What is the difference between a professional trader and an amateur trader? A professional trader never goes into a trade blindly based on emotions whereas an amateur traders always trades based on his/her emotions. If you want to become a professional trader, than you need to learn from hedge fund managers, how they trade currencies. Hedge fund managers have to show good results to their investors for getting investments into their funds. Without a battle tested strategy they cant convince their investors.
As retail or individual traders, our $10,000 account is just as important as any $20 million hedge fund. In fact, our $10,000 account is more important. We are staking our own hard earned money on trading compared to a hedge fund manager. He is most likely trading with other peoples money.
Most of the hedge fund managers follow a step by step process to develop their forex trading strategies. There is no reason why should we as individual traders also not follow that step by step process to develop our own trading strategies. We cant afford to lose our hard earned money in unsuccessful trading.
One thing must be clear from the start; every trader has to find his/her own edge. We can and should learn from others. But, it is our own methods and insights that will make us succeed as forex traders. Lets discuss the step by step process of developing our own trading strategies like the hedge fund managers do.
Properly define your trading strategy. Every hedge fund manager like every trader follows a different methodology. Some use fundamental analysis. Other use technical analysis.
The first thing that you need to figure out is the style of trading that best suits you and what type of trader you are. Are you a short term trader like most day traders? Are you a long term trader and want to swing trade or position trade?
The most important thing for you from the start is to figure out whether you want to trade based on fundamentals or technicals or a combination of both. When hedge fund managers develop their trading strategies they define clear cut trading rules and code them. This way they avoid the pitfalls of emotional trading.
Trading based on your emotions is not good. It will ruin you as a trader in the long run. Make a rule based forex system that is mechanical with clear cut steps that you will follow in order to make your trading unemotional.
You should decide whether you want to be a news trader. Whether you will use technical indicators in your trading, if so which ones and how! You cant trade all the currency pairs. You need to pick a few currency pairs and master their behavior. Not all currency pairs are created equal and you need to focus on only a few to become a successful long term trader.
Every currency pair requires a different strategy to succeed. You need to understand this. Some strategies work best on some currency pairs but dont work on others. Read more in Part II of this article.
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