The 5 Critical Skills You Need — Review Your Skills as a Forex Trader
Are you wondering about which are the critical skills to have in forex? This article will explain five of these and why they are so essential for success.
What are the skills necessary to become a brilliant forex trader? Some people even wonder whether people with a certain background end up becoming consistently successful. Do you perhaps need a degree in mathematics, business, finance, some form of engineering, or science?
In truth, these qualifications are not the core of being a routinely profitable trader. Also, trading is not an innate ability but rather about mastering a combination of skills simultaneously; but what are those skills?
This article will go through five of these in forex (in no order of importance).
Skill #1: Patience
Patience is probably the most critical character trait to have in forex. In trading, we are dealing with receiving information which our brains internalize. We need enough time to process all this data and accurately determine whether a signal we see in the markets is truly reliable or not.
Patience underpins this entire task. Also, one of the biggest issues facing most traders is instant gratification, a phenomenon plaguing many people in their daily lives. Humans are hard-wired to seek pleasure instead of pain; we seek instant fixes instead of delaying things.
Patience is delayed gratification and is a paramount quality to harness and practice consistently when trading. If a trader is unsure of something, they simply need to wait rather than act too quickly.
Overall, patience doesn't just apply to what happens before you open a position but also to steading, growing your account, and reaching your long-term objectives as a trader.
Skill #2: Discipline
Patience molds discipline. While the two are relative, patience deals more with time, while the latter is about religiously sticking to a set of rules. Since most traders are discretionary instead of relying on computers to conduct their trading, discipline becomes the key.
Trading is largely rule-based, rules you build up over a long time, ranging from the confirmation factors, the monetary risk parameters, position-sizing, the length of holding positions, etc. Discipline allows you to maintain self-control consistently in your decision-making, meaning you always act logically rather than irrationally.
Discipline is also partly linked with having high emotional intelligence. Humans are naturally emotional beings, and hence, it's common in trading to act without thinking in the face of constant temptation.
Skill #3: Researching and analytical abilities
A successful trader is someone with an 'unquenchable thirst,' who's always curious about researching and analyzing. Research is particularly prominent in the early stages, and let's remember there isn't a formal university exclusively teaching trading.
What typically happens is we have various tertiary courses on subjects like banking, finance, mathematics, and economics. While having a degree in these branches gives the candidate a good chance of prop trading for a large financial institution, it doesn't ultimately mean they can trade successfully.
The point is the education space in forex and most markets is unformalized. Perhaps one of the reasons is because trading currencies isn't a formal job. Hence, there is a myriad of methods and styles to trade currencies.
Research helps you in being able to test all possible avenues until finding the beneficial one. While a mentor can fast-track one's progress, it doesn't dismiss the importance for the mentee to immerse themselves in researching and analyzing charts fully.
Research and analyzing is about a process of elimination, and it's something that one needs a lot of time and passion for. When a trader has seen a market pattern play out as expected, it's due to thousands of hours seeing, analyzing, and researching that scenario to where it becomes second nature.
Skill #4: Being comfortable with uncertainty
Ultimately, trading any market is a game of probabilities, not certainties. It doesn't matter how much analysis one conducts before placing a trade. What happens during the actual position is out of their hands as no one person has any effect in moving the price.
The uncertainty aspect is one thing many traders struggle with primarily because they place too much emphasis on single trades and none on their long-term performance. Essentially, in any individual position, nothing is guaranteed after execution; the market can go either up or down.
What matters more is understanding the random distribution of wins and losses through the law of large numbers. Hence, being comfortable with uncertainty is essential and perhaps one of the under-rated qualities to have.
Skill #5: Journaling
Journaling is perhaps the most overlooked skill and links in perfectly with having the strong discipline and analytical abilities. A journal is about keeping records, and like any business, a trader needs to keep track of what's making them money and what's not.
Journaling helps traders maintain consistency and beneficial habits when trading. An analytical trader can use a journal to notice specific patterns like how and when they enter the markets to how tight or wide their stop losses are. While these factors may seem insignificant, they could drastically affect their bottom line.
You won't be able to learn this data without having the skill to the journal. Fortunately, traders do not have to perform journaling manually through some spreadsheet but can use software to do the job.
One of the main things this article highlights is how trading can indeed be taught and is not necessarily intuitive. It's a classic case of 'nature vs. nurture,' a concept famously explored in 1983 through the 'Turtle Experiment,' conducted by the legendary trader, Richard Dennis.
Dennis had believed traders were made, while William Eckhardt, another legendary trader, advocated that they were born. The two had disputes on this old-age debate.
So, Dennis began posting advertisements in finance papers, searching for a handful of apprentices (14) he would train based on his methodology to become successful in the markets.
He funded the trainees each with $1 million, and over four years, this group earned over $100 million. The experiment proved that you could teach people with little trading experience to become profitable traders over time regardless of genetics or educational background.
So, is trading a natural talent one is born with or not? The research proved the latter that genetics don't matter. Fortunately, it's about developing a set of core skills through dedication and experience.
Such skills are things the average person already has in some form throughout daily life, and the only key is translating those into the world of forex.
Don't miss: The Best Forex Robots in 2022