It is often said that being a trader requires a lot of special skills, but the truth is that these can be narrowed down into three main characteristics. In fact, one does not need to be an economic expert or a master chart analyst to make profits in forex trading. These skills can be attained and honed through constant practice.
First, a forex trader must be able to understand how the currency market behaves. This is where economics and market analysis can come in handy, as traders must be able to assess whether a particular report can drive up demand for a currency or drag its value down.
To be specific, a forex trader must be able to take a look at a particular economic report and figure out if it will encourage other traders to park their money in that country's currency. More advanced market knowledge can be helpful but it really just boils down to knowing which factors increase or decrease demand for a currency.
Secondly, every forex trader should possess discipline. It's easier said than done but discipline plays an important role in practicing good risk management or following one's trade rules. The lack of proper discipline to stick to one's trading rules can have damaging results either to one's account or trading psychology or even both.
For instance, a trader should determine his or her risk management rules by setting an amount or percentage of his or her account he or she will risk in each trade. By doing so, he or she will be able to set a limit on potential losses in case the trade doesn't go his or her way. This can keep majority of the account intact and keep it from getting completely erased in just a few trades. However, if a trader is unable to follow this rule, he might wind up risking larger and larger amounts each time, and could eventually put his entire account at risk.
Third, forex traders should also develop good trading psychology. Of all the three necessary characteristics, this takes the most time to develop since experience is usually responsible for teaching most of the psychology lessons. The truth is that not all forex trading psychology articles are able to elaborate on trading psychology and that it's best for the trader to learn through constant practice and remember his experiences.
Trading psychology is important because it can keep the trader level-headed even in the middle of consecutively profitable trades. At the same time, it can give him enough encouragement to keep trying even in the midst of losing streaks or a negative account balance. Trading psychology enables a trader to properly manage human emotions while trader. Oftentimes, greed or the fear of losses can be damaging when traders try to make trading decisions.
In a nutshell, a forex trader must be able to attain knowledge of the markets, exercise discipline, and practice trading psychology in order to do well in this field.