Forex Markets

five basic but essential components for success in trading:
1. Have a trading plan

In the bestselling book Market Wizards by Jack D Schwager, sixteen of the most successful traders in the world describe their trading methodology. Although the systems, methods and markets they trade are different, they do have one thing in common - they all have a trading plan that they follow strictly.

Studies have shown that over 80% of traders do not have a trading plan. The traders that do have a plan are professional traders and these traders are successful.
2. Exercise good money management

Money management helps to protect you from large losses and helps preserve capital. There are many theories on this subject alone, but put simply: do not risk large amounts of your capital on any one trade.
3. Cut your losses

As much as you may have heard this one, this is by far the most broken rule. Classical trading suggests that we cut our losses and let our profits run.

Without this concept, the risk of ruin stands a greater chance. As a trader our first aim is to preserve our capital. Without a capital base we have nothing to trade with. Therefore, when we initiate a trade which goes sour, we should cut quickly and on a disciplined basis.

Again a common characteristic of successful traders is their ability to get out of a losing trade without hesitation. In the classic book Reminiscences of a Stock Operator, Jesse Livermore (who is considered to be one of the greatest traders and who made millions in the stockmarket) lived by this rule.
4. Be patient

There is a simple prescription to guard against overtrading in the markets: patience. By having the discipline and patience to wait for the right opportunity, you can greatly increase your chances of success by simply waiting for the right trade.

Take your time and choose the best of the crop. Make sure the elements of your chosen strategy are satisfied before putting your trade on.
5. Manage your emotions

Trading must be treated as a business. In doing so you must not get emotional about your positions. Remember rule number one - plan your trade and trade your plan. This in itself should help keep your emotions in place.

Many traders get emotionally attached to their position, which means they now have an opinion on the market. Opinions are dangerous. Trade what you see and not what you think.

Over the coming series of articles we will be looking at the above areas in more detail. But for now, remember that successful trading amounts to doing the right thing all of the time and not just some of the time.

Happy trading,