Making Profits through Forex Trading
Before even opening a Forex trading account, a broker makes sure you understand the risks associated with foreign exchange. Trading leveraged products is not for everyone, as the only way to intermediate retail traders’ access to the interbank rates is by using leverage. In principle, the idea of Forex trading is fairly simple, as there is only one decision to be made: to buy or to sell. If the trader buys and the market moves to the upside, a profit is made; if not, the trading account suffers a loss. But in reality, it is not that easy. While the theory is straightforward, executing a plan is more difficult, as human nature plays tricks on all of us. Emotions come into play, and even the best-laid plans tend to be challenged, and in the end will show a loss rather than a profit.
The purpose of this article is to show the traits of a successful trader, what to focus on when trading, and what things to consider in order to make it in this highly competitive environment.
Setting Up a Trading Routine
This is by far the first thing to do if you consider that trading is suitable for you, and plan to make a living from trading financial markets – Forex markets in particular. To be successful in the long run, trading the Forex market means doing the same things over and over again with crystal-clear steps to follow, and iron discipline. A trading routine or plan should involve things to be done on a short- and medium-term horizon, and the following are mandatory parts of such a plan.
Choose a Trading Set-up That Fits
If trading is done randomly, then there are zero chances of succeeding. Therefore, the first thing to do is to choose a trading set-up that fits your personality, knowledge, and style. This can be done either by building a technical analysis set-up based on indicators that give specific signals, or using a trading theory to analyse markets in order to pick a trade, or simply trading on economic releases, etc. It is important to look at as few things as possible as, for example, just by putting 100 indicators on a chart doesn’t mean that future prices are easier to identify. In this way confusion is eliminated, and in time you’ll learn from how the price reacted in different circumstances using your trading set-up, and you can easily react to other similar events in the future.
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Set Monthly Financial Goals
Divide the trading year into months in order to evaluate your performance. Trading goes just like life goes, with its ups and downs, with some months being better than others, etc. What is important is for the trading account to grow, and this will only happen with a clear monthly objective in mind. Don’t give up if you’re having a losing streak! No one wins all the time. If you hear that they do, it’s simply not true. By setting up monthly goals, you’re splitting the month’s performance into four trading weeks, so being down one or two weeks doesn’t mean you won’t be able to recover until the end of the month is approaching.
Keep an Eye on the Economic Calendar
No matter what your trading set-up is, knowing what will move a market is key. While technical analysis gives you the direction the market may move in, fundamental analysis (economic news) gives you the reason why the market is making a move. Therefore, look at the economic calendar over the weekend for the week ahead in order to see what the most important events are, and what currencies will be affected. If you don’t want to be involved in highly volatile markets, then just ignore trading those currencies. For example, if an important US dollar-driven event is about to come next week, the wisest thing to do is to avoid US dollar pairs and simple trade crosses.
Set Realistic Targets for Your Trades
Everyone wants to make a quick buck as fast as possible, and while Forex trading can certainly help you achieve that, you should be objective. The market makes a lot of fake moves, and setting up hundreds of pips as a daily target is not realistic. It is better to set realistic targets based on what a trading week may bring (if there are public holidays, for example, the market will barely move) and prepare for the coming break.
Learn to Be Patient
It is said that patience is a virtue, and this cannot be truer than when trading financial markets. Human nature is key here, and traders tend to forget that we’re all subject to the same fears when it comes to trading: fear of being wrong, of losing the trading account, of receiving a margin call, of trading too little, of overtrading, of missing an opportunity, etc. In the end, the way to make a profit in Forex trading is to learn to know yourself, your strengths and weaknesses, and to learn to be patient. Markets are governed by algorithmic trading, and high-frequency trading will make sure the real moves come only when there’s a good reason for that to happen, mostly from a fundamental point of view. Being patient is the key to success, as it is the only way you’ll end up on the right side of the market when a new trend starts. When important events are at the end of the week, for example, like the Non-Farm Payrolls release in the United States, chances are that for the whole week the market will stay in ranges, some bigger than others. If you’re trying to pick a top or a bottom during these days, then your trading account will most likely suffer. Therefore, being patient and sitting on your hands expecting the market to come to you is the thing to do; and the thing most retail traders failed at.
Other educational materials
- What is Forex Trading?
- Forex Market Terminology
- Profit from Forex Trading Using Different Trading Styles
- How to Set Up an Expert Advisor
- HFT (High-Frequency Trading) in Forex Markets
- Trading Sessions and Their Importance
Recommended further readings
- “Enhancing technical analysis in the Forex market using neural networks.” Chan, Keith CC, and Foo Kean Teong. In Neural Networks, 1995. Proceedings., IEEE International Conference on, vol. 2, pp. 1023-1027. IEEE, 1995.
- “Comparative study of FOREX trading systems built with SVR+ GHSOM and genetic algorithms optimization of technical indicators.” de Brito, Rodrigo FB, and Adriano LI Oliveira. In 2012 IEEE 24th International Conference on Tools with Artificial Intelligence, vol. 1, pp. 351-358. IEEE, 2012.