5 Traits of Successful Traders

We often hear the alarming statistics regarding the failure rate of traders. Stop me if you haven't heard this one… " 90 percent of all traders go broke."

Has a familiar ring, doesn't it?

The reality is, trading doesn't necessarily have a track record any worse than any other worthwhile profession. How many people start playing basketball with the dream of becoming a pro and actually make it to the NBA? I'll bet it's much less than 5%.

How about Doctors? Lawyers? Pilots? Engineers? Accountants? I could go on all day.

Like all professionals, traders have to dedicate a lot of effort to achieve a high level of success. Unsatisfactory trading results are usually the end product of someone with little or no experience throwing their money onto the market and expecting the profits to be easy pickings.

Although all traders are different, successful traders share many common traits. Novice traders need to invest in themselves to become profitable, and concentrate on developing, at least, these 5 characteristics:

1) Education

To be successful, a trader must completely understand their market. Like any business, trading for profit requires one to constantly be learning. Make it your goal to learn everything possible about your playing field.

The people that comprise the trading markets are constantly evolving and winning traders know they need to adapt to the ever changing landscape. Take the time to invest in your professional growth and it will pay rewards in the long term.

2) Patience

A successful trader can sit on the sidelines for days waiting for the proper setup. They don't jump into a trade just for the sake of trading. Yes there may be opportunities, but the smart trader waits for the best ones. Often the best trade is no trade.

Over trading by rookie traders is a big obstacle to overcome. A need to always be in the market will lead to taking trades that are likely too risky. Learn patience, it's a key to success.

A winning trader usually has an extraordinary amount of self control. Whether reaping rewards or taking a loss, successful traders will have an even emotional state.

3) Trading System

Top traders have developed a system to guide their trading decisions. They have established rules and once certain conditions are satisfied, they act to open, extend, reduce or close their positions.

There is no perfect system that will guarantee only winning trades, but a good system will tell you when it's time to cut your losses.

A system needs to suit the trader. Factors such as the amount of time a trader chooses to devote to trading, or the level of risk an individual is comfortable with should be major considerations when building a system that fits.

A system must be built to suit a trader's personality and this is the single biggest reason off-the-shelf systems seldom work for their buyers.

4) Discipline

Trading is not a black and white game. There are no sure bets. It is about calculating the odds of success and determining how much to risk on each play.

Having the confidence in yourself and your system to make the move to book your profit or take a loss when your method tells you to is a winning trait.

You have established the rules to protect and grow your money. Success will come with discipline.

5) Long Term Perspective

The current trade is only a small part of a much larger long term picture. Win or lose, you will move on to the next trading situation. Every trader must develop the ability to keep on going.

You can have many failing trades and still be profitable in the long run. Short-sightedness causes rookies to over trade, often trying to make back lost capital from an earlier unprofitable trade.

Losses are part of trading. Successful traders are independent thinkers and have achieved a healthy level of self confidence. They don't take losses personally… it's part of the game.

(end of article)

---

So, are successful traders born, or built?

An interesting question.

I recently read an article on the CNN Money website that tackles this question head-on. Titled "What it takes to be Great", it describes what the experts have found.

Why trade Forex?

Why trade Forex? With this week's trading tip, I want to illustrate one of the differences between a professional trader and a weekend warrior.

Are you trading for fun or profit?

That is the question you are going to have to answer at some point with respect to your trading.

Many people play golf for fun. They invest large sums of money into equipment and lessons, spend hours at the driving range, read all the latest publications and dream about golfing.

Do they expect to beat Tiger Woods someday? Do they think they can make a living at it? No, most just golf for the fun of it.

Imagine you are planning a visit to a casino. Would you expect to spend a couple of hours watching "How to win at Blackjack" videos and be able to walk away with the casino's profits? Not likely.

For some reason, many new traders expect to be able to spend a weekend reading an e-book or two and watching a trading video and then magically pull huge amounts of cash from the market on Monday morning.

Sorry, it's not that easy.

Like chess, where you can learn the basics in a few hours, but learning the subtle moves that the pros use can take a lifetime, profitable trading is going to take a commitment. I know, nobody wants to hear that.

