How to Improve Your Forex Trading
September 28, 2016
Forex trading is one of the most difficult markets to be traded, if not the most difficult one, and being successful is not an easy thing. It may look like being easy, it may be advertised as being a piece of cake, but in reality, traders are struggling a lot before reaching profitability.
As a matter of fact, many traders fail to trade successfully and to make a profit from forex trading and for this reason, after a while, they drop trading. After all, not everyone is made to be a trader as the traits of a successful trader are not necessary linked only to the size of a trading account or to trader’s knowledge.
Trading requires permanent attention to details and the guts and courage to take a decision when most of other traders will hesitate. Market psychology is more important than knowledge about the subject as the forex market is characterized by regular fake moves.
There are several things that can be done, though, in order for a trader to make the leap to profitability. The most important one is related to knowing time expectations for a trade to reach take profit and adapt the trading strategies accordingly.
From this point of view, there are three categories of trading strategies and a trader should fit in one of them, no matter what.
If one is looking for short to very short-term oriented trades, namely entering and exiting a market multiple times on an intraday basis, then expectations should be calibrated accordingly. These traders are being called scalpers and profit targets can be from a few pips to ten and maximum twenty pips on a really good trade.
Because there are no positions to be kept open for the next day, scalpers don’t care about the swaps to be paid by a trading account and they will focus on choosing a broker that will offer the lowest spreads possible.
This way, the costs associated with the scalping trading style are reduced to a minimum. Moreover, to improve the success rate when scalping, one should not look at a time frame bigger than then five minutes’ chart.
Traders that fit into this category are traders that keep their trades open for a few hours up to a few days and sometimes even weeks. They have a clear trading plan with stop loss and take profit and are focusing on the overall picture, and not the finest trade execution as it was the case with scalpers.
For these traders, swaps matter as a negative swap will affect the balance of a trading account by the time the position is closed. Therefore, swap free accounts are preferred even if the spreads are a bit bigger.
Swing traders will constantly monitor the economic calendar for the week ahead in order to make a trading plan based on the most important economic releases and they’ll adjust the trades accordingly. A trader that fits into this category is a trader that will not close a trade after a few profitable pips, but stay for the target and use risk-reward ratios constantly.
Last but not least, this category is formed by traders that are having a long time horizon for their take profit to be reached and the analysis for a trade is coming from the bigger time frames, like daily, weekly and even monthly charts.
The economic calendar doesn’t really matter except for central bank meetings and monetary policy changes, and a trade may stay open for months before a target is reached.
Because of this, a swap free trading account is a must and rarely these traders are using another type of a trading account.
The three categories listed above show how to improve your forex performance by simply understanding what kind of a trader you are and calibrating your expectations as well as the type of your trading account.
It may seem like no big deal, but knowing yourself as a trader, what kind of a trader you are and what is the style that defines you best, are key to successful trading.