Ask a Forex trader: What are the key characteristics of a successful trader?
If you are just beginning your journey in trading Forex/CFDs, you need more than just a basic understanding of buying and selling assets, commodities, and currencies. Being successful in trading also requires you to have a good understanding of the characteristics that define a successful trader.
The knowledge and understanding of these traits can be the starting point of being profitable in trading. In this post, we look at the essential qualities of a successful trader and explore how they can contribute to sustained success in the challenging world of forex.
1. Practices risk mgt
Risking too much is one major factor that causes losses either through over-leveraging, over-trading, or using a bigger lot size compared to your account size. Successful traders do not risk an excess of 3% on a given trade or of their account balance. In fact, we recommend to risk only 1%. That means that anytime you take a position, you should have figured out how much you wanna risk and it should be around 1%- 3% of your account balance.
2. Do not hold trades overnight
The forex market changes rapidly. Today the market may close with very little volatility, but the next day when the market opens, there is a lot of volatility which, if it finds you on the wrong side, can cause you substantial losses or even lead to your account getting wiped out.
Let’s look at this example from XAUUSD on 1Dec 2023 where in about one hour (at Sydney open) the trade jumped from 2070 to 2146.
Assuming you had a small account (or were greedy and used a big lot size) and held a sell position over the weekend, your stop-loss (sl) would not even have been triggered. You would have been stopped out of the trade.
Holding trades overnight is one bad idea, as you do not know what tomorrow may bring. It is prudent to always close all positions before the NY session ends.
3. Do not hold trades over the weekend
This is much more similar to holding trades overnights. You don’t know what is going to happen over the weekend, or how the market will open in a new week.
A case example is during the Israel-Hamas war. War broke out on Saturday 7th October and on Monday when markets we opening in Sydney there was a huge jump in trades because of high volatility. Commodities made a difference of up to 200pip on the buy.
Let’s check out this example again on XAUUSD on 9th Oct 2023 where early in the morning at Sydney open the trade jumped from 1832 to 1848 in less then 30 mins.
Assuming that you were holding a sell position over the weekend, you would have lost a lot of money when the market opened on Monday morning.
4. Do not trade high-impact news
Of course, you can trade after the high-impact news. By that time, you would have gauged where the market is going. However, holding positions before high-impact news, such as NFP, unemployment, and interest rate decisions, can cause significant losses if the information does not go in your favor or the market reacts in the opposite direction to what you expected. Personally, I prefer to wait an hour or two for the news to pass before I enter any trade.
5. Limit the amount of time trading — usually no more than 4 hours a day trading
While this may depend upon a trader, I believe that staying in the market for so long may cause you to resume bad behaviors such as over-trading or risking too much.
There are so many times when after making profits early in my trading, I continued to open more positions, and it led to me losing all the profits and capital because of greed. Besides, we should take care of our eyes by reducing screen time. For this reason, it is prudent to limit the amount of time you spend in the market. For example, you can choose to trade in the Tokyo, Sydney, London, or New York session.
6. Uses a stop-loss
I must admit I have met many traders who rarely use stop-losses. However, this is just one of the many risk management tools you can use to limit losses. If you aren’t using stop-loss, then you must be sure of what they are doing (I mean know when and where to get out of a trade when it is going against you — maybe it has reached 1% of your balance).
Of course, this may not be ideal when the market is extremely volatile. So to be on the safe side, always use a stop-loss to prevent your account from being wiped out and starting all over again.
This is what I wanted to share in regards to the traits or behaviors of a successful trader and if you got anything you pass, please do so in the comments.
Know that to be successful in trading forex, you need to be disciplined in your trading, learn about the market every day, and most importantly learn how to manage risk. Risk is a major factor that most traders ignore to take into account thereby causing them significant losses.
