Forex trading requires special skills
The forex market is by far the world’s most volatile market. It is also the most unpredictable market where all trading happens in real time. Forex trading therefore becomes a major challenge for even the most experienced forex bankers and traders. They have to study and analyze scores of factors before going ahead with a trade.
Earlier, only large banks were allowed to trade in currencies. Today anyone can become a forex trader. This has added to the liquidity in the market and added to the number of individuals, speculators, traders, and brokers active in the market.
A trader must remember that foreign trade is all about timing. Those who understand the market better do well; the others end up making losses.
Interestingly, there are no time zones or boundaries in the forex market. The trading starts early in Sydney every morning and travels through Asia and Europe to the US. This is why it is said that the forex market never sleeps. There is someone or some organization always trading in foreign currency in some market or the other.
All these markets work seamlessly. There is no central location from where trading in currency is conducted. The major centers are London, New York and Tokyo. In fact, during one part of the day – that is from 1 p.m. GMT to 4 p.m. GMT – the traders go in a frenzy because this is the time when the working of the US and European markets overlap. The volumes of currency that get traded during this period jumps; so does the number of trades.
Forex traders rely on several parameters to conduct their trade. The more successful or experienced traders follow their instincts based on years of experience of trading in the forex market. The less experienced or the more technology-inclined ones use software that can chart market movements. Based on these charts, the traders arrive at entry and exit points. The traders who are not technology-savvy buy trading signals from online brokerages or forex research firms. They also use brokers to guide them in their day-to-day trades.
Forex trading strategy can cut losses, increase profits
To succeed in forex trading a trader needs a smart forex trading strategy. Individuals who enter the market in the hope of making quick money invariably end up getting their fingers burnt. The same is true of forex traders who trade without a clear strategy. They either exist on the margins or make frequent losses.
The trading strategy varies from trader to trader. A day trader is more concerned about the day-to-day market fluctuations than a long-term or a swing trader. Therefore, the first thing that a trader needs to decide is what kind of trader he is, or wants to be, and then plan the trading strategy.
An important goal should be to limit the losses. This is an important part of any trading strategy and must be followed religiously. A day trader may place smaller stops while swing traders may adopt less restrictive stops. Such a strategy helps traders cut their losses significantly.
It also makes sense to plan the transaction sizes so that multiple trades can be transacted on any given trading day instead of placing all the bets on one transaction. Such a strategy reduces the chances of making losses and brings in more discipline in trading.
Since the market does not always provide good trading opportunities, a trader should follow his trading strategy in a disciplined way. After all, it is no use losing money by transacting wrong trades.
Finally, the successful traders are those who treat forex trading as a business. They spend time and effort acquiring knowledge about the way the forex markets work, factors that affect forex trade, and the software and services they need to chart market movements.
They also keep track of what other forex traders are doing. Such a strategy provides them useful insights and enables them to plan their trade better.
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