Whether you're new to
Currency Trading or a seasoned trader, you can always improve your trading
skills. Education is fundamental to successful trading. Here are six steps that
will help hone your Currency trading skills.
Successful professional traders do three things that amateurs
often forget. They plan a trading strategy, they follow the markets, and they
diarize, track, and analyze each of their trades.
STEP 1
Strategize, Analyze and Diarize
1.
Plan How You Will Trade
You may have heard the adage, "if you fail to plan, you plan to fail." This is particularly true in Forex speculation.
Successful traders start with a sound strategy and they stick to it at all times.
You may have heard the adage, "if you fail to plan, you plan to fail." This is particularly true in Forex speculation.
Successful traders start with a sound strategy and they stick to it at all times.
·
Choose the currency pairs that are right for you.
Some currency pairs are volatile and move a lot intra-day. Some currency pairs are steady and make slow moves over longer time periods. Based on your risk parameters, decide which currency pairs are best suited to your trading strategy.
Some currency pairs are volatile and move a lot intra-day. Some currency pairs are steady and make slow moves over longer time periods. Based on your risk parameters, decide which currency pairs are best suited to your trading strategy.
·
Decide how long you plan to stay in a position.
Based on your currency pair selection, plan how long you want to hold your positions: minutes, hours, or days. Remember that depending on your account type, having open positions at 5:00pm Eastern Time may incur rollover charges.
Based on your currency pair selection, plan how long you want to hold your positions: minutes, hours, or days. Remember that depending on your account type, having open positions at 5:00pm Eastern Time may incur rollover charges.
·
Set your targets for the position.
Before you take a position you should establish your exit strategy. If the position is a winner, at what rate will you cash out? If the position is a loser, at what rate will you cut your losses? Then, place your stops and limits accordingly.
Before you take a position you should establish your exit strategy. If the position is a winner, at what rate will you cash out? If the position is a loser, at what rate will you cut your losses? Then, place your stops and limits accordingly.
2.
Follow the Forex Market
Use Forex charts and Forex news to monitor market information and technical levels that affect your positions.
Use Forex charts and Forex news to monitor market information and technical levels that affect your positions.
·
Use Forex Charts
Charts are an indispensable tool to improve trading returns. You can easily recoup the money spent on a charting package from a single well-placed trade based on the analysis from professional charts.
Charts are an indispensable tool to improve trading returns. You can easily recoup the money spent on a charting package from a single well-placed trade based on the analysis from professional charts.
3.
Keep a Forex Diary
Most traders fail because they make the same mistakes over and over. A diary can help by keeping track of what works for you and what doesn't. Used consistently, a well-kept diary is your best friend. When keeping your diary, make sure that it contains at least the following:
Most traders fail because they make the same mistakes over and over. A diary can help by keeping track of what works for you and what doesn't. Used consistently, a well-kept diary is your best friend. When keeping your diary, make sure that it contains at least the following:
1. The date and time you took the
position.
2. The rate at which you took the
position.
3. The reason you took the position.
4. Your strategy for the position.
5. The date and time you exited the
position.
6. The rate at which you exited the
position.
7. Your profit/loss on the position.
8. Why you exited the position. Did you
follow you strategy?
Once you learn to recognize successful trading patterns, you will be able to spot them when they return.
Once you learn to recognize successful trading patterns, you will be able to spot them when they return.
Be aware that trading
foreign exchange on margin carries a high level of risk, and may not be
suitable for all investors. The high degree of leverage can work against you as
well as for you. Before deciding to invest in foreign exchange you should
carefully consider your investment objectives, level of experience, and risk
appetite. The possibility exists that you could sustain a loss of some or all
of your initial investment and therefore you should not invest money that you
cannot afford to lose. You should be aware of all the risks associated with
foreign exchange trading, and seek advice from an independent financial advisor
if you have any doubts.
STEP 2
Learn
to Manage Your Risk
In our experience, the most successful traders are not simply the
ones who take the best positions. They are the ones that are smartest about
risk management and disciplined in their strategy. They are never emotional
about gains or losses. They set their profit target and loss limits for their
positions, and use Limit Orders and Stop/Loss Orders to lock them in.
