Updated: Jan 13
This is the question that everyone wants answered. This is what trading is all about: becoming a consistent and professional trader. But what does it actually mean? And, how can you achieve this status? Let's dive into it.
What is a consistently profitable trader?
A consistently profitable Forex trader is someone who can consistently generate an income from trading the markets, by consistently trading his or her approach.
Consistent results can only come from a consistent process. Therefore, you need to focus on the process and the results will follow. One thing all consistently profitable traders have in common is they had a great mentor. A mentor has been through the struggle of becoming consistently profitable. A mentor can tell you what to focus on, what to adjust and how to grow as a trader.
Consistent results are often being portrayed as an X percent return per month. However, we at CDFX Trading look at quarters. You can have a few losing months in a row but still be a consistently profitable trader. You have to look at the long term.
So, quick tip: focus on the long term. It’s not about making money everyday or every week. It’s about making money each year that can provide you with an income to cover your expenses.
Many educators will tell you that you need to make money every week or every month, this is simply not the case. Many professional Forex traders make money, but maybe only for 8 months per year. The other four months they are down. This is completely normal. Depending on your strategy and trade frequency this period is longer or shorter.
Let’s give you an example:
Trader A has a strategy with a 60% winrate and a 1R payout on average. He takes 10 trades a month.
Trader B has a strategy with a 60% winrate and a 1R payout on average. He takes 50 trades a month.
Who do you think has a bigger chance of making money every month? Trader B of course.
The higher your frequency, the higher the chances that the odds of a 60% winrate will play out. Even with a 60% winrate it is completely possible to lose 8 trades in a row, this means you will be down on the month if you only trade 10 times per month. However, if you trade 50 times per month the odds are way higher that you will make money that month, because the increased frequency makes sure that you have more room each month for the law of large numbers to play out.
This basically means that the higher the frequency, the higher the chances that you hit that 60% winrate. You have to see it as this: let’s say you have a dice with the numbers 1 to 6 on it. This in theory means there is a 1/6 chance you will hit six when rolling the dice. However, this does not mean every 6 times you roll the dice, you hit 6 once. It means on average, over a long period of time and with enough frequency, you will have that 1/6 chance. Same with trading.
So, look at the long term. It is completely normal to lose money for a few months per year. This is just the reality and this is part of being a consistently profitable Forex trader.
How to become a consistently profitable Forex trader?
To become a consistently profitable Forex trader you need to do a few things. These are an edge and an ability to execute your edge.
But first, let’s be real here, the odds are not in your favor. Most people, I’d say 95%, lose money trading Forex. You need to figure out why you don’t belong in that 95% group.
There are a few things this group has in common. If you do the opposite of that the chances of you becoming a consistently profitable Forex trader will increase.
First, you need an edge. An edge in trading can be developed by following a consistent and proven process. This process has to put the odds in your favor one way or another. There are different ways you can do this. You can use:
A discretionary method is a method with a strict process, but following it comes down to your own discretion. It is important to first find what fits your personality. Personally I used to trade a discretionary method for years until I figured out it didn’t fit my personality. Does it fit with your personality? Or, do you need a more rule-based approach?
Systematic methods are methods with a clear system, they are also called mechanical methods. This means it’s very black & white. It’s an if then, do that statement over and over again. The method we teach at CDFX Trading is 90% mechanical. I found that this method fits my personality the best. Next to that it is easier to test these methods. It’s also easier to teach them.
Keep in mind that systematic trading can also be non-mechanical. This means you have black and white rules, but they are not programmable. It’s very important to know your style. Knowing your style tells you what type of backtesting you should apply for better results. Need help with that? Contact us.
Automated methods are known as expert advisors in Forex trading. These systems can be programmed and can be fully automated. However, it is quite hard to code one if you don’t have any experience. Also, they need a lot of maintenance to stay profitable.
You can also use a combination of multiple things, that’s exactly what we do at CDFX Trading. Our method is 90% mechanical and 10% discretionary. This way we have the best of both worlds. We have a tested and proven strategy and can use our years of experience to add in some discretion to increase the profitability.
The point is, to become a consistently profitable Forex trader you should have a proven process, the concepts you use, the way you use it is totally up to you. You need a proven edge in trading, otherwise you won’t become a consistently profitable Forex trader.
Next to having an edge in trading, you need an edge that you understand. We all know that psychology is a big part of trading. Many traders experience psychological issues when trading. Most of these issues can be fixed by having an edge when trading, an edge that you understand and that fits your personality.
It all starts with figuring out who you are and what type of trader you can be.
If you notice any psychological mistakes during trading, keep track