The most successful traders are those who follow a predictable process that allows them to increase the probability of a winning trade based on their trading plan. Having a system which you use to make trading decisions helps avoid trading using emotion and ‘instinct’, which means that your chances of success are higher. Having your own system also helps you to view the forex market in a proper light, not as a game of chance in which your success is dependent on luck but rather in terms of probabilities.
Here are five steps that you can follow to make a winning trade:
- Get an overview of market conditions. Look at price charts of various time frames ranging from as long as weekly and daily to one-hour and four-hours. This will give you a better perspective of what is happening in the market and whether conditions are bullish or bearish.
- Identify price trends as well as support and resistance levels. At this stage you should have some idea of which way the price is moving as well as being able to draw its resistance and support levels. You can also start to apply technical indicators to the price charts so that you can find entry and exit points for trades.
- Look for trade setups that offer you a risk-reward ratio of at least 1:1. Having this minimum P/L ratio means that you will be profitable overall in your trades, even if you lose more often than you win.
- Execute the trade. Once you’ve done all the preliminary work, you have to pull the trigger on your trade. Then manage your trade by placing the appropriate stop-loss and take-profit orders based on your risk-reward ratio.
- Trust your trading plan. This is the most difficult step of the process for many traders, particularly when the trade starts going against them. There is a temptation to start adjusting the plan in the hope that you can turn the trade around. You should believe in your trading strategy and never do this. Keep in mind that the best traders accept that losing is an inevitable part of the trading life. Accepting this reality will make it easier for you to regroup when you suffer from a losing trade.