Limit Orders
A limit order instructs the system to automatically exit a
position when your target profit has been achieved. This enables you to "lock
in" your desired profit on a winning position.
Stop/Loss Orders
A stop/loss order instructs the system to automatically exit a
position when your maximum loss limit has been hit. This enables you to cap
your losses on a losing position.
Trading Discipline
Professional Traders use Limit Orders and Stop/Loss Orders as the
cornerstone of a disciplined trading strategy. By setting both on all their
positions, they have removed emotion from the equation and are letting the
market work for them.
Amateurs, on the other hand, don’t use Limit Orders and Stop/Loss
Orders. They stay glued to their screens, trying to juggle all their positions
in real time. They miss critical action points, and they let emotion rule their
decisions.
Setting Limit and Stop/Loss Orders
As a general rule of thumb, you your Stop/Loss Orders should be
set closer to the opening position price than your Limit Orders. If you do
this, then you can be successful while being right less than 50% of the time.
For example, if you use a 100 pip Limit Order with a 30 pip
Stop/Loss Order on all your positions, then you only to be right 1/3 of the
time to make a profit.
Where you place your Limit and Stop/Loss Orders will depend on
your risk tolerance. However, you need to be smart when setting them. If a
Stop/Loss Order is too close to the opening position price, it can be triggered
by normal market volatility. This means that a temporary dip can knock out a
position before it has a chance to retrace. Similarly, if a Limit Order is set
too far from the opening price, potential profit may never be realized.
Be aware that trading
foreign exchange on margin carries a high level of risk, and may not be
suitable for all investors. The high degree of leverage can work against you as
well as for you. Before deciding to invest in foreign exchange you should
carefully consider your investment objectives, level of experience, and risk
appetite. The possibility exists that you could sustain a loss of some or all
of your initial investment and therefore you should not invest money that you
cannot afford to lose. You should be aware of all the risks associated with
foreign exchange trading, and seek advice from an independent financial advisor
if you have any doubts.
STEP 3
Choose
Your Approach
There are two basic approaches to analyzing the Forex market. It
is important to understand how they can be used successfully.
Technical Analysis
Technical Analysis focuses on the study of price movements, using
historical currency data to try to predict the direction of future prices. The
premise is that all available market information is already reflected in the
price of any currency, and that all you need to do is study price movements to
make informed trading decisions.
The primary tools of Technical Analysis are charts. Charts are used to identify trends
and patterns in an attempt to find profit opportunities. Those who follow this
approach look for trending tendencies in the Forex markets, and say that the
key to success is identifying such trends in their earliest stage of
development.
Fundamental Analysis
Fundamental Analysis focuses on the economic, social, and
political forces that drive supply and demand. The premise is that
macroeconomic indicators such as economic growth rates, interest rates,
inflation, and unemployment can be used to make informed trading decisions.
There is no single set of beliefs that guide Fundamental Analysis.
Different traders look to different indicators, and weigh various indicators in
different ways.
What should I use - Technical or Fundamental Analysis?
Traders using Technical Analysis follow charts and trends,
typically following a number currency pairs simultaneously. Traders using
Fundamental Analysis must sort through a great deal of market data, and so
typically focus on only a few currency pairs. For this reason, many traders
prefer Technical Analysis.
In addition, many traders choose Technical Analysis because they
see strong trending tendencies in the Forex market. They look to master the
fundamentals of Technical Analysis and apply them to numerous time frames and
currency pairs.
Be aware that trading
foreign exchange on margin carries a high level of risk, and may not be
suitable for all investors. The high degree of leverage can work against you as
well as for you. Before deciding to invest in foreign exchange you should
carefully consider your investment objectives, level of experience, and risk
appetite. The possibility exists that you could sustain a loss of some or all
of your initial investment and therefore you should not invest money that you
cannot afford to lose. You should be aware of all the risks associated with
foreign exchange trading, and seek advice from an independent financial advisor
if you have any doubts.
