The majority of retail traders are unable to consistently profit from Forex and CFD trading. First and foremost, a trader must develop or modify their trading strategy to meet their personality, trading schedule, and risk tolerance. Before implementing any method, it should be historically back-tested, and its average effectiveness should be quantified. You must understand that past performance is not an accurate predictor of future performance and so does not promise anything.
Second, a trader must cultivate a certain mindset in order to continuously implement his or her strategy. This second section will be the focus of this article because failing to understand it is the primary reason why so many new traders abandon Forex and CFD trading after losing money.
How to Profit Consistently in Forex Trading
There are numerous strategies for continually profiting in Forex; nevertheless, in this post, we will highlight seven significant methods for progress:
- Developing and testing a reliable trading strategy
When discussing how to create a continuous profit in Forex, the first logical step must be to select a trading strategy. There are various choices, but they all fit into one of the following categories:
- High-frequency trading
- Copy trading
- News trading
- Day trading
- Swing trading
- Long term trading
There are numerous strategies to profit in the market. However, not all tactics are suitable for every trader. One technique may provide excellent results for one trader but not for another. Every trader is unique. When you use a trading strategy that fits your personality, you will achieve consistency in Forex trading.
Scalpers profit from local price fluctuations. High-frequency traders execute a large number of deals every day. Copy traders use trading algorithms to mimic other successful traders. To avoid swaps, day traders open and close orders on a trading day. Swing traders take more than 24 hours to close open positions. Swing traders mostly use basic analysis, and trades can take anything from a few days to a few weeks to complete. Long-term traders and investors typically invest in tangible assets rather than trading CFDs.
How can a Forex trader remain consistent when there are so many trading techniques to select from? You’ll have to put in some effort to figure out which style is ideal for you. Backtesting and demo trading can be extremely beneficial. Demo trading allows traders to simulate a live trading environment by using a fictitious account balance. The vast majority of brokers provide their consumers with free Demo accounts. Backtesting takes time away from the conversation because it involves comparing trading methods with historical chart data.
Furthermore, market conditions change often. To learn how to trade Forex profitably, you must first understand the power of refining and building trading methods.
2. Set a risk/reward ratio of at least 1:2 or have a high success rate
There are two general strategies to generate money in Forex. If you use the first method, you can benefit even if your forecasts are only correct 50% of the time. To do this, your risk-to-reward ratio must be one risk for more than one reward. Typically, traders choose a risk/reward ratio of 1:2 or greater. For example, if a trader wants to make 100 pips from a specific position, he or she would consider placing a stop-loss order below 50 pips from the current market price.
However, bear in mind that the setup, not your trading objective, should define Stop Loss and Take Profit targets. You should not force a trade if the situation does not provide you with an opportunity.
The second technique to consistently benefit from trading is to have a success record of more than 50% on your predictions. Even if the risk-to-reward ratio is 1:1, the algorithm will generate account balance growth over a set number of trades.
3. Setting attainable profit goals
To understand how to profit in Forex, we must first understand how to set realistic expectations. If you plan to double your deposit every month, you will employ dangerous techniques that will jeopardise your account balance. Furthermore, you must study more about the instruments you intend to trade.
The average daily volatility of each currency pair varies. Because the two currencies are highly connected, EUR/CHF moves by 50 to 55 pips on average. As a result, setting a daily profit target of 100 pips with this pair may be unrealistic. Other currency pairs, such as GBP/AUD or GBP/NZD, can achieve such lofty ambitions, with daily movements ranging between 190 and 210 pips.
4. Using high leverage as little as possible
Risk management should be part of the best Forex strategy for consistent returns. Leverage raises the risk of trading. Many highly regulated brokers provide leverage up to 30:1 or 50:1. That is, you can get up to 50 times the purchasing power on your deposit. However, it is no surprise that many financial analysts refer to leverage as a two-edged sword. The issue is that over-leveraged trading can easily result in huge losses that are difficult to recover from. Leverage can boost your profits, but it can also deplete your account balance. Some brokers provide leverage of up to 300:1, 500:1, or even 2,000:1.
5. Not putting more than 5% of your trading capital into each trade
To understand how to benefit from Forex trading, you must first learn how not to lose your trading cash. Professional traders methodically and slowly increase their trading balance. They manage drawdown periods efficiently and avoid taking reckless risks.
Most expert traders risk no more than 1% of their trading balance per trade. Trading profitably and consistently is all about probabilities. When you break that balance and take more risks, your outcomes become more dependent on single, specific trades, which can either soar or ruin your trading balance.
6. Keeping a business journal
Trading journals assist traders in learning from their own mistakes, identifying strengths and shortcomings in their trading techniques, and improving performance. Trading journals are used by the majority of professional traders. They hold traders accountable and encourage them to make more rational trades. They also aid in the avoidance of needless exchanges. And it stands to reason that when you document your transactions, you are more likely to be more discriminating in your trading setups and avoid mistakes.
Surprisingly, the trade log can not only provide significant insight into the results but can also be quite motivating for traders. If a market participant notices that, despite his or her mistakes and failures, the average monthly earnings are improving, this can be very encouraging.
7. Conducting basic research on a regular basis
The final step towards achieving a consistently effective trading experience is to stay current on economic developments. Clearly, keeping track of dozens of currencies can be difficult; however, a trader can begin by studying the 8 major currencies that comprise the Forex Majors, paying attention to the latest Gross Domestic Product (GDP), Consumer Price Index (CPI), Unemployment rate, and other important releases, as well as interest rate decisions.
Even if you like to day trade and avoid fundamental trades, reading economic news can protect your technical trades from extreme volatility and uncertainty. Currency pairs are volatile due to upcoming economic announcements and political upheaval. Many technical traders avoid placing orders during or immediately preceding such situations.
Fundamental data is generally analysed by investors, swing traders, and position traders.
Nobody ever makes a profit all of the time
How can a Forex and CFD trader make regular profits? To be honest, it can’t be done. Closing every deal for profit is a trading urban legend. When it comes to how to be consistently profitable in Forex and CFD trading over the long term, some skilled intraday traders may be continuously profitable on a daily basis, but they cannot offer a trading record that does not include regular losses.
If you have trouble accepting losses, you may fail with Forex and CFD trading. Professional traders with decades of experience admit that only about 40% of their trades are profitable. Some people even go as low as 20%.
The trick is that those that are lucrative produce enough to pay their losses and profit. Keep in mind that long-term, trend-following traders frequently experience this. It takes a lot of guts to recognise mistakes in your decision-making (if your approach allows it) and to terminate a lost trade early with a little loss. Conversely, it takes about the same amount of guts to believe in yourself and not close a winning trade too soon. You must be patient.