Introduction of Forex Trading
The global currency market attracts everyone due to the allure of profits but not all traders are able to create success stories there. Unfortunately, many of them end up quitting after a while. If you are a new trader wondering what could be the reason behind this low success rate, just know that you are not alone and all of us go through this dilemma. It is natural to worry and procrastinate when we are afraid that we won’t be able to reach the winning side of forex.
Thankfully, you can learn a lot of things by simply looking at the trading approach of successful forex traders. The pro traders were not perfect from the beginning and must have made a fair share of mistakes in the past. But they were able to correct them in time and that’s how they are thriving at the moment. You can also succeed like them in future if you follow the 5 secret tips that I am going to share in this blog.
1. Learn To Manage Your Emotions
The fear of losses and the excitement of a win are the most dominant emotions that traders feel and relate to. Both of them can take away our ability to think logically as our brain gets too overwhelmed. Learning to manage your emotions is the only way to fix this problem and perform better. Because being logical is a prerequisite for trading success in the volatile forex market. Those who have low EQ or emotional intelligence are more likely to struggle with emotional control as they are impulsive.
So, you need to develop your emotional intelligence and also study trading psychology to prepare your mind before looking at the chart. Greed and frustration can often lead to overtrading and emotional trading. Such trading habits are the root cause of failure in the forex market. Some traders are able to find a profitable strategy but they lack discipline and enter random trades. Taking a higher risk to make bigger profits can also put you in a dangerous position.
Those who trade with leverage often encounter huge losses as they underestimate the risk. The loss can then trigger a margin call which is not a pleasant experience for any trader. Thus, all traders are recommended to determine the margin in advance by using a margin calculator. Taking your time to calculate the trading amount and having a rule-based plan can save you from falling into the trap of emotions.
2. Use Multiple Timeframes For Analysis
You might think that trading will be easier when you focus on a single timeframe for technical analysis. Being a beginner, you might be able to trade better by using multiple timeframes. That way, you can get a broader view of the market and confirm your analysis before entering a trade. Sometimes you might think that a trend is strong enough while looking at a 1-hour chart but the same trend may appear weaker when you analyse a 4-hour chart. Due to this, I personally prefer to use shorter and longer timeframes together even if I am day trading.
You can also try this for getting a broader view of the market situation and this way, you can make sure that you don’t miss out on any important information. This approach is very effective for finding optimal entry and exit points. By utilising multiple timeframes, you will become better at technical analysis as market trends and trend reversals can be easily spotted when you are monitoring different charts with different timeframes. This technique is useful for confirming your analysis before placing a trade.
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3. Incorporate Fundamental Analysis
Technical analysis only shows us the current market situation and the rest depends upon how we interpret the patterns that we see on a price chart. The reason for the price movement cannot be identified from technical analysis alone and that’s why you need to incorporate fundamental analysis in your trading decisions. An economic data release or news event can impact the currency pair prices in a short span of time. Hence, you need to stay updated about all this by using tools like economic calendars and keeping an eye on the news.
But fundamental analysis is a bit more complex with all the economic and geopolitical factors that have to be considered. You must be able to keep track of all the changes that happen and how they influence the currency pair price movements. Suppose, you are trading with the cable pair and the Bank of England or Federal Reserve is about to revise their interest rates. The Pound will become volatile as the market sentiments shift and you have to consider the same while making trading decisions.
4. Be Ready to Adapt When the Market Situation Changes
Unpredictability is a key feature of the forex market as we never know how the market will shift in the next few seconds. No wonder traders keep complaining about how their strategies stop working all of a sudden and have to devise a new one now. Thus, we must be ready to adapt when the market situation changes. But being adaptable does not mean that you need to keep switching your strategy all the time. It is just about staying flexible and revising the strategy when it stops giving expected results. Sticking to your plan is important for trading success but being too rigid is not the right approach.
But at the same time, you have to stay disciplined and avoid impulsive trading while trying to adapt to the changing market situation. Whenever you plan to try a new strategy, you need to test it on a demo account first and see how it works. When you switch to a live account, you can decide the profit target and adjust your entry and exit prices based on the potential gains. In case, you trade different currencies, then you can use a currency calculator to find the exact forex rate of them in your own currency. That way, you have an idea of how much money to trade with and expect in a profitable trade.
5. Risk Management as a Cornerstone
The last secret tip That I want to share with you is something that all of us know about but still fail to implement when we start trading for real. Risk management should be the cornerstone of your trading system irrespective of your trading style and strategy. Risk management is very easy when you identify your own risk tolerance and learn to manage your trade positions based on your profit targets and risk appetite. Limiting your position size to 2% or less of the total account balance is one of the very first rules that you need to follow to minimise the potential loss.
Now imagine, you let a trade run without a stop loss in place and it goes into a loss. You will be shocked after seeing the account drawdown once it’s time to realise the loss. Hence, you should never execute a trade without a proper stop loss. When the specified price is reached, the SL gets triggered closing the trade automatically. But you should not be setting the SL price right next to the entry price as it can result in unwanted losses even before the trade starts running. So, assess your risk tolerance and set the SL based on that.
Final Words
The 5 secret tips that you read in this blog have already helped many experienced traders in accomplishing their Forex Trading goals and you can also do that by following a cautious approach. In the end, the secret to success in any profession is constantly striving for improvement. Because becoming profitable in the forex market is one thing but staying profitable requires more effort and commitment.
