6 Tips to Boost your Forex Trading Strategy
Trading forex is the best-performing market worldwide with almost $5 trillion dollars in daily turnover. With such a massive trading volume, liquidity is virtually limitless, as well as the opportunities for market participants. A single trading platform opens doors to hundreds of tradable assets for every forex trader around the globe and not only banks and financial institutions. Online trading now includes currencies, commodities, equities and indices in its attractive arsenal of financial instruments.
All this opportunity, however, comes at a great cost. The market is extremely volatile with chaotic tendencies reflected by the percentage of blown accounts. It’s true that more than 80% of retail traders lose their investment with forex trading, but what about the other 20% or 10%? If there is a percentage of winners, however small that may be – it must be because they are doing something right and they are being right consistently.
Take small steps but in the right direction
While it’s commonly agreed that you should always trade on a demo account when you are just starting out, it should be noted that there are limits to what a demo trading experience can impart.
Even though the charts and pricing should match the real market, there are other factors that do not. When trading forex you should always be mindful of how volatile are the assets you are trading, because during volatile times, your broker won’t be able to execute your order and you will get requotes and slippage which are real dangers for forex traders. Demo accounts usually are free of such incidents and as such the experience is certainly quite different.
Another reason a demo account may prove detrimental is due to the lack of real stakes. If you don’t have actual stake i.e real money in a trade, you are unburdened of any anxiety which messes with your psychology and makes you second-doubt yourself and your strategy. That’s a bad thing because real skill is developed through discipline and you can’t learn discipline without learning to control your emotions.
A demo account is good for familiarizing yourself with the platform and the basics. If you really want to learn how to succeed in trading forex, however, you need to start with real money even if that means starting out small.
Manage your expectations
A common pitfall of every beginner forex trader is the lack of realistic expectations about their investment and its potential. You won’t be making millions in a month (or even a year) by trading forex if your initial deposit is less than 100,000. If you do manage to make a huge profit in a short amount of time – it’s just a reflection of your poor risk management. If you are not managing your risk and carefully considering the risk to reward ratio before entering a trade, then your forex trading journey is going to be a short-lived one for sure.
Always have a strict strategy in place that includes entry and exit rules and not only profit targets.
Capital preservation is the holy grail
What you should realize with forex trading, is that in the long run, avoiding a loss is much more important than winning a huge trade. Losses are just part of the game. Even the most successful traders of all time, the ones that beat the markets consistently every day, will fail to make accurate predictions and lose some trades. If you are risking more than 2% of your account, how many losses can you sustain before you are out?
If you follow the rules and be mindful of the size of your trades, you will eventually be profitable without risking your entire account on a single trade.
Most successful forex traders take only a couple of trades per day with some not even exceeding three trades per week. Even though they are probably at a point where their account size guarantees high returns for each trade, trading modestly and turning down the greed is something you should consider.
If you are placing more than five orders daily, you are probably gambling instead of trading forex. You should be spending more time researching the fundamentals, reading signals and identifying trends rather than trading blind. The more time you invest in educating yourself, the less time you will have to blow your money away. In all seriousness though, make your trades count by studying more and trading less.
When you are starting out, it’s quite easy to fall victim of paralysis by analysis. There are hundreds of indicators available on every platform and the more you place on the chart, the harder it’s going to be making sense of it all.
If your forex trading strategy doesn’t seem to be working out, maybe it’s time to cut back on the indicators and focus purely on price action. This means getting rid of all the extraneous indicators and lines you placed on the chart and try identifying opportunities through price fluctuations and key support and resistance levels alone.
In the end, the price is what is important and not the indicators which sometimes prove to be lagging and a hindrance – especially for a beginner forex trader.
Be extremely careful if you like to trade the news
Economic calendars are the main tool of fundamental analysis and when a high-impact news event is announced, an abundance of market volatility is guaranteed. Trading forex during these economic news releases is highly risky and after the dust settles, many traders either find themselves with extra spending money or a blown account.
During such volatile periods, it’s hard to predict market moves accurately since sometimes market psychology is completely illogical or at least so it appears. Moreover, such wild price swings are difficult for brokers as well, since it’s hard to keep up with the supply and demand and stop-levels are liable to be hit way too late with lots of negative slippages.
There are opportunities during these events, but conservative traders would argue against trading them to safeguard your account. If, however, you have a good understanding of the underlying market and the event – a good risk management strategy can go a long way in protecting your exposure and locking in some well-deserved profits.