7 ways you can trade like forex professionals to win trades

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Every beginner to currency trading dreams of trading like the pros. Our image of one comes straight out of Hollywood: Gordon Gecko-type characters with bloodshot eyes, nail-bitingly stressed. All the while they keep their eyes fixated on multiple displays like they’re discovering the mysteries of the matrix. Their ability to seemingly make millions on a hunch seems like wizardry.

You wonder if you could do that. So you begin, devouring what you can: support, resistance etc.

You even learn trading patterns that seem to be named after nursery rhyme lyrics: head and shoulders, cup and handle. Here is my handle, here is my spout, tip me over and pour me out.

How hard can it be?

I remember years ago when I first started. I sat with my face illuminated by my laptop, watching candlestick charts as they ticked up and down and feeling my heart race.

With every uptick – exhilaration.

With every downtick – deep despair.

When I was out, I’d get a zing everytime my phone pinged me with broker notifications.

The EUR/USD pair hit my limit order!

I’m a freakin’ genius, I would tell myself,  professional traders have nothing on me.  

Soon enough however, a losing streak comes along and amateur traders soon realize that our wins weren’t really strokes of genius.

So what did we miss?

What separates a professional trader from retail traders?

The cold, hard truth is that institutional investors always have an edge over retail traders like us. Despite our ideas of financial wizards getting ahead because of talent and smarts, the main difference lies in the resources that professional traders have at their disposal.

Better infrastructure

Hardware: Large amounts of money is made on being the first to execute. Trading desks of banks and prop trading firms use state-of-the-art hardware.

Some even co-locate their computers in areas so that their trades execute a millisecond quicker.

Software: Prop trading firms have tools developed by a gamut of engineers. Excellent models and software to optimize a trader’s existing talents.

Support team and information

In some firms, professional traders can also rely on departments of analysts and economists.

These are experts with years of experience. Their full time jobs are to monitor political, financial and economic news – anything that might indicate an opportunity.

Professional training

Trading firms also have a body of proprietary knowledge and undergo training so that they execute trades using best practices that the firm’s professional traders have developed over the years.

Automated processes

Many trading firms have algorithms or black boxes that execute high-frequency trades to take advantage of opportunities lasting just fractions of a second.

If you’ve ever tried trading, you’d know that trading can be emotional stuff. Professional traders aren’t immune to emotions, so they have stop losses, and automatic procedures in place to prevent them from making irrational decisions.

Large amounts of Capital

Professional traders have access to millions of dollars of investor’s money and the bank’s money. They can afford to, and are expected to make mistakes here and there. With that much capital spread over a number of traders, they can take on leverage at times.

Now, with financial institutions providing their traders with an edge, is there any hope for average joes like us?

Now here’s how you really trade like a pro

While you may never get the same access to resources as professional investors, there is still good news.

You can become a successful trader just by emulating the principles on which they thrive.

Because of the sheer size of the currency trading market (over 5 trillion is traded a day), the forex market is not exactly a zero-sum game. No one investor can influence the price of currencies significantly.

If you put in the work and win just a bit more than you lose, you too could trade like the pros.

Here are the 7 ways that you can replicate professional traders’ success despite having fewer resources.  

1. Find the best broker

Just as professional traders work with the best trading infrastructure available, you can ensure you have the best tools at your disposal. A good computer and internet connection certainly helps, but a good broker is critical.

As a start, check out this great resource on the latest reviews of the top Forex brokers.

There are numerous factors to look at when choosing between brokers, but the two that will bring you closer to being a pro trader are:

Execution speed/reliability

As we noted earlier, being the quick to execute can give you an advantage. You want to be able to fill an order at a favorable price point before prices move. While it is very difficult to find out who has the best execution speed, doing some research will help you steer clear of brokers with unreliable execution.

Low spreads

Forex brokers don’t charge commissions, but they are compensated through a spread.

What you should be looking for in a broker is a smaller/lower spread. This means that you buy and sell currencies at a rate closer to the market rate. At a larger/higher spread, you’ll buying currencies at a higher price than market price, with the difference being paid to brokers.

I know what you’re thinking: these spreads are fractions of a penny, so what’s the big deal?

Well, I couldn’t find an exact Forex example, but this image shows the impact of commission fees in mutual funds.

graph showing the impact of fees on investment returns

Image Source: SEC

See how all those little commissions add up to thousands of dollars over time? Similarly, wide spreads can make a huge difference in profits, and it all begins with choosing the right broker.

