as financial factors?
R- relevant - This step is about ensuring that your goal matters to you, and that it also aligns with other relevant goals.
A relevant goal can answer "yes" to these questions:
Does this seem worthwhile?
Is this the right time?
Does this match my needs?
T- time bound - Every goal needs a target date, so that you have a deadline to focus on and something to work toward. This part of the SMART goal criteria helps to prevent everyday tasks from taking priority over your longer-term goals.
A time-bound goal will usually answer these questions:
What can I do six months from now?
What can I do six weeks from now?
What can I do today?
No doubt success can't be achieved in a day it is in accomplishments of these long term vision and short term goals that produces the full scale success and this is why it is mandatory to have them.
Such long term goals could be: Having your own forex company, starting other businesses from your forex profits, purchasing your dream car or buying your dream house with your trading profits, and short term goals could be something like: achieve 30% annual return on investment, earn 10,000 USD of profit, get a total of 500 pips per month or something similar. Whatever you decide you must put those five things(SMART) into consideration and it is actually much better to set yearly goals with a longer time frame than monthly goals or weekly goals
After making your plans and writing your vision (literally write your vision both short and long term with pen and paper if possible stick it to your desk or door) it now time to strategies on how to achieve them, one of the best way to begin it to first identify which resources are available to you. This may include the size of your starting capital/equity, the amount of time you are willing to spend on trading, and the amount of available funds you are willing to spend on trading-related matters (software, mentorship, books etc.).
Once you have a clear vision here, it is time to make an action plan. This action plan should include the currency pairs you are planning to trade and the number of trades you are going to commit to, the style of trading (swing, day trades, scalping, etc.).
Reading up to this level should have given you a clear insight and a general understanding of what it takes to attain success as a trader, this might be appear a little bit difficult if you just a newbie however in the next segment of this article we will take you step by step in a more practical manner with our expert tips to becoming a successful trader.
If you a total novice or perhaps an intermediate trader who would like to become a professional trader NFX offers a premium mentorship service where we train you to perfectly understand how to read the charts, analyze the market and interpret the news, you can opt in for our mentorship at any point in time or take some of our courses.
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Interested in learning to trade the most liquid market in the world? The NFX Mentorship program will teach you about the Forex & Crypto market from start to finish. We’ll lay out how the market works and then teach you how to trade it like a pro through a combination of education, one-on-one assistance, and trade reviews.
NFX Pro Tips to becoming a successful trader
1. Set Your Mind Off High Expectations and Quick Gains
This is one of the greatest flaw most newbie traders encounter, too many wannabe-traders see forex as a get-rich-quick scheme, some even see it as a gamble for quick gains. A lot of problem arises when new and even intermediate traders become obsessed with chasing profits, and this anxiety often leads to costly mistakes that creates massive losses and in most case, complete loss of account.
Therefore the first and most important rule to become a trader is to take your mind off any unrealistic goals and objectives. The prospect of earning money in Forex with just a few quick trades is extremely unlikely. Operating in a risky and overconfident way can lead to a total loss of investment capital.
By setting a high profit objective, you create great emotional pressure, which could result in one of the biggest errors people make when trying to become traders: falling into excessive actions or overtrading. We will talk more about this as we progress.
Earn the money you need and don't stress about earning more. - this should be your prime focus after taking greed off the checklist.
Rather than focusing only on how to earn money in Forex, try to focus on learning a trading strategy, developing a trading plan and researching all the trading tools that are within your reach. This attitude will help you establish a lasting approach so you can become a successful Forex trader.
2. Treat Trading Like a Business
Most people don't get the fact that trading the financial market is actually a business and every trader is an entrepreneur. It amazing and surprising how alot of folks take trading like a game or gamble some even as a hobby - they claim to just do it for fun which is a total lie or self-deceit.
To be successful, you must approach trading as a full- or part-time business, not as a hobby or a job. If it's approached as a hobby, there is no real commitment to learning. If it's a job, it can be frustrating because there is no regular paycheck.
Trading is a business and incurs expenses, losses, taxes, uncertainty, stress, and risk. As a trader, you are essentially a small business owner and you must research and strategize to maximize your business's potential otherwise like other businesses you may fail within the first few years.
3. Assess Your Trading Risk Profile
We earlier just explained why you must treat trading as a business therefore as a business man with a business mindset before endearing into any business you should be smart enough to first assess the risk involved in the business, the easiest way to do this in terms of trading is to first assess your capital at hand, read trader testimonials so you have realistic expectations of returns(It is very important to not set too high expectations as we earlier discussed), and research the markets and currency pairs you're interested in. If you don't feel comfortable with the dynamics, don't invest in forex, even if it's profitable. This applies to any market be it forex, stocks, equity, cfds, cryptocurrency or bonds.
If, on the contrary, you think that your investment approach is in line with the Forex or Crypto market, go ahead!
But checkmate the following:
1. Invest only what you can afford to lose without affecting your standard of living.
2. Diversify your investment, no matter how confident you are, it is recommended that you do not invest more than 20% of your total investment funds in any market.
