Forex traders are still looking for the Holy Grail among trading systems and if it hits a series of losing trades, they immediately think about how to improve the trading system, or start thinking about a complete change of trading strategy. In this article we explain how professional and successful long term traders approach their trading strategies.
Based on our experience, traders often seek extremely complex trading systems, trying to hedge loosing positions, and perhaps all possible combinations, alternatives, and tactics that you can imagine. For a trader it is important to note that trading on financial markets is ultimately the same as any other business. Principles of business or even just the management of personal finances can also be applied in trading. In trading on financial markets, quite a simple equation applies:
Your earnings - your costs = Your profit / loss
Earnings obviously represent individual profitable trades, then the cost for each trader means losing trades + execution costs of trading orders. No surprise, therefore, that the more we can increase revenues while reducing costs, we achieve higher profits overall.
Therefore, if you are trading with a low quality broker, who is not fair, you will pay a spread together with high slippage, and your costs will increase so much that probably even the very best trading strategy will not be able to exceed it!
It is usually quite difficult to increase profits, and the vast majority of retail traders are trying to build the highest quality trading system, thus increasing profits. These traders get into a vicious circle of endless searching for the most profitable trading system. After years of searching, a trader usually returns to trading systems that he probably already knew about at the start of his trading career. Also the trader will pay much more attention to his costs.
Trading costs may be influenced. Firstly, the individual losing trades must be restricted as part of money-management and you have to close unprofitable trades as soon as possible. Generally among successful traders, it is stated that losing trades is not a failure, but an opportunity to open a profitable trade for better price in the market.
Further, we can affect total costs just by choosing the right broker - reducing the execution costs on individual transactions, which includes the spread and especially slippage. The slippage is the main reason why the same trading strategy achieves different results with different brokers (more information can be found on our Brokers Truth page). Additional costs can include swaps, the delay in executing orders and more.
What does it all mean? The vast majority of traders are trying only to increase their earnings and they consider their expenses as a fact that cannot be changed.
1. FX Trading Basics that you must Know
2. Know Your Enemy - Participants of Markets
3. Insider Information about Interbank Trading
4. What Brokers Never Want You to Know!
5. Dirty Practices of Brokers that Cost You Profits
6. How to Choose the Best Broker
7. The Most Profitable Trading Strategies
8. The Four Steps to Begin Trading Profitably