In almost every forex broker advertisement, you can see a trend line starting at the lower left and ascending (usually sharply) to the upper right or a bar chart that starts small and ends big. But this is just an enticing green light, and once you enter the market and experience the pressure of trading, […]
In almost every forex broker advertisement, you can see a trend line starting at the lower left and ascending (usually sharply) to the upper right or a bar chart that starts small and ends big. But this is just an enticing green light, and once you enter the market and experience the pressure of trading, you realize that life is not just that kind! Statistically, up to 70% to 80% of people who find forex attractive and dream euphorically of their possible future income exit the market disappointedly. The purpose of this article is to break the bubble and introduce several ways that help you survive the market and take a rational approach towards investing in forex.
Table of Contents
Know the Nature of Forex
Just as you need a manual to run a high-tech device, you should be well-instructed before starting your forex trading journey. Of course, you can make an even better decision if you have a general understanding of popular global markets. Forex is a global financial market with large liquidity pools where you can trade currencies against each other in brokers’ platforms. Volatility in forex roots in factors such as trade flows, interest rates, supply and demand for different currencies, major geopolitical events, etc. Hence, to have a successful trading experience, you should speculate the influential factors in real-time. Forex cannot be a profitable market for you unless you can manage to hold a balance between following the authentic and related news and observing the market itself.
Know the Nature of Forex Traders
Different professions require different personality traits. As a trader, you must have some qualifications to survive the market; otherwise, there is a good chance of failure. But this does not mean that if you are not qualified, you cannot profit from forex. You can grant access to your investment for professional and trusted traders so they can trade with your capital and share a percentage of the resulting win or loss with you, or you can use brokers’ signal services. However, you still need to know if you qualify to trade, or you had better leave the trading to an expert. Thereby, we introduce three salient characteristics of a good trader:
An experienced forex trader is someone with a plan, both short-term and long-term. They have developed a customized step-by-step schedule to reach their monthly and annual goals in advance. A carefree approach to forex would wear out your investment in the long run. The market is full of opportunities, but you have to be engaged with it to take advantage of opportunities.
Successful traders have a set of ground rules to which they adhere; this is helpful in times of uncertainty and indecisiveness in the market. An irrational approach to forex makes your trading experience a gambling experience. Although we cannot entirely negate the element of luck, you should know that emotional decisions are doomed to failure. A trader’s position in forex should be financially justifiable.
Skillful traders have an analytical mind and a knack for numbers. They do not get frustrated with charts and candles and can extract meaningful information from them. This is not some innate ability but a skill that comes with practice over time, but some people have a tendency towards soft science and cannot handle mathematics well.
It is time to judge yourself! If you have the abovementioned capabilities or think you can develop them and turn them into habits, you can personally take charge and start trading. On the other hand, if numbers and charts overwhelm you or you have a spontaneous lifestyle, you can still make money from forex, but you have to entrust the trading task to a forex expert and trader.
Establish a Forex Trading Framework
You should have a general idea of how you will handle your forex trading if you want to take matters into your own hands. Forex is a well-established and profitable market, but you still have a good chance of losing your capital. So the first thing you need is self-cognition; you should see whether you are a risk-taker and how much stress you can handle. In most financial markets, conservative traders do not make as much money as risk-takers because by the time they finally decide to place an order, they’ve almost lost the opportunity. On the other hand, excessive risk-takers often end up with liquidation. What determines a productive risk management technique is the measurement of winning ratio, which indicates the maximum loss you can handle until you lose your capital.
Establish a Forex Trading Money Management Technique
Saving money is just as important as making money, and without an efficient money management policy, you cannot increase your capital. There are generally two approaches to money management; in the first one, the trader’s stop-loss gets frequently triggered for small orders, but there are a few significant wins along the way. In the second approach, known as scalping, the trader takes many small advantages of the market, hoping that the collected wins would be more significant than a few considerable losses. But in either case, you should have a protective stop-loss that saves what you have earned so far and/or prevents the future losses.
Register with a Well-established Forex Broker
There are a plethora of forex brokers you can choose from. The first thing you should make sure of is the legitimacy of the broker. Any broker should be licensed with the respective state’s confirmation. The forex broker’s platform should be well-developed and user-friendly; almost all brokers have a demo-account feature you can use to familiarize yourself with the real platform and practice order placement. In demo accounts, you are provided with an unlimited amount of fake money that you can use to test your strategies without the risk of losing money. We strongly recommend that you start your trading experience with a demo account to eliminate the risk of blunders, and when you are confident enough, switch to the real-time platform. Nonetheless, it would be best if you did not start big when you want to begin trading on the real platform. Remember that now your capital is at stake, and a small mistake at the very beginning of your experience can ruin your whole belief in the forex market.
Develop your Unique Forex Trading Method
When you start working in the forex market, you realize that you can use many useful technical tools to analyze the market. However, you should know that the tools are developed to be used in different methods, and you should select and customize a set of tools according to your trading technique. Furthermore, remember that complex trading methods are not necessarily efficient, and you should keep the chart as clean as possible. Moreover, you need to sustain a balance between technical and fundamental analysis and avoid a narrow focus and dependency on technical methods.
Forex is a profitable market, but you have to see whether you have what it takes to be a successful trader or not. People are different; maybe you are the kind of person who cannot deal with charts and numbers, but this does not mean you cannot invest in forex. What you need is tried and true signal service or a professional and trusted trader that does the trading for you.