Would you expect to become a lawyer with only a weekend at law school, or a doctor with only having read the e-book "Medicine Made Easy"?

You are going to have to invest in yourself if you want to play this game for a living. Don't believe the claims of snake oil salesmen that you can buy success for $47. You will be forever chasing the holy grail, which sadly does not exist.

Research, learn and practice. Those are the keys to your success. It can be done. It will be worth the effort!

Wishing you trading success,
David Stevenson.

Building a Trading System

Building a trading system is easier than you think. Without a system, you are almost certain to fail in your quest to be a successful trader.

As we learned last week, our trading brain is actually composed of two different parts that dramatically effect our trading. There is the old primitive brain our ancestors lived (or died) by and the new age brain that provides the sophistication necessary to survive in today's world.

Using Our Logical Brain

Our logical or "new age" brain can think logically, analyze situations and make good decisions. The problem is that once we are trading, our primitive brain takes over and runs the show.

The trick to keeping your primitive brain out of your trading is to develop a trading system that is "rules-based" using your logical brain. With a system, once certain rules are satisfied, you trade according to your plan. This is the way you keep your "brains" from messing up your trading.

Let's build a short-term system (a few hours to a couple of days) that we will use to guide our trades...

Getting Started

So, where do we start? We start by establishing the rules.

For example... since the safest direction is to trade with a trend, we need to determine the current trend. The problem with that is what time period do we use? The 5 minute is up, the 15 minute is sideways, the 30 minute is down, the hourly is flat and the daily is pointing at the moon!

Can you imagine the war going on between your two brains? This is why we build the rules ahead of time. In our case, let's set a rule that says the 15 minute, 1 hour and 4 hour chart are all moving in the same direction when we check their 21 period exponential moving averages.

I use the 21 period because it is a Fibonacci number that a lot of short-term traders follow and the exponential MA is more "in tune" with the current action than a simple MA.

Something you will learn along the way is certain indicators are followed by a large number of traders and knowing how other traders are likely to react when the indicators give their "signal" will help you anticipate the probable reaction to prices hitting a certain level.

Next week we'll continue building a trading system by adding more rules to our check list.

Wishing you trading success,
David Stevenson.

Automated Trading - Does It Work?

Using automated trading on your Forex account may turn your trading career into a money making venture. Traders from around the world use trading robots to manage their accounts, and some are very profitable!

The Future is Here Now

Technology has now made it possible for the smaller retail Forex trader to use the same type of trading program that institutions have used for years.

Trading robots, which are actually small software programs, enter and exit trades based upon certain rules. Many different styles are available and prices range from free to hundreds of dollars or more.

The Trading Platform

The most common platform used for automated trading is the MetaTrader solution. There are hundreds of brokers offering trading with this platform, but as usual, do your homework before sending your hard-earned cash to anybody!

The trading programs are copied into a special folder within the software and once activated, execute trades based upon how their parameters are set. Most of these robots allow a small amount of adjustment to suit your risk level.

There are a few things you should consider before you jump onto the robot trader bandwagon. There are pros and cons to automated trading and you need to be sure they suit your circumstances.

Why Use Auto Trading?

If you have done any trading at all, you know the emotional roller coaster ride you take while trading... profits appear, then they're gone, maybe some losses, then profits again, back into loss and on it goes.

Our emotions are usually what gets us into trouble while we are trading. We have a plan, but once we see profits or losses, our fear, greed and confusion take over and we abandon the plan we spent all that time preparing.

Trading robots on the other hand, are programmed to execute specific actions based upon certain events. Their complete lack of emotion makes them the (almost) perfect trader. They don't get caught up in the excitement, but simply do what they were designed to do... time after time.

The Flip Side

This type of trading does have limitations. Probably the largest one is the robot's inability to know what is coming in the way of news and data.

The trading action is based upon indicators, which are based upon historic prices. As soon as a new tick is made, the previous one is history. By this measure, the robot is unable to predict the future of prices.

Add to this the robot also doesn't know the NFP or interest rate numbers are about to be released, which could easily result in a major blindside to it's trading plan. This is usually overcome by switching off the automatic system during news times.