3. Have reserved trading investment funds.
4. What is your risk profile: Moderate? Aggressive? Conservative?
5. Prepare to lose.
Yep you heard that last one right "Prepare to lose" no matter how smart you are as a newbie or even an intermediate or even with hiring the best mentors you will still encounter losses and this is due to what we earlier said above "IT IS A BUSINESS" losses and profits are what makes up a business and if after series of bad trades, you still have the courage to keep trying, not giving up then no doubt Forex is for you!
4. Make a Trading Plan
It's a common saying that one who fails to plan surely plans to fail, as in all cases this statement is very true and applies to trading generally, irrespective of the market of choice. Many people talk about discipline and having a good strategy but only few understands the importance of having a solid trading plan, of a true having a good trading strategy and being disciplined as a trader tells alot about your chances of success.
However, one of the backbone of successful traders lies in the ability to stay organized irrespective of the circumstances or situations they find themselves and such can only be obtained by having a sound trading plan. A sound trading plan covers most your trading activity, such as a trader's entry, exit and money/risk management criteria for every purchase, what to do when a trade goes wrong, maximum possible loss to bear and so on, having these in check helps reduce risk from unforeseen market shifts.
Modern technology like MT4/MT5 or most premium trading platform like Tradingview and the rest has made trading so much fun and easier, it is easy to test a trading idea before risking real money. Known as backtesting, this practice allows you to apply your trading idea using historical data and determine if it is viable. Once a plan has been developed and backtesting shows good results, the plan can be used in real trading. Sometimes your trading plan won't work. Bail out of it and start over.
The key here is to stick to the plan. Taking trades outside of the trading plan, even if they turn out to be winners, is considered poor strategy. Many beginner traders develop negative trading habits. One example is the aforementioned overtrading, in which once a trader starts getting lucky with easy wins they continue to trade until they overdraw their account.
In most cases, some traders have good trades due to chance or luck, which ends up promoting the negative habits in trading, making it being almost impossible to break these bad habits. How can this person become a successful trader if they repeatedly leave the result of their trades to luck?
It's quite a pity that most traders overtime end up believing that luck will never abandon them, but as everyone knows, luck is not infinite and once it runs out, it will create consistent losses. Therefore, it is wiser and smarter to spend more time developing a healthy trading habits than living on hope and luck, as of a surety this will help you achieve your dreams of becoming a successful trader.
5. Keep Your Emotions Aside
Victor Sperandeo one of the famous traders once said " The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading." This may sound very simple, but it is necessary and likewise does it affects all levels of traders, be you a rookie or a professional. Emotions are the worst enemy of people who want to become traders. Some traders try to see trading as a game where they try to beat the market, and then when they start losing, they feel overcome with disappointment and regrets.
It is very important for you to accept and recognize that trading is not a game, and you should never treat it as one, no matter how smart or intelligent you are, you are prone to make mistakes once in a while or perhaps not even mistakes due to personal faults but due to the craziness of the market. Forex trading is a financial activity that is a mix of analysis and discipline. You should not blame the market, or worry about your losing trades.
To become a successful trader, you must understand the mechanics of forex, trust your analysis, and follow the rules and strategy you set. This is the definitive key to reaping the benefits of forex. Emotions can ruin a trader's experience, so it is vital to set them aside and not involve them in trading.
If you are emotionally down, due to stress, marital disputes or whatsoever, do not trade. The same goes for being excessively confident and excited: refrain from trading, or be knowledgeable about your mental state. Excessive trading confidence can cause great losses.
The most recommended way to prepare yourself for the emotions of trading is by testing your skills on a free demo account (lucky for you almost all forex brokers offer a free demo account.) Instead of heading straight to the live markets and putting your capital at risk, you can avoid the risk altogether and simply practice until you are ready to transition to live trading. Test your trading skills today and trade without risk. Click the banner below to open your FREE demo account today!
6. Never Stop Learning
Just as the market is dynamic so also is the learning process. Think of it as continuing education. Traders need to remain focused on learning more each day. It is important to remember that understanding the markets, and all of their intricacies, is an ongoing, lifelong process. Quality research allows traders to understand the facts, like what the different economic reports mean. Focus and observation allow traders to sharpen their instincts and learn the nuances of the market.
Staying up to date with market news is also very vital. Many market movements are driven by news, central bank announcements, political events, or the expectation of any of these. This is categorized as fundamental trading. Even if you are a technical trader, meaning someone who makes trades based on chart analysis of a market instrument, you should still pay close attention to the fundamentals, since such events are a key factor in market movements.
For example, if you have a reliable trading strategy and several technical indicators that indicate a long trade, check the forex calendar anyway to make sure your order matches current events. Even if your technical trading strategy works perfectly, the fundamental news can change everything.
The market environment is dynamic. The more traders understand the past and current markets, the better prepared they are to face the future.