STEP 4
Chart
Your Course with Technical Analysis
Technical Analysis uses charts to try to forecast future currency
prices by studying past market movements. Using this technique, a trader has
the ability to simultaneously monitor multiple currency pairs by evaluating how
others are trading a particular currency. In our experience, because so many
traders use technical analysis, and their reaction to market activity tends to
be similar, the validity of this technique is strengthened. It becomes a
self-fulfilling prophecy that feeds on itself, increasing the reliability of
the signals generated from this analysis.
Support & Resistance
Perhaps the most effective and therefore the most popular form of
technical analyses is the use of "support" and
"resistance". Support is the "floor" or lower boundary that
a currency pair has trouble breaching. Resistance, on the other hand, is simply
the opposite: it is the upper boundary that a currency pair has trouble
penetrating.
Support and Resistance are important in range bound markets
because they indicate the boundaries where the market tends to change
direction. When and if the market breaks through these boundaries, it is
referred to as a "breakout" and is usually followed by increased
market activity.
Using Support & Resistance
We can use these support and resistance levels in many ways. A
range trader would want to buy above support and sell below resistance while
breakout. Trend traders, on the other hand, would buy when the price breaks
above a level of resistance and sell when it breaks below support.
The concept is still the same as we stated earlier. We want to buy
a currency pair if we anticipate the market moving up and then sell it at
higher price. We can also sell a currency pair if we anticipate the market
moving down and then buy it at a lower price.
Be aware that trading
foreign exchange on margin carries a high level of risk, and may not be
suitable for all investors. The high degree of leverage can work against you as
well as for you. Before deciding to invest in foreign exchange you should
carefully consider your investment objectives, level of experience, and risk
appetite. The possibility exists that you could sustain a loss of some or all
of your initial investment and therefore you should not invest money that you
cannot afford to lose. You should be aware of all the risks associated with
foreign exchange trading, and seek advice from an independent financial advisor
if you have any doubts.
STEP 5
Be
In The Know with Fundamental Analysis
What influences prices in the currencies market?
Traders use fundamental analysis to try to forecast the effect
that economic, social, and political events will have on currency prices.
Prices in the currency market are affected by macroeconomic factors such as
inflation, unemployment and industrial production. Based on the analysis of
economic data, traders will take positions on the market with the objective of
making a profit.
Finding information about economic data is relatively easy.
Traders should focus on three main macroeconomic factors when
analyzing foreign exchange rates:
Interest Rates
Each currency has an overnight lending rate determined by that
country's central bank. If inflation is deemed too high, a central bank may
raise the interest rate to cool down the economy. Conversely, if economic
activity is sluggish, a central bank may reduce interest rates to stimulate
growth. Lower interest rates usually depreciate the value of a currency – in
part, because it attracts carry-trades. A carry-trade is a strategy in which a
trader sells a currency with a low interest rate and buys a currency with a
high interest.
Employment
The unemployment rate is a key indicator of economic strength. If
a country has a high unemployment rate, it means that the economy is not strong
enough to provide people with jobs. This leads to a decline in the currency
value.
Geopolitical Events
These key international political events affect the foreign
exchange market, as well as all other markets.
Example
In May of 2005, there was growing anticipation that France would
vote against accepting the European Union Constitution. Since France was vital
to Europe's economic health (and the value of the Euro), traders sold the Euro
and bought the dollar; this pushed the Euro down so far that many traders
thought it couldn't go any lower.
But, they were wrong. When France actually voted against the
constitution, the EUR/USD currency pair fell by more than 400 pips in three
days. Traders who bought the Euro lost thousands. On the other hand, traders
selling the Euro made thousands.
Be aware that trading
foreign exchange on margin carries a high level of risk, and may not be
suitable for all investors. The high degree of leverage can work against you as
well as for you. Before deciding to invest in foreign exchange you should
carefully consider your investment objectives, level of experience, and risk
appetite. The possibility exists that you could sustain a loss of some or all
of your initial investment and therefore you should not invest money that you
cannot afford to lose. You should be aware of all the risks associated with
foreign exchange trading, and seek advice from an independent financial advisor
if you have any doubts.
