Forex trading simply refers to making money from the fluctuations in the value of different currencies. For instance, it may take 1.812 euro to buy 1 US dollar today but may take 1.869 euro to buy 1US dollar tomorrow. In the short term, forex trading can be very speculative. It can bring fortune within a short period of time, but it can equally render you broke and depressed.
After a long journey in the world of forex trading, I came up with the following truths which can guide anyone who want to engage forex trading as a business.
Understand the fundamental
There are events or factors that
determine or affect the value of a country's currency. Such economic factors like interest rate, GDP, budget surplus or deficit, inflation rate affect the financial markets generally in the long term. Political occurrences like wars, terrorist attacks, bilateral agreements, mass protests etc affect the financial markets in the short term. Some other natural fallouts like earthquake, hurricane, tsunami and the likes affect the markets too on short term basis. It is very important for forex traders to be aware of the various impacts of these events on the financial instruments they wish to trade. We refer to these factors as fundamental because they are the underlying reasons why value of currencies fluctuate against each other. They determine the currency that gains value against the other.
Focus on a single instrument
Most forex brokers have an array of trading instruments ranging from currencies, commodities, Cfds, indexes to cryptocurrencies. Most of the time, unwary traders try to trade all the available instruments. This is a recipe for monumental losses. However, it is advisable for traders to test a number of instruments on a demo account in order to determine the ones they are comfortable with. After then, focus on that instrument and study to increase your proficiency in that particular instrument. Know the major factors affecting that instrument.
Control your emotions
We're human. Emotions make us stand out among living things. That's why I never said eliminate your emotions. Emotion always affect our decisions especially when dealing with real money. However, it is very important to put emotions under effective control when trading financial instruments. This can only be achieved by having a plan and sticking religiously to the plan. For instance, I use weekly charts and I only place trades on fridays. I try as much as possible to avoid placing orders during the week. Financial markets is not a place to catch fun. It's a boring venture. If you're catching fun in the market, then there's something wrong about what you're doing. Don't trade on any instrument just because you have an emotional attachment to it. Trade only on instruments which works well with your trading strategy.
Use long term timeframe
As a retail trader, it is difficult, if not impossible to know where the market is headed on the short term. But with sound knowledge of fundamentals coupled with charting technique, a retail trader can break even and go ahead to make fortune long term. Short timeframe induces overtrading and accumulation of trading commissions eat deep into profit. Short timeframe also hasten emotion-induced trade.
Always search for information
Financial markets generally is always in a flux. It is highly dynamic. It is not meant for the sluggard. Staying informed is critical for survival. Participants in the markets are expected to dig deep for financial and business related information, not necessarily to place an order at any turn of events but, to understand how all those information may likely have an impact on the markets. Retail investors, or traders as the case may be, are encouraged to read business sections of newspapers and magazines, some business websites like Bloomberg, CNBC, business day newspaper etc. These resources are replete with useful insights for traders.
Don't be an island
Though independent judgement is vital in trading financial instruments, it is advisable to always look out for avenues to share experience with other traders. By so doing, your pool of knowledge increases. Nobody knows it all. Attend seminars, workshops and other events where issues relating to financial markets are being discussed. It is needed for enrichment of your knowledge base.
Make it simple
Most brokers have plethora of indicators for various trading strategies. The internet is also replete with software developers trying to sell their indicators. Most of those indicators are not needed for your success in the market. Use simple tools like Trendlines and moving average, you will see how simple, neat and less complicated your charts would be. Loading a chart with multiple indicators always make things complicated and leave the trader in a situation known as analysis paralysis.
Avoid tips and Robots.
The webspace is full of vendors trying to give tips about the next profitable financial instruments and when to trade. This they do without considering that traders differ in their trading strategies, risk appetite, size of capital and timeframe. The same applies to vendors of robots, otherwise known as expert advisor. The truth behind it is that if those tips and robots are really fetching high profits as they want us to believe, they would not be willing to let them out. At least not without paying a fortune. Another pitfall of using tips and robots is that they place limitation to your ability to learn and understand how the market works.
Finally, it is important to note that trading financial instruments is not a get-rich-quick scheme, neither is it a money doubling scheme. It is not an avenue to double your capital in no time. Success in the market is a gradual process. It needs hardwork, patience, discipline and consistency. Keep on improving. Success is sure!
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