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Currency Trading - How to Improve your Profitability in 5 Simple Steps

Why do people get involved in currency trading? The answer of course, is that they want to make big consistent profits. Unfortunately very few traders are able to achieve consistent profits - and they usually end up with mediocre gains, or even lose their equity altogether. Letís look at how to increase profitability, with some simple tips that all Forex traders can use.


Here weíre going to assume you already have a methodology, or a Forex trading system whose performance you are confident in - and you have the necessary discipline to apply it correctly. You can simply incorporate the tips below into your existing Forex trading strategy, to help increase overall profitability.

1. Accept Volatility and Risk

All successful Forex trading systems incorporate volatility. You can't have a profitable Forex trading method without taking calculated risks - and this also means taking losses. If you canít accept risk, then donít get involved in currency trading. Many traders try to restrict risk so much, that they actually create it Ė theyíre simply stopped out all the time by normal volatility. To make profits, the secret is to take a risk at the right time - and risk meaningful amounts of equity.

2. Trade Infrequently

One of the best ways to make big gains in currency trading is to be patient - and wait for the opportunities that offer the best risk to reward, to come along. Many traders trade frequently and always like to be in the market. Their logic is, ďif Iím not trading, Iím missing somethingĒ Ė but theyíre wrong! Focus only on the trades that make the big gains (the longer term trends) - and these donít come around every week. Thereís no correlation between how often you trade, and how much money youíll make - so be patient, and trade infrequently.

3. Donít Diversify

Diversification is an accepted wisdom - and weíve all heard the phrase, ďdonít put all your eggs in one basketĒ - but it wonít make the average Forex trader big profits. The average Forex trader is generally investing small amounts of money - and diversifying simply dilutes gains.

If you see a trade and it looks good, then risk as much as you can - and focus on that one trade. If you believe in it, then back it with as much equity as you can afford.

4. Have the courage to Accept Big Gains

You hear a lot about how important risk control is in any Forex trading strategy - but having the courage to accept profits is just as important. Do you really need courage to accept profits? Yes you do!

When a trader makes a profit they get excited Ė and the bigger the profit becomes, the more theyíre tempted to bank it. As volatility causes dips in their open equity, the trader panics - and snatches a marginal profit. In many cases however, if the trader had the courage to hold the trade - they could have made a spectacular profit.

Itís not a nice feeling when your open equity is being eaten into by thousands of dollars - but if you can hang on to the big trends, the end result will be worth it. Many traders lose - not because they were wrong in the direction of the market - they just were stopped out by a volatile counter move, or snatched profits too early.

5 Money Management

Trading Forex involves confronting risk and volatility cheerfully - and using sound money management techniques. This enables you to deal with the risks currency trading presents.

Here are some Forex trading money management tips to keep in mind:

∑ Most traders start to trail their stops to close, or snatch profits too quickly as we have just seen - make sure you donít make this mistake. Keep your stop in its original position - until the move is well in profit, before moving your stop - to avoid being stopped out by normal volatility.

∑ If youíre trading a small Forex account, donít diversify - concentrate on one trade, and risk as much equity as you can.

∑ If you are following the longer-term trends, donít exit a trade until your Forex signals tell you to do so. Have the discipline to hold on longer term.

To make big profits in currency trading, you only need to focus on the best moves. Donít be tempted to diversify too much - have the courage to hold on. Also, use money management techniques that will control risk - and at the same time, take into account the volatility that currency trading presents. Currency trading involves risk - and you need to confront it. Try to accept risk cheerfully - rather than being fearful, as this will help you make big gains in currency trading.

by Stephen Todd