Since these programs are running on your computer, your system needs to be left running and connected to the internet for the entire time the market is open. Usually a broadband connection is also required or desired to ensure the data stream remains constant.

Something you should consider is that some robots don't put out a hard stop-loss order when the trades are taken, but rather monitor losses internally and act when necessary. Should your system happen to go down for any reason, you would be left without any stop-loss protection on your trades with this type of robot. Of course you can manually enter a stop order for safety sake when a new trade is opened, but what if it's 3:00 am and it just happens to be a night when you can sleep! Just beware.

The Bottom Line

I think the automated trading robots are the future for us. We all know that to be successful, we have to put our emotions aside. It's much easier for your computer to do that and it also doesn't mind working 24 hours a day!

We do need to hold their hands during news times, but that will be cured by smart programmers, I'm sure. Some trading programs boast earnings of 1000% per year and more. Timing and dealer intervention play a large roll in your results, so they may vary.

Now we search for the ultimate trading robot that will drive us to the land of riches while we sit back with our feet up. Let me know when you find it!

Wishing you trading success,
David Stevenson.

Developing a Forex Trading Strategy

Properly developing your Forex trading strategy is going to require you have a decent knowledge of how currency prices move, as well as the factors that affect those moves.

The following subjects all need to be considered as part of your strategy, and details on each are provided through the blue links.

Click on the link to a simple strategy near the bottom of this page, which you can use to get started.

Before you even think of putting on a trade, you need to have a Money Management plan in place. Failure to do this will virtually guarantee you will lose all your money.

Poor money management is probably the single biggest cause of ruined trading careers. Even the greatest Forex trading strategy on the planet is likely to fail without proper money management.

Forex strategies need to be "tailored" to suit the Time Frame you are planning to trade. A Forex trading strategy based upon a 15 minute price chart will vary greatly from another based upon daily charts.

The weight you give to both the Fundamental and the Technical indicators will influence your decisions. It is important you understand the information the "Pros" use to determine their moves.

Successfully day trading Forex currency is going to require some of your attention... more than the two minutes a day some shady "system sellers" are flogging. If you believe otherwise, you're going to be in for a few surprises, and a bumpy (expensive) learning experience!

Invest in your trading future properly and there can be great rewards. Take it lightly and your results are likely to reflect the effort you've put in.

Mini Lots are a Great Way to Reduce your Risk Exposure

If you are new to Forex, or your trading account size is under $20,000, you should use a Forex Mini Account. The added flexibility you'll enjoy trading mini lots means it should be a part of your Forex currency trading toolkit.

You need to understand and use the Forex trading edges that are available to you. Having the ability to "swing the odds" your way is a tool you need to use. There is risk associated with every trade, but how you use use your edges will make the difference between success and failure.

You will need to determine suitable Entry and Exit points which are likely to meet your expectations of profits over a given time period.

Another key consideration will be when to take your profits off the table. If you have traded Forex, you will know how quickly a "profitable" trade can turn into one that is draining your trading account.

The way in which you enter and exit a position will have a profound impact on your trading success

The other side of this point is knowing how to control a trade that is not going the way you had expected. Often the typical Stop Loss mentality of "cut your losses quickly" is not the most successful Forex strategy.

Together, all these components contribute to a solid Forex trading strategy. If you are not incorporating some of them, you will be at a disadvantage and with currency trading, you want every advantage available to be working for you.

Try This Simple Forex Strategy

The simple Forex strategy I outline below is a medium term (1 or more days) one that should work for you, or at least provide a solid foundation for you to build your own strategy upon. Medium term is the most suitable for the average retail Forex trader, as it requires the least amount of capital.

The reasons why I follow each step are explained elsewhere on the website, so you won't see any explanations here. This is a simple summary from many different articles.

If you have questions, concerns or are just unclear on any aspects of this simple Forex strategy, send me a brief note via the Contact Us page, and I'll get back to you with an answer quickly.

Even though this is a simple Forex strategy, you still need to do some homework. If you don't know the basic support and resistance levels you are up against, you are likely to get clobbered!

