The global currency market is undoubtedly the most traded market in the world, and has in recent years attracted plenty of newcomers to the playing field. It has been shown that many traders do not last long enough in the game because they often run out of capital before they get to really pick up some profitable trading skills.
Although trading forex can be a very lucrative business, it is definitely no easy business. You pit your trading skills against other market players, and profits must be snatched from the majority, not minority. It takes a lot of time to understand what really moves the currency market, sharp trading skills and a huge dose of emotional discipline to be able to trade successfully.
Trading is not just about winning one trade; it is about getting overall profits over a certain period of time, which could be tracked over a week, a month, six months or even over a year, depending on your own preference. Don't expect to be profitable in every trade, for you will end up feeling disappointed. Even a high-accuracy trading method can churn out losses under different market conditions.
In this article, I will highlight some useful points which forex traders should take note of when trading the currency market so as to accumulate high odds of success on their side.
Demo Trade First
Whether you are new to trading currencies or want to try out a different trading strategy, demo trading is the proper thing to do it. With a demo trading account, you are able to ease yourself into the mechanics of charting, order placing, and you get to experiment with different strategies in real-time on various currency pairs. Do not underestimate the power of demo trading, for it will be the platform from which you will emerge to trade for real once you are ready and confident enough.
Be Well-Capitalized
Most forex brokers require just a few thousand dollars as the minimum for funding a trading account. There are, however, some brokers that only require customers to deposit just a few hundred dollars as the minimum in order to open an account with them, even though such accounts tend to be mini or micro accounts instead of standard accounts. In my opinion, trading with a few thousand dollars is really detrimental to a trader's chances of survival in the market, although it is what most traders are able to afford to begin real trading with. If you execute proper money management rules in trading, you are very likely to find yourself unable to set a reasonable stop-loss point under most circumstances based on an inadequate account size. You should be prepared, both emotionally and financially, for a possible string of losses, and such a scenario could diminish a small account size to an extent such that you will need to replenish your account again soon. If you are serious about trading well, give yourself a fighting chance by being well-capitalized.
Trade With Money You Can Afford to Lose
This maxim is not a myth; it is very true. Although there are some people who may disagree with this, saying that such a mentality can cause traders to take their money lightly as a consequence, I strongly advocate that you should only trade with money you can afford to lose. This money should not be allocated towards paying the utilities or insurance bills or be taken from the pool that is saved for your children's education or emergency use. Forex trading is speculative, just like investing in other assets like stocks, unit trusts, real estate and so on. You can stand to lose some or even all of your money if you treat trading like gambling, and do not exercise proper money management strategies. If you were to trade with money you can't afford to lose, you would have the tendency to trade improperly, under the influence of anxiety and intolerable stress, which will negatively impact the making of logical trading decisions.
Determine the Holding Period of Your Trade
The goal of trading is to be profitable, but have you considered the time frame that you are trading or intend to trade? Profits can potentially be made in a matter of minutes, hours, days, weeks or even months. When planning a trade, it is important to adjust your profit size to the the holding time of your trade. Ask yourself, are you looking at making a few pips here and there with a holding period ranging from seconds to a few minutes through scalping, or are you looking at making 30 pips in an intraday trade, or do you envision holding the trade for a few days or weeks so as to be able to potentially make a bigger profit? The holding period that you choose will determine both your entry and exit points and strategies, as well as the charting period that you should be using.
Determine the Current State of the Market
The most important thing to look out for before planning a trade is to find out what the market is doing at the moment. Prices either trend or stay in a trading range, thus, you will need to see if the particular currency pair is in the midst of an uptrend, or downtrend, or simply oscillating sideways in a range. Once you have decided on that, check on the strength and duration of the trend or how long prices have been moving sideways. With a number of simple but clever tools, you will be able to discern the current “mood” of the market easily, and plan a high probability trade based on that.
Combine Technicals With Fundamentals
Trading is all about timing. It does not matter if you are correct about a currency pair's potential movement if you have gotten into the market either too early or too late. A difference of a few hours, minutes or even seconds can produce undesirable outcomes in an ultra fast-moving market like the currency market, whereby currencies can react within seconds of important economic releases or speeches by policymakers. By combining technicals with fundamentals, you will have a better sense of the overall market sentiment, which is the driving force behind currency movements (The PowerFX Course shows you how you can effectively incorporate both technicals and fundamentals into your trading).
Exercise Discipline
Discipline – a word you must have heard countless times, but do you really know how to exercise discipline in trading? Discipline is about following your trading and money management rules even when you feel the most euphoric after big profits or most despondent after big losses. If your trading rules tell you it is time to get out of the losing trade, do so. Do not hope that the market will change its mind for you, or trick your mind that as long as you keep holding onto a losing trade, your losses are still unrealized, that they are not 'real'. If your risk management rules state that you do not risk more than, say, 3% of your total equity, stick to it. No 'but's, no excuses. Don't ever trade just to inject some adrenaline into your life. Yes, it is fun to make money, but it is deadly to trade just for fun or out of boredom. When you do not see any excellent trading opportunities, stay out. Trade logically with discipline, and leave 'hope' out of the equation. Aim only for trades that have a high probability of success.
Tilt the Odds of Success to Your Side
There are so many facets to trading, and even more to trading well. While there are some factors which we can't control (like where the market is going to move), there are many other factors which are within our control, and it is precisely through these controllable factors that we can enhance our overall trading performance. Do not get so fixated on the big picture of making money that you neglect the bare essentials needed to help you lay the groundwork for success. It is the nitty gritty that forms the backbone of trading success.
