Five Secrets of Forex Trading
- 29 Apr 2021
The currency market attracts millions of traders. If you understand the logic of its rates, you can make money from any location and device. Use our tips to improve your strategic vision and skillset.
1. Risk Management Is Vital
Nobody can influence the exchange rates. Traders predict their direction based on economic and political drivers or patterns on their price charts. Unexpected turns may disrupt any strategy unless you protect what you have. Fortunately, there are a few ways to do it.
First, use automatic triggers for any position. Stop Loss allows you to limit the size of potential damage. Take Profit is used to collect the desired amount. Learn about the ideal position size in this blog about Forex trading to keep your losses under control. As the market is only fairly predictable, they are always possible.
2. Diversification Is Inevitable
You cannot achieve a lot by trading the same currency pair. In any form of investment, it is crucial to diversify market exposure. In Forex, this is pretty easy, thanks to modern brokerage. Your provider may give access to dozens of pairs, stocks, and derivatives — all from the same account and platform.
As you gain experience, learn about more potential sources of profit. When risks are spread over several markets, they are lower by default. If one of your assets brings a loss, it could be compensated by profits made elsewhere.
3. You Need to Be Mindful
If you think that trading and mindfulness are unrelated, you will be surprised. Emotions are a common cause of mistakes in the market. Brokers advise clients not to trade when experiencing strong emotions, negative or positive.
Feelings cloud human judgment. For example, when you make a loss, it is tempting to chase it by opening new unnecessary positions. You need to make sure your moves are motivated by objective analysis.
4. Keep a Journal
Every trader should review their performance regularly, and journals are a great help. Keep a record of all trades you make and their key parameters like entry and exit price, volatility, liquidity, and motivation. Look back at your notes at least weekly to understand whether your strategy is working.
5. Have Realistic Expectations
Generally, traders are more likely to benefit from a string of minor profits than occasional big wins. To maximize gains, you could do one of these things:
• trade highly volatile instruments;
• trade large volumes;
• trade more frequently.
Generally, traders should not risk more than 1% of their capital per trade. Therefore, large volumes are only achievable with a larger investment. Highly volatile markets also are highly risky. For instance, trading exotics requires an excellent understanding of how these lesser-known currencies work. Meanwhile, stable instruments like Majors rarely have strong movements resulting in big gains.
The Bottom Line
Forex is a constant trade-off between returns and risks. Start small and protect your capital. Set automatic triggers, engage different instruments and build your acumen gradually.