If you want to learn Forex trading and win, you should check out the world's top traders and a great place to start is - with the books Market Wizards and New Market Wizards, edited by Jack Schwager. In the books, he interviews some of the top traders of all time so its some of the best FX education and essential reading.
The books are great for both novice or pro traders, on how to trade Forex the right way for profit. So let's look at how, to trade currencies like the Market Wizards.
The traders interviewed in the book are not just Forex traders and the book covers traders trading all asset classes including – futures and commodity traders, bond traders and stock index traders.
The advice they give though is applicable to any trader and cover the areas any trader needs to enjoy trading success. In terms of learning to trade like the Market Wizards there are three areas I am going to look at which are the real secret of trading success.
Trading Methodology and The Development of Your Trading Edge
If you read the books you will notice, the huge amount of different trading techniques used by the traders. You have long term traders like Richard Dennis and Ed Seykota, who use long term trend following technical strategies and Jim Rogers who is also a long term trend follower but who uses fundamentals to time his trades. You also get traders like, Paul Tudor Jones who likes to time market turning points, rather than trying to trade trends and short term day traders like Buzzy Schwartz - to mention just a few. They all have different currency trading methods and all, are successful at what they do.
Most the traders interviewed will also stress they use simple trading systems and this may surprise many people – surely a complex system should make more money but the answer is no. We always have had a ratio of winning traders to losers which has remained the same over time and always will.
Having a system, with profit potential doesn't guarantee a trader will make money because, the trader actually has to apply the trading signals with discipline so we need to look at the importance of the trader in the equation in terms of making a trading method profitable.
A trading strategy can be very simple but a trader must know what the systems edge is going to be over other market participants and must have confidence in the edge, to make money over the long term. Confidence in an edge is vital and must be matched to the traders unique personality.
Making a Trading Strategy Suit Your Character
There are many different strategies which can make profits trading but you have to keep in mind, when using any trading system is it must match your character. You must believe in the logic and have confidence for it to make money over the long run, to follow it with discipline through periods when trading signals are creating periods of drawdown. Long losing periods are common in Forex trading and can last for months even for the worlds top traders so its vital to make the strategy comfortable for the trader – in terms of it matches his character.
There are many ways to make money trading currencies or in any financial instrument, so there is no one best trading method – they all have advantages and disadvantages so the key is to get a strategy which you are comfortable with and can apply with discipline.
For example, if you are not a calm or patient trader ,a long term trend following system would not be one to use - you would go for a shorter term strategy. Also, you have to keep in mind money management and stop losses. If you can't take long periods of draw down, trend following would not be for you - you would probably want, to trade turning points with a contrary trading strategy or swing trade shorter term within the ranges.
The Importance of Money Management and Discipline
The real challenge of Forex trading is dealing with losing periods and you will get them, with any trading method. A trend following method will lose when pairs remain range bound or have low volatility and a short term strategy will lose when there are big trends and high volatility. Both the previous strategies can make money but the secret is to keep, any losing trades small - until the conditions become favourable for the techniques you are using to make profits again. Your winners of course have to be bigger than your losing trades to build capital over time and this leads on to money management and discipline.
The win at trading, you need strict money management rules to make sure, losses are small and account equity is preserved. All the great Market Wizard traders stress this and its the key to winning and all successful traders know that money management is the key to success.
The Character Traits ALL The Worlds Best Traders Have
Discipline is stressed, as the most important trait for long term success by all the great traders who were interviewed by Jack Schwager. A lack of discipline is the reason most traders fail – losing traders simply cannot, follow a system through a period of losses without quitting the system or changing their money management rules. The result is they let their losses get to big on their trading signals which means they lose.
Discipline is also needed to run profits and its a fact that most traders will cut winning trades quickly for no good reason other than – they wanted to get some profit or don't have enough confidence to hold their trade for a bigger gain.
Final Words on Trading Like a Market Wizard
The fact is Forex trading is a business which is simple to learn. Most of the world's top traders use simple systems and you can earn one of these but you need to keep in mind, the emotional challenge that trading currencies presents. Most traders are unprepared for the challenge and this sees them lose.
If you read all the interviews in Market Wizards, you will understand why, most traders end up losing their trading accounts but how you can make profits long term. You may not become a millionaire or billionaire, like many of the traders but that doesn't mean you can't make long term profits. Let's face it, not every golfer who plays golf, can be a Tiger Woods but with practice at the basics and perfection of a style which takes into account your strengths and weaknesses, you can become a successful golfer and find your own level and the same is true of trading the markets.
If you want to trade like a Market Wizard you can and there is no better place to start learning Forex trading than studying the best traders of all time. So buy the books, study them and get on the road to becoming a successful trader from home.