Essential Elements of a Successful Forex Trader

All the foreign exchange trading knowledge in the world is not going to help, unless you have the nerve to buy and sell currencies and put your money at risk. As with the lottery �You gotta be in it to win it�, trust me when I say that the simple task of hitting the buy or sell key is extremely difficult to do when your own real money is put at risk.

You will feel anxiety, even fear. Here lies the moment of truth. Do you have the courage to be afraid and act anyway? When a fireman runs into a burning building I assume he is afraid but he does it anyway and achieves the desired result. Unless you can overcome or accept your fear and do it anyway, you will not be a successful trader.

However, once you learn to control your fear, it gets easier and easier and in time there is no fear. The opposite reaction can become an issue � you�re overconfident and not focused enough on the risk you're taking.

Start by analyzing yourself. Are you the type of person that can control their emotions and flawlessly execute trades, oftentimes under extremely stressful conditions? Are you the type of person who is overconfident and prone to take more risk than they should? Before your first real trade you need to look inside yourself and get the answers. We can correct any deficiencies before they result in paralysis (not pulling the trigger) or a huge loss (overconfidence). A huge loss can prematurely end your trading career, or prolong your success until you can raise additional capital.

Both the inability to initiate a trade, or close a losing trade can create serious psychological issues for a trader going forward. By calling attention to these potential stumbling blocks beforehand, you can properly prepare prior to your first real trade and develop good trading habits from day one.

The difficulty doesn�t end with �pulling the trigger�. In fact what comes next is equally or perhaps more difficult. Once you are in the trade, the next hurdle is staying in the trade. When trading foreign exchange, you exit the trade as soon as possible after entry when it is not working. Most people who have been successful in non-trading ventures find this concept difficult to implement.

For example, real estate tycoons make their fortune riding out the bad times and selling during the boom periods. The problem with trying to adapt a 'hold on until it comes back' strategy in foreign exchange is that most of the time the currencies are in long-term persistent, directional trends and your equity will be wiped out before the currency comes back.

The other side of the coin is staying in a trade that is working. The most common pitfall is closing out a winning position without a valid reason. Once again, fear is the culprit. Your subconscious demons will be scaring you non-stop with questions like �what if news comes out and you wind up with a loss�. The reality is if news comes out in a currency that is going up, the news has a higher probability of being positive than negative (more on why that is so in a later article).

So your fear is just a baseless annoyance. Don�t try and fight the fear. Accept it. Have a laugh about it and then move on to the task at hand, which is determining an exit strategy based on actual price movement. As Garth says in Waynesworld, �Live in the now man�. Worrying about "what could be" is irrational. Studying your chart and determining an objective exit point is reality based and rational.

Another common pitfall is closing a winning position because you are bored with it - its not moving. In Football, after a star running back breaks free for a 50-yard gain, he comes out of the game temporarily for a breather. When he re-enters the game, he is a serious threat to gain more yards � this is indisputable. So when your position takes a breather after a winning move, the next likely event is further gains � so why close it?

If you can be courageous under fire and strategically patient, foreign exchange trading may be for you. If you�re a natural gunslinger and reckless, you will need to tone your act down a notch or two. If putting your money at risk makes you a nervous wreck, its because you lack the knowledge base to be confident in your decision making.

Patience to Gain Knowledge through Study and Focus
Many new traders believe all you need to profitably trade foreign currencies are charts, technical indicators and a small bankroll. Most of them blow up (lose all their money) within a few weeks or months. Some are initially successful, and it takes as long as a year before they blow up. A tiny minority with good money management skills, patience, and a market niche go on to be successful traders. Armed with charts, technical indicators, and a small bankroll, the chance of succeeding is probably 500 to 1.

To increase your chances of success to near certainty requires knowledge; acquiring knowledge takes hard work, study, dedication and focus. Compile your knowledge base without taking any shortcuts, thereby assuring a solid foundation to build upon.

Forex Broker Scams

The small, beginner forex trader often finds it difficult to trade profitably through inexperience, or using flaky commercial systems, but some forex brokers make it even harder by helping themselves to your money, often staying within the letter of the law. This posting is to highlight some of their nefarious tricks.

Beware the bucket shops

A bucket shop does not put orders into the interbank forex market. They simply rely on most traders losing, so take the opposite position to your trade, but only on their own systems. This means that it is in the broker’s interest for you to lose. As well as making money from the spread, they also get to keep your losing trades. In my experience, many brokers simply see beginning traders as people to take money off.

Since the trade is only on their systems, the bucket broker can distort the market, or widen spreads (the difference between the bid and offer price). I have seen situations where market news came out and the position went massively into credit, and then they deliberately widened the bid offer spread from 3 pips to 35 pips, and also prevented the trade from being closed.

One other trick is to deliberately hit stops. If you put the stop on their system, they can move the quoted price to trigger the stop, then it will immediately move to where it previously was. This is a way that they rob the small trader.

There is no real way to work around a dishonest or unscrupulous broker, especially if you trade news driven markets. All you can do is to read the experiences of other people and be careful when selecting a broker.