The Entry

1) Decide which pair you are going to trade (stick to a major pair)

2) Determine the major trend by checking the 1 hour, 4 hour and daily charts (be sure they are all going the same direction)

3) Draw trend lines through the lows if in an uptrend, or through the highs if in a down trend (the daily chart is the important one here and make sure you can see at least 2 months of data... more is better)

4) Note the support and resistance levels (obvious previous turning points over the past few weeks)

5) If the price is approaching the trend line you have drawn, or nearing a support/resistance level, wait until it has obviously bounced off or moved through that level before proceeding

6) Check the MACD, Stochastic and RSI indicators to see if they favor your pending move - if they're giving you a warning, you would best wait for a more favorable setup (and they come often, so be patient!)

7) Be sure there are no major data releases for the next day or two for either country

8) A pullback in price on the hourly chart is a good place to get in (make sure the trend has resumed before you jump). Candlestick reversal patterns are also great signals!

9) Get in, but use no more than 3% of your capital! Doing this will allow you to place your stop far enough away from the current price action, without a high risk to your capital.

10) Place your "Stop Loss", but as I show you, put it far enough away from the entry price so you won't be "stopped out" of a good trade. Set it about 10 pips beyond the nearest major support or resistance level.

The Exit

1) Place your "take profits" limit order. There is nothing wrong with a 30 to 50 pips target. Try to place it just ahead of a major support or resistance level. A good target for your limit order is between 10 and 15 pips before the next S/R level.

2) Monitor the trade and once the price is a safe distance from your stop, move the stop ever closer to your entry price until your profits are locked in. You may want to then convert the stop to a trailing stop which will follow the market.

3) Turn off your trading software and review this website, or go read a good book about trading (you'll drive yourself nuts watching the prices tick up and down - avoid the pain)

Anything can happen in trading, and this simple Forex strategy is not immune from any of it. The "stop loss" will ensure that if you happen to get hit by a bus, your position can't get away on you. As long as you are staying within the 3% guideline, the price can move against you, even several hundred points, without any real effect on your account.

Be sure to review the more detailed explanation of "stop losses" in the main Forex Strategy section.

Forex Trading Advice - These "Tips" may be Your Best Forex Trading Education

Forex trading advice, everyone has some, myself included. Advice comes in many forms, from "Hot Tips", to best buys. Try to understand the motive behind the advice... your best interest might not be at the root of it. This is a brief list of topics I would "Advise" you pay close attention to...

Predictions - Be leery of those with "predictions" of future market trends... this will only be their opinion. The things that "motivate" price changes in Forex are far-reaching, and can change dramatically in an instant.

Understand the Risk - Before you trade, you need to fully understand the risk you face in Forex. With leverage up to 400:1 available to almost any who care to play, one wrong turn can spell disaster for your trading funds.

Know the "Market" - Forex is like a chess game and there are "masters" playing against you. My Forex trading advice to you is to get an understanding of the "basic moves"... it is critical to your success. One's profits come at the expense of another's losses. The best Forex trading education is one you have before you put your money on the line.

Use Practice Accounts - As you well know, the internet has made it possible to learn Forex currency trading online before you put yourself at risk. Take full advantage of the "Demo" accounts available from virtually all brokers offering online trading platforms. This "almost real world" experience is invaluable for giving you an understanding of the mechanics of these online systems.

Test Your Strategy or System - There is no reason to believe if it doesn't work on a demo account, it will miraculously work with "real money". And don't fudge the numbers... you'll only be fooling yourself.

Understand Why Prices Move - There are pretty specific reasons why prices will fluctuate, and if you don't see them coming down the road, you're likely to get run over. You must pay attention to some crucial information!

Trade Within Your Means - The temptation to "over-trade" in Forex is much stronger than in the regular stock markets. The lure of "fast money" is more likely to burn you than it is to reward you. Oh, you will see random rewards... but usually just enough of them to coax you into the fire!

Fund Your Account Sufficiently - Think of your funds as ammunition, and your trading as a battle. Once your funds are gone, it's game over. Follow the guidelines presented, to enable you to meet your objective.

That is my Forex trading advice. The ability to learn Forex currency trading online has removed a huge obstacle for you. Take the time to properly understand why you need to have a proper trading plan. There is an incredible opportunity for profits, but you need to tread carefully - Forex often won't give you a second chance, once you make a careless mistake.