Copyright by Grace Cheng
Although trading forex can be a very lucrative business, it is definitely no easy business. You pit your trading skills against other market players, and profits must be snatched from the majority, not minority. It takes a lot of time to understand what really moves the currency market, sharp trading skills and a huge dose of emotional discipline to be able to trade successfully.
Trading is not just about winning one trade; it is about getting overall profits over a certain period of time, which could be tracked over a week, a month, six months or even over a year, depending on your own preference. Don't expect to be profitable in every trade, for you will end up feeling disappointed. Even a high-accuracy trading method can churn out losses under different market conditions.
In this article, I will highlight some useful points which forex traders should take note of when trading the currency market so as to accumulate high odds of success on their side.
Demo Trade First
Whether you are new to trading currencies or want to try out a different trading strategy, demo trading is the proper thing to do it. With a demo trading account, you are able to ease yourself into the mechanics of charting, order placing, and you get to experiment with different strategies in real-time on various currency pairs. Do not underestimate the power of demo trading, for it will be the platform from which you will emerge to trade for real once you are ready and confident enough.
Be Well-Capitalized
Most forex brokers require just a few thousand dollars as the minimum for funding a trading account. There are, however, some brokers that only require customers to deposit just a few hundred dollars as the minimum in order to open an account with them, even though such accounts tend to be mini or micro accounts instead of standard accounts. In my opinion, trading with a few thousand dollars is really detrimental to a trader's chances of survival in the market, although it is what most traders are able to afford to begin real trading with. If you execute proper money management rules in trading, you are very likely to find yourself unable to set a reasonable stop-loss point under most circumstances based on an inadequate account size. You should be prepared, both emotionally and financially, for a possible string of losses, and such a scenario could diminish a small account size to an extent such that you will need to replenish your account again soon. If you are serious about trading well, give yourself a fighting chance by being well-capitalized.
Trade With Money You Can Afford to Lose
This maxim is not a myth; it is very true. Although there are some people who may disagree with this, saying that such a mentality can cause traders to take their money lightly as a consequence, I strongly advocate that you should only trade with money you can afford to lose. This money should not be allocated towards paying the utilities or insurance bills or be taken from the pool that is saved for your children's education or emergency use. Forex trading is speculative, just like investing in other assets like stocks, unit trusts, real estate and so on. You can stand to lose some or even all of your money if you treat trading like gambling, and do not exercise proper money management strategies. If you were to trade with money you can't afford to lose, you would have the tendency to trade improperly, under the influence of anxiety and intolerable stress, which will negatively impact the making of logical trading decisions.
Determine the Holding Period of Your Trade
The goal of trading is to be profitable, but have you considered the time frame that you are trading or intend to trade? Profits can potentially be made in a matter of minutes, hours, days, weeks or even months. When planning a trade, it is important to adjust your profit size to the the holding time of your trade. Ask yourself, are you looking at making a few pips here and there with a holding period ranging from seconds to a few minutes through scalping, or are you looking at making 30 pips in an intraday trade, or do you envision holding the trade for a few days or weeks so as to be able to potentially make a bigger profit? The holding period that you choose will determine both your entry and exit points and strategies, as well as the charting period that you should be using.
Determine the Current State of the Market
The most important thing to look out for before planning a trade is to find out what the market is doing at the moment. Prices either trend or stay in a trading range, thus, you will need to see if the particular currency pair is in the midst of an uptrend, or downtrend, or simply oscillating sideways in a range. Once you have decided on that, check on the strength and duration of the trend or how long prices have been moving sideways. With a number of simple but clever tools, you will be able to discern the current “mood” of the market easily, and plan a high probability trade based on that.
Combine Technicals With Fundamentals
Trading is all about timing. It does not matter if you are correct about a currency pair's potential movement if you have gotten into the market either too early or too late. A difference of a few hours, minutes or even seconds can produce undesirable outcomes in an ultra fast-moving market like the currency market, whereby currencies can react within seconds of important economic releases or speeches by policymakers. By combining technicals with fundamentals, you will have a better sense of the overall market sentiment, which is the driving force behind currency movements (The PowerFX Course shows you how you can effectively incorporate both technicals and fundamentals into your trading).
Exercise Discipline
Discipline – a word you must have heard countless times, but do you really know how to exercise discipline in trading? Discipline is about following your trading and money management rules even when you feel the most euphoric after big profits or most despondent after big losses. If your trading rules tell you it is time to get out of the losing trade, do so. Do not hope that the market will change its mind for you, or trick your mind that as long as you keep holding onto a losing trade, your losses are still unrealized, that they are not 'real'. If your risk management rules state that you do not risk more than, say, 3% of your total equity, stick to it. No 'but's, no excuses. Don't ever trade just to inject some adrenaline into your life. Yes, it is fun to make money, but it is deadly to trade just for fun or out of boredom. When you do not see any excellent trading opportunities, stay out. Trade logically with discipline, and leave 'hope' out of the equation. Aim only for trades that have a high probability of success.
Tilt the Odds of Success to Your Side
There are so many facets to trading, and even more to trading well. While there are some factors which we can't control (like where the market is going to move), there are many other factors which are within our control, and it is precisely through these controllable factors that we can enhance our overall trading performance. Do not get so fixated on the big picture of making money that you neglect the bare essentials needed to help you lay the groundwork for success. It is the nitty gritty that forms the backbone of trading success.
Copyright by Grace Cheng
