What does it take to become a consistently profitable forex trader?
A trading edge!
But how do you build a forex trading edge?
In this article, we’ll explain how to do just that…
What is a forex trading edge?
Having a trading edge is your competitive advantage in the forex markets.
It can seem daunting building a forex trading edge.
How do you build a forex trading edge if you don’t know what you’re doing?
Before we answer that question, as an aspiring professional trader, it’s important to map out your strategy and plan before trading forex. That will help tackle trading issues, such as adopting suitable trading tools, trading with effective risk management, and determining the probability of trade setups.
Your forex trading edge doesn’t have to be complex.
It can be simple.
Simple is always better.
For example, a simple trading forex edge could be effectively monitoring and understanding the market trend. Or, determining what’s hot and not, and trading what’s in favour. These simple forex edges will help you become a consistently profitable forex trader. But, as we said, your forex trading edge doesn’t have to be based on either of the two factors above.
It depends what type of forex trader you are…
Master the basic trading skills
You can’t just wake up one day and become a pro forex trader.
You probably knew that already.
Professional forex trading requires a certain amount of skill.
If you don’t want to spend the time and effort learning the skills to trade forex, you will fail. To actually generate consistent profits, together with learning, you have to practice your trading skills over and over.
Lots of people have written about building your forex trade edge over the years. But, in fact, successful forex trading requires a certain skillset ― not just a trading edge. It’s no use building a trading edge if you don’t have the trading skills to execute. Therefore, it’s essential to learn essential trading skills to succeed.
You have to earn the right to trade at the start. That starts with learning how to recognise trading setups, understand market trends, control your emotions, determine position sizes, and practise risk management.
It’s easier said than done.
But, if you master these necessary trading skills, your trading edge can become a lethal weapon in the forex markets. Remember this simple formula ― it sums up the trading world:
TRADING SKILLS + FOREX EDGE = CONSISTENT PROFITS
Elite forex traders have the right skills to trade forex, and are constantly working on their edge to get better.
Trading is an ever-evolving learning process.
The best forex traders analyse and study their past trades. The knowledge acquired from this learning process helps you build your edge in the markets and make bigger profits over the longer term.
There’s no shortcut to winning.
You have to build a forex trading edge and then you can develop the skills to execute it. That means it’s important that you define and build you trading edge at the start. If you don’t have a trading edge, you can’t develop the necessary skills. That’s because you won’t know the correct path to go down.
Finding your forex trading edge
Let’s talk about blogging for a second. Blogging is actually similar to trading.
There are plenty of blogs around, but most fail.
Why do you think that is?
The answer is: Effort, edge, and having a certain skillset to execute.
Plenty of people who start blogs don’t put in the time and effort. In our case, we enjoy writing and always wanted to start something up. This website is a passion project, so we’re putting in the time and effort to get it up and running.
There’s a learning curve in blogging, similar to trading.
You can’t just wake up and become a profitable blogger. You have to treat it like another business. A profitable business helps people make money, and that’s what we’re trying to do. Businesses that fail are poorly run and don’t provide a meaningful service to their clients, who don’t want to come back. Therefore, it’s obvious that running a successful business requires time and effort.
Second, most bloggers start a site without a niche (i.e. an edge).
Most bloggers don’t have a niche and, therefore, they have no direction. A niche is, in effect, your trading edge. Many forex traders go out to battle and don’t have an edge, or focus. Most forex traders don’t know when or why they’re taking a trade. That’s why most forex traders fail ― they have no edge in the markets.
My niche (edge) for this site: I’m a pro trader and analyst, leaning on my decade-plus years of experience. I know what works and what doesn’t in the market. So, I want to give back to the trading community. If you’re reading this, hopefully you’re finding my content useful and learning a thing or two.
Finally, successful bloggers have a required skillset ― writing. Most people don’t know how to construct a simple sentence and launch poorly constructed blogs. In forex trading, as I said earlier, you need to learn the basic skills such as recognising trading setups, understanding market trends, controlling your emotions, and knowing how position sizing and risk management work.
Just because you can learn to recognise trading setups doesn’t mean you can trade them ― especially if you have no edge in the markets. To become a successful forex trader, you need to craft your edge and a certain skillset.
Testing your forex trading edge
In forex trading, the only way to see if your edge works is practise.
For example, your edge might be trading consolidation ranges using a mean–reverse strategy. If you don’t know what this strategy is, imagine the price is bouncing between two points. You think it will keep on consolidating and, when the price reaches the bottom of the range, you buy and hope to sell at the top of the range.
By testing this strategy multiple times, you will learn how to recognise good setups, manage your risk, and control your emotions.
