The Path to Success in Forex Trading

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Ultimately, the knowledge gained in this book and in training in general needs to be applied to the real world. This involves taking practical steps and choosing a brokerage firm to trade with. Competitive pressures in the industry are narrowing the difference between firms in terms of pip spread, platform, and technology offered the trader. The really important determinants of success will involve how well traders are prepared before they start real trading, and whether the trading itself follows a sound action plan.

FACTORS IN CHOOSING A FIRM

While strategies and tactics are important, ultimately, the trades are placed at a forex firm. The industry is growing rapidly, and forex firms are available throughout the world. Selecting the right broker can make a difference. While there are essential features at most firms, the most important criteria for selection for a trader include the pip spread, dealing desk, customer service, and trading resources.

Pip spreads are rapidly becoming much narrower. Just a few years ago, five-pip spreads were the standard. Today two-pip spreads are available. Remember, if the spread is two pips, then the forex firm is still making money. They are offering you the currency pair with a built-in profit.

The industry is also evolving its dealing desk structure. Firms that have automatic dealing desks are becoming more common, allowing better spreads. But there is no free lunch. Remember, the firms make money on your trades. Customer service is critical. When the net freezes or you have a question about a trade, the ability to call someone on a 24-hour basis is important. Equally important is the ability to communicate. Some firms offer 24-hour service, but the trader connects to a barely competent English speaker. Tech support could be in a third world country. But trading resources is a major tipping point in choosing a firm. Most trading platforms have basic charting. The trader has to go to third-party providers to obtain charts such as three-line break and renko. Firms offering advanced charting packages and discounts on their cost is one criterion for choosing, particularly when accounts are traded with larger capital. Essentially, a good trader can trade profitably at any firm, but an average trader can improve his trading when choosing a better firm in terms of the total services he receives.

The trading environment used by the trader is more important than is usually recognized. Getting started the right way requires having a trading environment that serves the needs of the trade. Having two screens is a minimum suggested configuration. One screen should provide access to charts, and the second screen should enable access to Internet-based information and other activity. Having more than two is not unusual among more serious traders. The forex trader beginning today can use any new computer due to the advances in computer speed and capability. The most important aspect of organizing your own trading room is whether it is dedicated to the trader. The trading room should be isolated from family interference. Trading with kids running around is too distractive. Today's Internet connections provide easy access via high-speed links (DSL, digital cable, etc.). Trading through a dial-up should be avoided, but it can be used as a backup.

GAUGING PERFORMANCE: KNOW THYSELF

Central bank of New Zealand The path to success in forex trading is not measured by profitability alone. Those traders who become profitable have the challenge of consistency. Can they do it over a sustained period of time? The duration of successful trading also requires adaptability. Conditions change in the geopolitical world and its global economic cycles that significantly impact forex. Those who are successful during periods of global growth may not be able to use the same strategies during periods of global stagnation. The key skill of identifying macro conditions comes into play to provide early warnings to reassess trading strategies or choose different currency pairs. If China enters into a slowdown, the forex trader will be very careful about going long on the Australian dollar. If oil is trending up toward the $75+ level, the experienced trader may start including the strategy of going long the Canadian dollar. If the trader observes that Japan's economic performance is showing growth and inflationary tendencies, those favoring carry trades will significantly lighten their leverage or turn to other pairs to avoid equity volatility.

Becoming more successful in forex trading is also about being efficient. Two traders may have the same performance record of profitability, but they are not equal in success. The trader who has achieved the pip accumulation with less time is more efficient. Consider two traders who have the same profitability but different win-loss ratios. One trader wins 60 percent of the time, and the other wins 40 percent of the time. Which one is more successful? By measure of profitability, they are equal. But there are huge distinctions in other qualities associated with the trade. The 60/40 trader has a much wider freedom of trading action than the 40/60 trader. The later has to win big and lose small—almost all the time.

One thing that is critical on the path to success in forex trading is what happens after the trade. Being able to evaluate trading performance and apply the new knowledge gained about yourself will be essential to improving. The ability to improve depends on the ability to evaluate.

Performance evaluation needs to avoid being overloaded with information that doesn't lead to improvements. Here are some performance evaluation measures that traders should be able to have regarding their own trading history.

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