Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 28 May 2017 at 23:29 GMT

Survival guide for successful FX traders

Managing Director / Technical Research Limited
New Zealand
  • There are key factors that separate successful forex traders from the unsuccessful
  • Discipline and patience, for example, helps ensure trading capital is preserved 
  • Only risking a small percentage of capital on any one trade is also key
  • Unsuccessful traders tend to be undisciplined, impatient and do not respect capital

By Max McKegg
Monday is a holiday in the US and the UK and the Eurozone data calendar is light. As such, this article provides an opportunity for me make some observations on the issue of how and why successful FX traders survive and thrive.
First, a reminder that Tuesday kicks off a busy week for hard data with inflation updates for the US and Eurozone plus the always important US jobs report on Friday.
The Federal Open Market Committee’s inflation benchmark will be updated as the markets open Tuesday morning. After the Consumer Price Index came in under forecast earlier in the month the chances are the price index of Personal Consumption Expenditures (PCE) will be another reminder that the committee’s 2% objective has still not been locked in. 

This chart shows the situation ahead of the update for April. Expectations are that the core rate will be shown to have declined to 1.5% year-on-year.
Since 1985 I have earned my living as a forex professional, trading the FX markets and advising customers the world over. During this period I have come across a multitude of different traders, each with their own strengths and weaknesses, their particular trading styles and unique personalities.
Forex trading is a highly competitive undertaking and some of the key factors that separate the successful traders from the unsuccessful ones are as follows: 
Discipline and patience
Successful traders know through bitter experience over many years that without a strong trading discipline, their trading capital will not be preserved and their chances of trading profitability are much diminished. 

They know where to set their stop losses and not to change these based on anything other than objective analysis. Successful traders also know the virtue of patience and the importance of being selective about which trades they execute and to let profitable trades run their course.

Unsuccessful traders on the other hand are typically less disciplined and more impatient in their trading. They succumb to human emotions, second-guessing their analysis and/or professional advice and are less stringent in their trading/risk management. 
Risk/Money management

Successful traders know that preserving trading capital is imperative to their trading existence and therefore are strongly protective of this. They know that any one loss or series of losses is all part of the trading game and that for long-term trading success they must ration their trading capital appropriately, only risking a small percentage of their capital on any one trade. 

In contrast, unsuccessful traders do not show the same respect for their trading capital and are prone to incur losses which materially erode (or even eradicate) their trading capital unnecessarily. 
Adequate capitalisation

Successful traders treat trading as a serious undertaking and like any business, it needs to be adequately funded. Embarking upon any venture without sufficient funds is a recipe for failure and being under capitalised places the trader at a serious disadvantage at the very start. 

Unsuccessful traders fail to understand this and are too often “blown out” due to inadequate funding. 

 Throwing in the towel is never an option for successful traders. Photo: Shutterstock

Operating as a business

Successful traders treat their trading as a business and consequently follow a professional approach. After all, imagine a business with no rules, procedures and systems that operates solely on an ad hoc basis. The chances for success would not be high. 

This is contrasted by the approach of many unsuccessful traders who crave the excitement and thrill of forex who trade haphazardly and with inadequate risk/money management.
Trading is a long game

Successful traders do not “throw in the towel” or become disconsolate when going through inevitable trading troughs. They understand that losses are an inevitable part of the trading experience and it is how they manage these rough patches which is the most important thing. It’s important not to take trading losses personally. As long as you execute properly and have the appropriate stop loss, trading losses are just part of the normal trading process. 

Unsuccessful traders too often fail to see the “woods from the trees” and succumb to the pressures of trading troughs to their detriment.

– Edited by Gayle Bryant

Max McKegg is managing director of Technical Research Limited. If you would like an email notice each time Max posts a trade or article then click here or post your comment below to engage with Saxo Bank's social trading platform.
seas seas
Excellent article and advice. Thank You Max. I plead guilty on all counts.
Max McKegg Max McKegg
Lessons for us All every day!
Treve Treve
Wise words indeed Max
fxtime fxtime
A good overview for any trader :-)


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