I’ve been an active trader since the late 1990s and was around when retail Forex appeared in the 2000s, watching it grow into a significant asset class.
I am a successful trader—I make money in the markets and am consistent. So, what are my secrets to success?
Secret #1: Apply at Least One of the 4 Price Action Principles
In every trade I make, one of these characteristics is present on the chart and the main reason for taking the trade.
These price action principles are not the same as individual candlestick patterns. I would not blindly enter a trade if I saw a bearish engulfing pattern or pin bar on the chart. I want to see what else is happening. For example, is the candlestick pattern confirming a current trend or support/resistance level?
If you are new to trading, learn these price action principles and look for them on naked charts to develop bearish or bullish views.
I learned “classical” price action or technical analysis principles from the book by John J. Murphy, “Technical Analysis of The Financial Markets, 2nd Edition,” - I still recommend his book (specifically, the first eight chapters) as one the best places to learn this subject.
Many assume that becoming rich from trading requires complexity and sophisticated indicators. It does not. Successful traders apply simple yet robust concepts.
Secret #2: Market Context Before Indicators
Indicators are derived from price and can often lag price.
Many traders use indicators as the reason to enter a trade. For example, they may base a decision to enter a trade on overbought or oversold reading on an oscillator.
If the price is in an uptrend and I want to get into the trade in a pullback, then an oversold reading is a good entry rule. I’ve identified the uptrend as the primary reason to enter the market, not the indicator reading.
Secret #3: Use Multiple Timeframes
The higher timeframe guides my opinion of direction, and the lower timeframe helps me find when and where to enter the market. The lower timeframe helps keep tighter stop-losses and, therefore, higher reward/risk ratios.
I mainly use two timeframes and sometimes a third much higher timeframe to spot longer-term levels.
Let’s say I want to execute trades in the 15-minute chart. I will use the 4-hour or daily timeframes to decide what the price is doing and form a bullish or bearish bias. I will also periodically look at the weekly chart to spot any other significant Support/Resistance levels or chart patterns.
Secret #4: A Complete Trading Strategy Abides by 4 Rules
- Entry rules: What are my rules for entering a trade?
- Stop loss rules: What’s my pre-determined exit if the price goes against me?
- Take profit rules: When do I take profits?
- Money Management rules: How do I control my risk on the account? Risk is often managed with a cap per trade, a percentage of the total account size.
It's essential to write down the rules that make up the trading strategy. Otherwise, it’s too easy to change without thought or to misremember how to apply it.
Secret #5: Reward/risk is More Important than the Win Rate
A reward/risk ratio compares the stop loss with a profit target. If my stop loss is 50 pips, and my target is 100 pips, the reward/risk is “2R” (100 divided by 50).
Reward/risk ratio less than 1: I am willing to lose more than I can gain.
The reward/risk ratio equals 1: I can make as much as I am willing to lose.
Reward/risk ratio greater than 1: I can make more than I am willing to lose.
Many traders are more concerned with their win rate, even if it means taking trades with large stop losses compared to the profit targets (therefore, reward/risk ratios less than 1.)
Secret #6: Never Increase the Risk When in a Trade
There are two ways to increase risk mid-trade:
- Widen the stop loss.
- Add to a losing position.
Both actions are symptoms of the fear of taking a loss.
When I have money management rules set up in advance, for example, a cap of 2% of my balance per trade or a limit based on the amount I can afford to lose (i.e., risk capital), I should be able to take a loss and move on. Not sticking to these rules will result in emotional trading decisions, such as widening my stop-loss because I can’t afford to lose the trade.
Secret #7: Don’t Take Profits Too Early
This one is controversial. I’ve heard multiple times, “You can’t go broke taking profits.” However, that’s not necessarily true if your average loss is bigger than your average win.
Just as traders don’t obey their stop-loss rules out of fear, the fear of missing out on market gains can result in taking the profit too early. This means being stuck with small profits compared to the size of the losses. The reward/risk ratios suffer, and a couple of losing trades can wipe out multiple minor wins.