7. Avoid Overtrading
Overtrading is the mother of all blown account; the father, am still yet to find. - Nicholas Ilechie
Overtrading happens as a result of recognizing opportunities in the market where there really aren't any its feels like a mirage. Some folks who want to become traders look for opportunities to reach their goal, but on many occasions they may or may not realize they are deceiving themselves, and this wishful thinking is putting their capital at risk.
From research we can categorize the types of overtrading into two:
A. Trading Too Frequently: Too many people are stuck with the belief that being a successful trader means you have to be on charts or in a trade at all time, in reality the opposite is the truth, successful traders don't trade too much they just make the correct trades. Aside scalping trading too often is an easy route to large losses and wrong decisions.
An excerpt from one of Warren Buffetts speech gives a clear reference to this.
In investments, you have to wait until the opportunity is clear, because the markets are not a game. In baseball, sometimes you have to swing at many balls that you don't expect to hit, but this is not necessary in the financial markets.
There is really no harm in waiting for more than a day for an opportunity to arise. You can simply wait until the setup perfectly corresponds with your strategy before considering to enter the trade. This tells that you know exactly what you are doing.
B. High Volume Trading: The second category for overtrading is to work with an excessive amount of volume, 70% of the case this is often due to high leveraged accounts. As we are probably aware, most crypto exchanges, forex brokers and CFDs offer significant leverage in their trading accounts. In principle, this exists to give traders the opportunity to earn money in crypto and forex with small investments. This gives more people the possibility to become Forex and Crypto traders, and thus use the services offered by these brokers.
Be that as it may, practically speaking, abusing high leverage is still very common among rookie traders who are tempted to maximize their profitability in forex. In reality, what they are doing is the direct opposite. High leverage does not inherently mean falling into error. Leverage is simply a tool that allows you to operate with larger trading volumes, resulting in the trades having a larger margin. This is a double-edged sword - if the market moves in your favor, your profits are amplified. If it moves against you, the same is true for your losses.
Generally, trading with excessively high volume makes an account more susceptible to margin calls. The important thing here is to learn to avoid overtrading and gain a better understanding about leverage.
8. Observe Trading Holidays
As a trader you must know when to stop trading or when to take a break from trading related activities. There are two reasons to stop trading: an ineffective trading plan, and an ineffective trader.
A trading plan is said to be ineffective if after series of trades more losses or wrong decisions are made than correct or winning trades. A trading plan could become obsolete or ineffective as a result of changes in market dynamics, or volatility may have lessened. For whatever reason, the trading plan simply is not performing as expected.
Stay unemotional and businesslike. It's time to reevaluate the trading plan and make a few changes or to start over with a new trading plan, during these transitional period it is most advisable to take at least a week break from trading related activities and after a week use another week to assess your new trading plan with a demo before returning to live.
An unsuccessful trading plan is a problem that needs to be solved. It is not necessarily the end of the trading business.
A trader is said to be ineffective if he makes a trading plan but is unable to follow it. External stress, poor habits, and lack of physical activity can all contribute to this problem. A trader who is not in peak condition for trading should consider taking a break. After any difficulties and challenges have been dealt with, the trader can return to business.
9. Never Forget To Set Your Stop Loss
While trading no matter how genius you are; you have to accept that sometimes you are going to lose and as such it is best to keep your losses within a certain risk range and this is why using a stop loss is mandatory. This type of order allows you to define the closing price of your trade. Your trade will close once it reaches that level, even when you are not present. In other words, setting a stop loss will give you the peace of mind of not losing more than the limit you defined.
PS: Stop losses are not a guarantee that a trade must close at a certain level, as there may be occasions where the market behaves erratically and presents price gaps. If this happens, the stop loss will not be executed at the predetermined level but will be activated the next time the price reaches this level. This phenomenon is called slippage.
Not having a stop loss is bad practice, even if it leads to a winning trade. Exiting with a stop loss, and therefore having a losing trade, is still good trading if it falls within the trading plan's rules.
The ideal is to exit all trades with a profit, but that is not realistic. Using a protective stop loss helps ensure that losses and risks are limited.
10. Have a Dedicated Strategy
Many traders get themselves entangled with the complexities of trading strategies, believing the more strategies they can get their hands on the better for them and thus prime their ego thinking having many strategies makes them more successful.
This is not entirely true in trading the financial market, in our opinion, it is better to have one clearly-defined strategy and master this strategy than to have tens of complex strategies.
Here at NiclaxFX, we utilize the price action strategy as this is also the strategy used by most successful traders. To become a successful Forex trader, try to focus on harmonizing your online trading strategy with your risk profile. Research all the trading tools that are within your reach. Study the techniques that seem logical, and think about how they can be used in your strategy. In addition, you can study how markets behave and learn how the industry works.
In conclusion, understanding the importance of each of these trading tips, and how they work together, can help a trader establish a viable trading business, it is also important to note that its not just enough to understand them but also to accept them and put them into practice, without acceptance and practice, nothing will be achieved and this will end up as just another article. Trading is hard work, and traders who have the discipline and patience to follow these principles can increase their chances of success in this very competitive industry.