The Top 5 Qualities that Make an Ideal Forex Trader
Can we all aspire to become the ideal forex trader?
The forex market is the single most popular financial market to trade amongst the masses.
In fact, it’s heavily marketed as such, with banners everywhere reminding potential online traders how accessible it is, and how many opportunities it offers you to make money.
But, contrary to what most forex brokers would have you believe, it isn’t as simple as just opening an account and investing some money. Trading the foreign exchange market is no cakewalk.
And while everyone technically can do it, does that mean everyone should? Today, we’re going to go over the top 5 qualities that make the ideal forex trader.
Bear in mind that we aren’t saying you shouldn’t trade if you don’t possess one or all of them. Just that these are the qualities people should aspire to develop and perfect in order to maximize their chances of becoming successful investors.
So let’s dive right in!
Learning how to trade the forex and stock markets is tough. And the variables involved are seemingly endless.
From the intricacies of macroeconomics to fundamental analysis and the race to keep up with the economic calendar, there’s so much to learn! And that’s without even beginning to tackle technical analysis and all that comes with forex charts, candlesticks, price action patterns, technical indicators and algorithmic trading.
So, in order for retail traders to succeed, there needs to be an inherent curiosity and thirst for knowledge within them.
Research cannot feel like a chore. It will have to be a constant throughout your trading journey, so traders that enjoy the process and organically feel compelled to do it are much more likely to succeed.
So what do you do if you aren’t blessed with an insatiable desire to learn? Keep it simple! Devise a trading system based around a very carefully curated, small selection of financial assets. That way, you minimize the variables you need to keep track of and make your research process much more manageable.
Following on from the first point – the ideal trader will be humble enough to be aware of how much they don’t know.
When faced with losses, humble traders will immediately recognize that there is more to learn in order to avoid a similar situation occurring in the future. They won’t take losses personally and either abandon currency trading altogether or hop from asset to asset hoping to strike gold somewhere along the way.
This quality is a strange one to mention, but it’s essential. And if you don’t start off with it ingrained you, it’ll probably be one you develop after a few years in the market and more than a few Ls to your name.
So, if possible, recognize the importance of humility early in your trading journey and use the open-mindedness that comes with it to work on your trading skills and learn from your mistakes.
You can be as curious and as humble as you want – but if you’re not resilient, you’re never going to be a successful trader.
Why? Well, because no matter how much you research and prepare, and how much you learn from your past performance – the losses will just keep coming. The FX market is volatile and unpredictable, and it can catch even the most seasoned hedge fund investors by surprise.
This is where resilience comes in. If you can’t pick yourself up, dust yourself off and go straight back to the drawing board to regroup and reassess, your future as a successful trader is doubtful.
So what can you do to build resilience? Demo accounts and backtesting! These tools will show you how your trading strategies would perform in real life and simulate big profits and serious losses alike. The more you expose yourself to failure, even in hypothetical situations, the more you train yourself to get back up and start again.
That way, whenever it happens for real, you can refer back to your demo and backtesting experience and draw strength from that to re-approach your CFD trading account with fresh eyes.
4. Analytical thinking
This one seems like an obvious one, but it’s crucial. Whether you trade stocks, commodities, currencies, metals, or indices, your trading strategies need to be your own personal science experiments.
They need to be little projects that you keep tinkering with, depending on what the data tells you needs to be done. It’s all about trial and error. Error, being the keyword, of course.
Natural-born analytically-minded traders are far more comfortable separating their emotions from the data. And this is an essential part of being a good live trader.
How can you make necessary adjustments to your trading plan if you’re busy beating yourself up over a badly placed stop loss order, or lamenting a misidentified trading opportunity? Remaining data-centric and minimally emotionally involved is absolutely imperative to becoming profitable.
So what do you do if you can’t seem to stay focused on the data? Work on your trading psychology by learning from the experiences of your peers. And as we mentioned before, practice, practice, then practice some more on your demo account.
You know, they say women trade better than men simply because they have a more tame risk appetite.
Some say it’s a hormone thing, and that testosterone makes men more prone to taking unnecessary high-risk trades without thinking them through. Others say it’s because women are more nurturing by nature, which makes them more cautious and protective over their profits and equity.
But regardless of the gender of the trader, FX trading on margin remains highly risky. Especially when trading with high leverage. So, a naturally risk-savvy investor who knows how to minimize exposure is much more likely to make money in the financial markets than one who isn’t.
Aside from being able to build a solid risk management plan, risk-conscious traders will know what percentage of their trading account to risk and when.
They’ll have an easier time cultivating a good risk to reward ratio. And, perhaps most importantly, they’ll be much more adept at letting opportunities slide and knowing when NOT to trade.
So what do you do if you’re not naturally risk-conscious? Well, enter the final bonus quality…
This one’s more of an honorable mention because it combines a few of the ones we’ve already discussed, but it’s definitely just as important.
If you’ve managed to set up a good trading plan backed by a sound risk-management strategy, you need the discipline to be able to stick to it.
This is where your analytical thinking and emotional detachment should step in to help.
Disciplined traders don’t allow themselves to be carried away by the high of a win, or the rage of a loss. They stick to their trading plan, wait for the outcome, then analyze the data and readjust accordingly. No matter what’s happened to their equity or how many pips have moved in their favor!
So how do you develop discipline? Well, unfortunately, you just kind of have to. Yes, a demo account can help you master it, but just like with humility, it’s probably going to be some painful losses that ultimately teach you that lesson. So do yourself a favor and learn it sooner rather than later!
And there you have it – the top 5 (plus 1) qualities that make an ideal trader. Hopefully, this list will help you become more self-aware as you make your way through your trading journey, checking off each and every quality with every trade you place.