2. Receive a proper education  

Just as professional traders get proper training and guidance, you need to approach your forex learning with seriousness and discipline. Look for the best that the web can offer.

When I started, I used babypips.com, which is dedicated to bringing you from beginner to pro.

Most courses out there teach technical analysis, which is essential given the gigantic number of factors at play. However, I believe a fundamental understanding of what drives exchange rates is also essential to help confirm the technical signals that you are seeing.

It’s okay to be a sheep in the herd as long as you know why the herd is headed that way. Hopefully they’re not headed off a cliff!

Two fundamental concepts come immediately to my mind are interest rates and trade flows.

3. Get the right information

This is where you’ll get to apply your fundamental knowledge just like the analysts and economists that professional traders work with. It’s commonly agreed that it’s best to watch central bank policies.

Subscribe to a economic news calendar or use a forex signals providers to remind you of the big pieces of news you should be looking out for.

4. Automate your trading and orders

Create emotional barriers

As all good traders know, being able to check your emotions at the door is the cornerstone of successful trading. No more is this true than in currency trading, where markets can fluctuate wildly numerous times a day.

Always, always, always use limit orders and stop-losses to prevent yourself from getting overly involved in the trade when emotions run high.

Algorithm trading

Yes, banks and high frequency trading firms have their own secret algorithms to take advantage of market mispricings and such, but that doesn’t mean algorithmic trading is out of your reach!

In fact, a plethora of trading bots exist for the retail investor. While I can’t really help you with separating the wheat from the chaff  (I haven’t much experience in algo trading), it never hurts to check out some of the bots available on the market.

5. Pick a currency pair and stick with it

Banks often have traders that specialize in specific currency pairs. There are two big reasons why you should do so too:

You get to trade with regularity

Different currencies trade at different times of the day. You should plan your schedule according to when markets open and close for your currency pair. Otherwise, it’s a mad grab at any currency pair you think might do well.

Can you imagine being awake at different hours every day just trying to seize opportunities? Professional traders definitely don’t do that because they prize focus.

You’ll be more familiar with the currency pair

Again, knowledge is power. By trading a few currency pairs exclusively, you’ll develop an understanding of the drivers between currency pairs. I recommend picking something close to home, where you’d have a better understanding of domestic issues and where you’re more invested. According to Investopedia, most professionals start with EUR/USD and USD/JPY.

6. Trade long and trade less

Amateurs tend to trade often (also known as overtrading), because they’re trying to cut trades that didn’t work out and swing wildly for new opportunities. They look at minute-long timeframes as if these short-term price movements represent some solid underlying driver.

To be more like a pro trader, you can do the following:

Trade over a longer time frame

If you think about actual demand and supply, do fundamentals constantly change over the course of 5 minutes? Typically, movement on such a short time frame is largely market noise and aberrations. To filter out such noise, you should trade on 1 to 4 hour time frames.

Trade less

In addition, trading less frequently also protects your profits from the damaging nature spreads, which are incurred every time you trade. We saw how the impacts of that can be huge!

7. Learn from your trades

People who trade for a career analyse their trades deeply. Professional traders have reviews in the morning and at night to go over their trading strategies and execution. These meetings keep pro traders accountable.

In the absence of such meetings, you should keep a trading journal to record the specific reason why you’re trading and how you’re trading to achieve that purpose.

You might have heard the phrase:

Don’t confuse brains for a bull market.

It refers to self-serving bias, which is the tendency to ascribe trading successes to trading skill than any other factor (read: luck). A trading journal will help keep you honest: did you make money on the last trade because you planned for it, or was it just dumb luck?

Similarly, it will help you identify other emotional and cognitive biases in yourself.

Lastly, a trading journal will tell you if a loss was due to a bad decision or something that was completely out of your control. This is imperative to your mental well-being and can alleviate regret over losses.

In Summary

With all the crap that’s out there, it’s easy to get lured into the belief that professional traders become successful by picking up a few guides and running with it. However, as we saw from this article, professional traders have much more than that. High tech tools, support teams and large capital all give professional traders an added edge over retail traders. 

That doesn’t mean you can’t be a successful trader though. We gave you 7 ways that you can emulate the success of professional traders despite having fewer resources. Implementing these tips will get you a long way in trading like the pros. Hope it helps.