Contrary to popular belief, forex has no holy grail, nor is there a one-size-fits-all strategy to profit trading. While many traders have perfected the art of reading market trends, there is still no way of predicting how market forces will sway.
That said, trading does have some semblance of an exact science, and there are several ways you can use fundamental data and various technical indicators to achieve profitability.
What You Need to Know
Foreign trading boils down to monitoring insights that show a specific market direction. To make money from this kind of trading, you need to be privy to everything from international news, trading patterns, global events, and even political processes affecting any of the major currencies.
The reason currencies such as the US dollar, for instance, affect trading patterns is because it influences every industry in the import/export business. Fluctuations in currency rates affect everything from oil pricing to automotive manufacturing and beyond.
Making money in this industry requires a proactive approach. You need to identify a trend pattern and predict the market direction. After which, you need to formulate a game plan using various forex indicators. To be clear, no one can predict market movement with any degree of certainty. It is all a matter of educated guessing.
How to Avoid Losing Money
Proper Money Management
Forex trading is the biggest and most volatile money market, trading in every currency there is. This volatility means that the market forces that can make you a millionaire today can just as easily ruin you tomorrow. Always use reason before you trade in obscene amounts, don’t over-leverage and never listen to brokers who advise you to go all in.
Always have a strategy before you trade and never overlook risk assessment.
Thousands of people lose their entire life savings simply because they put it all in one place. Any seasoned trader will tell you that this business rarely has a sure thing, which is why you need to diversify your currency pairings. Not diversifying your holdings also exposes you to losing big, especially if you trade high values. Diversification reduces risk substantially and gives you plenty of trade options.
Learn the Market Before You Make a Trade
While FX trading rarely operates without intermediaries, it is critical to learn the ropes on your own. Understand the market before you trade. Try to internalize the different FX markets, how they operate, and ways to limit the risk factor. Interact with people who have been in the forex industry and gauge their success rate.
Most importantly, never jump in with both feet, find a safe space to start, build a strategy, and trade as you learn. Never go into a market that you don’t understand.
Do Not Trust Forex Robots
Several companies have been tricking people into believing that robots can develop a trading algorithm that will guarantee profits. The problem here is the dynamic nature of market forces and how virtually impossible they are to predict. Keep in mind that robots are only able to identify patterns, not predict outcomes.
Even with the most accurate technical indicators, it is hard to believe that a bot can give you a reliable set of trades. Trust your instincts and your ability to make sound, educated decisions.
Always Have a Game Plan
Much like chess, FX is a game of strategy. Be prepared in the event the market moves against you and ensure your losses are manageable. Ensure that there are clear boundaries on your entry and exit points for all your trades. This market can change at any time. There has to be a way for you to cut your losses as quickly as possible.
What are some of the fundamental steps you can take to ensure you have a solid game plan?
- Include a risk-reward ratio-have a strategy that ensures your potential profits outweigh the losses.
- Have a personal trading plan-don’t let brokers trade on your behalf. Try to develop a well-researched trading plan you can base your decisions on.
- Experiment with a demo account-The only way to test out your strategy without losing money is by using a demo account. This account will allow you to do some practice trading and perfect your trading techniques.
Excessive trading happens when you trade without a game plan, and it is the prime reason people lose money in forex. Over-trading is an emotional response to a failed trade or, in many cases, a trader trying to recover from a poor decision.
Trading excessively is a habitual response, especially after an enormous loss, and it exposes the trader to higher risks because the thought process is not thorough. Always ensure you limit the number of trades and take regular breaks to clear your mind.
In conclusion, FX trading can be profitable only if you have a strategy-based trading plan.