STEP 6
Beware
of Psychological Pitfalls
Many traders take shopping more seriously than trading. Few people
would spend $500 without carefully researching and examining a product. But
many traders take positions that cost them well over $500 based on little more
than a hunch.
This cannot be stressed enough. Most traders fail because they
lack discipline. Be sure that you have a plan in place before you start to
trade. Your analysis should include the potential downside as well as the
expected upside. So for every position you take, you should place both a Limit
Order and a Stop/Loss Order.
Set Smart Trade Limits
For each trade, choose a profit target that will let you make good
money on the position without being unachievable. Choose a loss limit that is
large enough to accommodate normal market fluctuations, but smaller than your
profit target. Lock these in using Limit Orders and Stop/Loss Orders.
This simple concept is one of the most difficult to follow. Many
traders abandon their predetermined plans on a whim, closing winning positions
before their profit targets are reached because they grow nervous that the market
will turn against them. But those same traders will hang on to losing positions
well past their loss limits, hoping to somehow recover their losses.
Sometimes traders see their loss limits hit a few times, only to
see the market go back in their favor once they are out. This can lead to
mistaken belief that this will always keep happening, and that loss limits are
counterproductive. Nothing could be further from the truth! Stop/Loss Orders
are there to limit your losses.
No trader makes money on every trade. If you can get 5 trades out
of 10 to be profitable, then you are doing well. How then do you make money
with only half of your positions being winners? By setting smart trade limits.
When you lose less on your losers than you make on your winners, you are
profitable.
Don't Marry Your Trades
People are emotional. It is easy to do objective analysis before
taking a position. It is much harder when you've got money invested. Traders
holding positions tend to analyze the market differently in the hope that it
will move in a favorable direction, ignoring changing factors that may have
turned against their original analysis. This is especially true when losses are
being taken on a position. Traders tend to 'marry' a losing position,
disregarding signs that point towards continued losses.
Don't Bet the Farm
Do not over trade. A common mistake made by new traders is
over-leveraging an account. Just because one lot (100,000 units) of currency
only requires $1000 as a minimum margin deposit, it does not mean that a trader
with $5000 in his account should be able to trade 5 lots. One lot is $100,000
and should be treated as a $100,000 investment and not the $1000 put up as
margin. Most traders analyze the charts correctly and place sensible trades,
yet they tend to over leverage themselves. As a consequence of this, they are
often forced to exit a position at the wrong time. A good rule of thumb is to
trade with 1-10 leverage or never use more than 10% of your account at any
given time. Trading currencies is not easy (if it were, everyone would be a
millionaire!).
Be aware that trading
foreign exchange on margin carries a high level of risk, and may not be
suitable for all investors. The high degree of leverage can work against you as
well as for you. Before deciding to invest in foreign exchange you should
carefully consider your investment objectives, level of experience, and risk
appetite. The possibility exists that you could sustain a loss of some or all
of your initial investment and therefore you should not invest money that you
cannot afford to lose. You should be aware of all the risks associated with
foreign exchange trading, and seek advice from an independent financial advisor
if you have any doubts.
The best accurate Forex signals provider is Hot Forex Signal. Get Forex signals service via Email, Skype, Whatsapp, Telegram and so more. Hot Forex Signal provides 2 type services. 1st service is the best forex signals and 2nd Service Mt4 Trade Copier. Follow their trial signals service and make a large amount of profit within a very short time.
ReplyDeleteMost profitable and honest Forex signals service provider is USA Forex Signal. Worldwide premium forex signals and famous Forex signals provider Company. Use Forex signals service via Telegram, Whatsapp, Skype and Email.
ReplyDeleteTrade Forex Copier is best Forex signals and accurate forex signals service provider. Use Trade Forex Copier service via Forex signals telegram, Skype and Whatsapp. Trade Forex Copier also provides reliable Forex trade copier service.
ReplyDelete