When we first started mean-reversion trading, it was a huge success. We were making thousands of dollars per day, until our risk management went out the window and one trade destroyed us.
I don’t trade mean–reversing strategies these days.
Mean-reversing strategies are excellent 99% of the time. But one trade can blow up your account ― especially if you have no edge in the markets. An expositive move in the opposite direction of your trade, along with poor risk management, could destroy you.
Practising trading your edge in the markets will help you determine which setups make sense to you. See whether you can build your trading edge with your own style. There’s a million ways to make a million bucks.
Every successful trader has their own way of doing things ― their own style.
Trade the way that feels right to you.
There’s no right way.
But if testing your edge proves successful, don’t get too cocky too soon. I recommend testing your strategy over a series of one to two months, before increasing your position size.
The market can change in an instant.
And no edge is suitable for every trading condition.
Knowing when your edge doesn’t work
Does your edge work best holding during market swings?
Does your edge work best during volatile, flat or momentum markets?
Does your edge work best in quiet or rapid–moving markets?
If your edge becomes successful today, it doesn’t mean it will be tomorrow ― markets change all the time. That’s why the best traders are consistently working on their edge and finding new edges. You should constantly come up with new edges to trade multiple market conditions.
Elite traders are aware when their edge doesn’t work.
Being able to see whether you have an edge is critical. In forex trading, the market tends to drift and change constantly. It’s important to be prepared when change happens. In other words, you must review when your trades work and when they don’t. Then ― and only then ― you can add the best setups to your forex trading playbook.
Remember, discipline is key in trading!
The future is uncertain.
Trading is calculated gambling.
Your edge might not always put you in a favourable position.
Strategies and discipline go out the door for many traders when they’re in losing positions. Therefore, it’s key to understand that trading isn’t like gambling at the Melbourne Cup.
Traders don’t react based on gut feeling.
Traders who react on gut feeling make huge losses.
For example, Joe trades forex with a mean–reverting strategy. He’s trading short right now and is up $1.8k for the day. He wants $2k to finish his day. But an unexpected news event happens while he’s short, sending the price rocketing. Joe keeps adding to his short position, confident that the trend will revert, and doesn’t cut his losses.
Unfortunately, Joe loses his profits for the day…and thousands more.
This is a real story, mind you.
It happened to us, when we got into the game.
If only we had been more disciplined with our risk management, we would have cut our losses quickly. And, potentially, battled it out on the next trade to finish the day up $2k.
Discipline is critical in forex trading.
Everyone knows it. But few traders have discipline, which is why most fail.
You must learn discipline.
Learn to become comfortable with losses. Small losses are okay. But large losses can be career ending. If their edge doesn’t work out as planned, elite traders will have the discipline to cut the trade.
There’s always another day and another trade.
Don’t blow yourself up on one trade.
Elite forex traders don’t feel invisible after a successful trade ― they take losses even after winning trades. Remember, you’re the casino ― only trade when you have the edge. As soon as you enter a trade, your edge will change. The best traders know that trading edge changes all the time and are disciplined enough to cut a trade that doesn’t work out.
Most forex traders abandon their edge and strategy when they suffer losses. You need to realise that you might win a few trades, but also lose some in the process.
That’s how the game works.
In order to be a successful forex trader, your edge and strategies need many trades to succeed. Most successful traders are only profitable 50% of the time.
Think about that.
If you can’t take a loss 50% of the time, how will you become consistently profitable?
Casinos never rule out making losses. In fact, they incorporate losses into their business plan. Casinos know the more games they play, the more they will make over the long run.
Because they have the edge.
Your ‘Start With Forex’ takeaway
To become a consistently profitable forex trader, you must know your edge. New traders ― and unprofitable traders ― think they are lacking strategy.
Edge is everything.
If you don’t have an edge over the markets, you’ll lose everything.
Most traders don’t have an edge because they don’t know what ‘edge’ is.
Your edge is simple ― it’s your competitive advantage to take money for the market. You might be a hopeless in volatile markets, but be extraordinary in one–way markets. If so, don’t trade volatile markets.
Your edge would be in one–way markets.
The main reason forex traders fail is because they don’t have an edge.
Edge is more important than strategy.
The only way to become consistent is trading your edge over and over. Your greatest enemy is a lack of discipline and trading with no edge, or ignoring your edge.
Remember, you build your strategy around your edge.
In my opinion, this lesson is the most important. I hope you found it helpful. But there’s still so much for you to learn. In the next lesson, we’ll talk about the best times to trade forex. If you’re ready to learn about the best times to trade forex, click here.
To your trading success,
Start With Forex
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