Secret #8: Use a Trading Journal and Keep Records
Every successful business keeps records. They know their revenues, costs, what items sold the most, how much sales an advertising campaign generated, and so on. Treat trading like a business.
- What was the reward/risk for the trade? For example, if the stop-loss was 50 pips, and I eventually exited with 75 pips profit, my reward/risk or “R” was 1.5 because I made 1.5 times my stop-loss.
- Did the trades meet my trading rules? I might break my own rules. A journal will help me see how often I did this and whether it reduced my performance.
- Did I not take trades, though they met my rules? I might not have taken specific trades for emotional reasons. For example, I may not have taken a trade out of fear because my last two trades were losses. Capturing this data in a journal will show me if this habit is frequent and how much it has cost me potential profits.
- After I take a stop loss, does the price turn around and hit the target often? This will help me tell if I have stop losses that are too tight.
- How much do my profitable trades tend to go against me before hitting the target? There may be an opportunity to tighten the stop loss if my profitable trades tend to go only slightly toward the stop loss before turning around.
Depending on your strategy, you should record different information. I know traders who record their emotions for each trade. What’s key is to have records that allow performance analysis.
Using online Journals: Some traders use a spreadsheet to journal their activities, but plenty of online trading journals are available to make it easier. My favourite trading online trading journal is Edgewonk.
Secret #9: Compounding
As my account grows, I constantly adjust my risk to match the new net balance highs. If I start with a $10,000 account and risk 2% per trade, my starting risk is $200 per trade.
If my account grows to $15,000, I should aim to risk $300 per trade (assuming the same 2% risk per trade), which gives me the potential to make more on winning trades. I’ve adjusted my position size to match my new account size—that’s compounding.
To turn $10,000 into $100,000 with a 2% risk per trade and 1:1 reward/risk, I will need 450 net winning trades without compounding (i.e., always keeping the same position size). But if I compound my account, I only need approximately 125 net winning trades! That’s a big difference.
Traders who turn small sums into large amounts do so by compounding. It requires fewer trades to reach a financial goal.
Secret #10: Develop a Routine
My routine determines when I will trade and which markets. I also block off specific times after trading to make journal entries and review past performance.
I treat these blocks of time and my trading rules as work obligations—as though a boss were telling me this is how I must do things to keep my job. Without accountability, it's easy to let life get in the way, occasionally miss trading days, or be sloppy with my trading rules.
My trading routine is written down just like the trading strategy rules, so they’re objective. This way, I can easily tell if I do not maintain my routine.
Secret #11: Don’t Chase Leverage
All the preparation in the world will not matter if I cannot trust my broker. I want to make sure my funds are safe and that they will execute my trades at fair prices.
Secret #12: Don’t Expect Trading to Be Intuitive
Trading is a skill set we must first learn and then practice and refine. In the beginning, trading may seem counterintuitive and difficult. Be patient.
Set high standards! Aim for excellence—mediocrity in trading will not produce success.
The phrase “Forex Secrets” is often searched by traders, hoping to find hidden tricks and shortcuts. However, most trading success is achieved through applying basic principles, such as Trends, Support/Resistance, and Chart Patterns. Risk control through good reward/risk ratios and money management will help ensure a trading account can grow on the back of successful trades. Think of trading as teaching a child how to read: it requires receiving instructions, learning principles, and lots and lots of practice. Sometimes, the secrets are in plain sight!
Is there a secret to trading Forex?
Yes, the biggest secret to trading Forex is recognizing market conditions, particularly trends, support/resistance, and chart patterns.
What is the secret of successful Forex traders?
The secret to successful Forex trading is recognizing market conditions (e.g., trends, support/resistance), taking trades with good reward/risk ratios, and applying strict money management.
How can you master Forex fast?
To master Forex fast, learn the main price action principles: Trends, Support/Resistance, Continuation Patterns, and Reversal Patterns.
How can you win in Forex every day?
It is impossible to win in Forex every day, but you do not need to; you only need a larger average win than your average loss.
What should you avoid in Forex trading?
In Forex trading, avoid following a system with significant losses compared to the size of the winning trades, even if the system has a high win rate.