eToro – Forex Trading Forum

[djsheckie]

Despite the fact that you have to deal with numbers, charts and ratios on a regular basis trading is more art than science. As with most artisitic pursuits, you will need some talent, however know that talent alone will only take you so far. In fact, the most successful traders hone their skills through practice and discipline. They perform self analysis to see what drives their trades and learn how to keep fear and greed out of the equation. In this article we'll look at 8 tips that an inexperienced trader can use to better their trading. For any experienced traders reading along, you'll also discover a few tips that will help you make smarter, more profitable trades, too.

[djsheckie]

The first tip is: Write down and outline specific goals. After you do this review and then choose the trading method that is most compatible with those goals. It's equally important that your personality suits the style of trading you choose. For example, if you're more relaxed and looking for a simpler trading style then day trading might not be for you. Try something a bit slower like swing or position trading.

Before you get started with any trading though it really is critical that you have some idea of where your destination is and how you intend to get there.

[djsheckie]

It's also important that your goals are attainable and set clearly in your mind. In other words think about what you would like to achieve but also make certain that the trading sytle or method you plan on using is suitable for achieving those particular goals.

All the different styles of trading are suited to different personalities and situations. Each type involves different methodology and each style has a different risk profile, which requires a different metality and approach to trade successfully. For example, if it makes you too nervous to go to sleep when you have positions open overnight then you should strongly consider day trading.

[djsheckie]

On the other hand, if you have funds that you think will benefit from the appreciation of a trade over a period of some months, then a position trader is more suitable. However, I have to reiterate this point, whatever style of trading you choose, be sure that your personality fits the style of trading you undertake. If you're not suited to a certain method then no matter how successful anyone else was with it, it will only lead to undue stress and certain losses.

Tip Number 2 - Pick a strategy and then be consistent in its application.

Before you enter any market as a trader, you need to have some idea of how you will make decisions to execute your trades.

[djsheckie]

What reports, numbers and information will you require in order to make the right call on whether to enter or exit a trade? This will depend on your strategy but also on your preferences as a trader. While some traders like to look at the underlying fundamentals of the company or economy, and then use applicable charts to best time the execution of their trades, others prefer technical analysis and as a result they will only use charts to time a trade.

It helps to keep in mind that fundamentals drive the trend long term, whereas chart patterns are more suitable for finding trading opportunities in the short term. No matter which methodology you decide to use just remember to be consistent. That said though, you should be sure your methodology is adaptive. Your system should keep up with the changing dynamics of a market.

[djsheckie]

Tip number 5 - Use more time to determine direction analysis and use a shorter time frame to time entry or exit.

Plenty of traders get confused due to the conflicting information one comes across when looking at charts in different time frames. So, what looks like a buying opportunity on a weekly chart could, in fact, show up as a sell signal on an intraday chart. Therefore, if you are taking your basic trading direction from a weekly chart and using a daily chart to time entry, be sure to synchronize the two. (i.e.- if the weekly chart is showing a buy signal, wait until the daily chart also confirms the same.)

[djsheckie]

Tip Number 6 - Calculate your expectancy.

Don't know what expectancy is? No it isn't when a baby is due. Expectancy is the formula you'll need in order to determine how reliable your trading system is. In order to do this you nedd to go back though your trades and measure those that were winners, versus all your trades that were losers. Then determine how profitable your winning trades were versus how much your losing trades lost.

It isn't as complex as it might sound. First, take a look at your last ten trades. If you haven't made actual trades yet, go back on your chart to where your system would have indicated that you should enter and exit a trade. Determine if you would have made a profit or a loss. Write these results down. Total all your winning trades and divide the answer by the number of winning trades you made.

[djsheckie]

Here is the formula:

E= [1+ (W/L)] x P – 1

where:

W = Average Winning Trade
L = Average Losing Trade
P = Percentage Win Ratio

Example:

Let's say that you have ten trades and only six of them were winning trades which means that obviously four were losing trades. The winning ratio would be 6/10 or 60%. If your six trades made $2,400, then your average win would be $2,400/6 = $400.

Hoever, if your losses were $1,200, then your average loss would be $1,200/4 = $300. Apply these results to the formula and you get; E= [1+ (400/300)] x 0.6 - 1 = 0.40 or 40%. A positive 40% expectancy means that your system will return you 40 cents per dollar over the long term.