Author: Chris Miles

WHY TRADERS NEED TO UNDERSTAND COGNITIVE BIAS

Posted on by Chris Miles

Why traders need to understand cognitive bias

As a forex trader, you will be used to thinking on your feet, and making fast decisions. The forex markets are constantly active, and you need to keep on top on a lot of information to be a successful and profitable trader. The human mind is wonderfully complex and flexible, and many us thrive on this sort of challenge.

However, it’s important to be aware of the cognitive biases which may be subconsciously at work in your busy mind, and could be causing you to unintentionally sabotage your trading success. Even if you think yourself immune to biased thinking, it’s worth being aware of this recognised phenomenon in all financial trading markets.

Biases can be conscious, but they can also happen subconsciously, when the mind is working quickly and dealing with multiple information strands at once, such as when you are trading. This process is to some extent helpful and unavoidable, as otherwise the mind would become paralysed with cognitive overload.

We build up a series of mental shortcuts when we are learning to carry out new tasks, to save us the time and effort of thinking through every step of the way from scratch. However, some of these selective thought patterns can be detrimental to good forex trading, because we can make decisions without enough objective evidence. 

Dozens of different types of cognitive biases have been identified by those who study trading psychology, but these are some of the main biases to be alert for in your trading behaviours.

Disposition bias

Also known as the disposition effect, this is the number one enemy of forex traders. It’s a widely recognised behavioural bias throughout all types of financial trading, and it can undermine your success without you even realising what the problem is.

Disposition bias refers to the natural human tendency to sell winning assets to early, for fear of losing out, and to hold on to losing assets for too long, in the hope that the markets will soon take a turn for the better.

Research shows that the vast majority of forex traders are more likely to sell when they’ve gained money than when they’ve lost money. Over time, this can have a significant effect on your profit margins, and may lead you to becoming disheartened when you fail to understand why all your hard work and preparation isn’t paying off.

It’s not a straightforward problem to tackle, because this type of behaviour is often hardwired into the human psyche, and so it can be a subconscious process which is difficult to recognise.  This is especially true when we are busy with the present moment, and under pressure to think fast and make quick decisions, as forex traders often are.

The human mind has a natural tendency to err on the side of caution. This has a sound evolutionary basis, because everyday decisions could literally mean life or death for our ancestors. Therefore, we have evolved to fear the pain of loss more acutely than we feel the elation and satisfaction of success.

In our everyday lives, we are also often conditioned to be loss-averse; for example, we are often drawn into shopping in the winter sales, even if end we up buying items we wouldn’t have done normally, are not exactly what we were aiming for, or didn’t really need. This can convince us that we are being economical, when in fact we are just spending more money.

The first step to overcoming your disposition bias is to acknowledge that we are all prone to it, no matter how confident you feel in your trading skills. It’s not a sign of a weak personality; it’s an innate human condition, so there is nothing wrong with admitting that you sometimes act on your instincts—it would be odd if you didn’t do this, in fact.

The best way to tackle the issue is to make a clear a trading plan and stick to it as closely as possible, and keep a detailed journal of your trading progress. Review your records regularly, and be vigilant for any situations where you may have locked in a profit at too early a stage in a trade, when a bigger profit could have been taken if you’d waited.

Also note any situations where you have hung on to a losing trade, for fear of turning a hypothetical loss into a real financial loss. Unless you have well-researched and objective evidence which leads you to believe that the market conditions will change in your favour, it is always best practice to avoid hanging on with blind faith for a market swing.

Anchor bias

This refers to giving too much weight to one piece of information over another, usually in the form of the earliest information we have found to base a decision on. The temptation is then to plough ahead with a course of action, at the expense of any new information which may come to light.

Although we may think we have taken into account the new information, we may do so in a way which means we subconsciously use the first piece of information as a reference point, instead of making an objective unbiased assessment. This may be to save us from the mental labour of revising or reforming our original plans.

The problem with anchor bias is that it can make us blind to the flaws in our original plans, and cling to a strategy for which there is no longer any logical evidence that it is sound.

For example, you know that the market rate for fixing a fault with your boiler is £70, and you ring a plumber who say they charge £100. You then ring another plumber who charges £80, and you decide to accept the quote because it is less than £100, even though you know the going rate is £70. This is an example of anchor bias.

Avoiding anchor bias is a difficult thing to do, because it’s one of the most powerful subconscious forces that drives our behaviour. However, by developing the mental discipline to stick to your trading plan, and make thorough and logical assessments of all the information you receive, you will put yourself in a stronger position.

The bandwagon bias

Sometimes also called the drag effect or the herding effect, this is a well-known cognitive bias which describes the human instinct to follow the crowd, rather than continue with a pattern of thought or behaviour which is in the minority. Conforming to whatever is the current ‘norm’ can be way of attempting to keep safe and avoid risk.

This can either a subconscious process, or a deliberate decision by people who fear becoming isolated from mainstream opinion, and prefer to be on the winning or most popular side. It may also be the result of a person assuming that because lots of people are doing something, it must mean it is the right thing for them to do as well.

The problem with the herding instinct is that it can mean we avoid thinking critically about new information, with an independent and objective point of view. In terms of trading, this could mean paying too much attention to media headlines about the financial markets, or anecdotal stories about the behaviour of other forex traders.

Following the herd in a market pile-on can lead to painful losses if the markets don’t move in the predicted way, or if you get caught by a sudden sharp rebound. It is always best to stick to your trading plan, and learn how to make an independent assessment of all the information that is available to you.

Confirmation bias

This is when we subconsciously give more weight to information which confirms our preconceived ideas and opinions. This can lead traders to seek out justifications for their intended cause of action, rather than to make objective assessments of the available information.

Results bias

This is something which new forex traders may be particularly prone to. It’s when you pay too much attention to the end result of a process, rather than the steps you took which led you there.

For example, you might have made a profitable trade through sheer good luck, rather than because you based your actions on market knowledge and technical analysis. Other times, you may have been tempted to ignore your risk management plan, and dropped lucky.

Results like these can lead us to repeat the same actions in the hope of achieving the same outcome, no matter how unsound the process was. They can also lead to us becoming overconfident, and conclude that that our previous attitude to risk was too cautious.

These are very dangerous patterns of behaviour to fall into in forex trading. The only path to steady profits is by sticking to a risk management plan and careful research—any other approach is no better than gambling.

The takeaway for traders who are keen to avoid cognitive biases is to learn how to think critically and independently at every step in the journey. This means leaving your emotions aside, and avoiding giving too much weight to any one particular piece of information or line of thought.

Mastering this frame of mind will help you become a more consistent and profitable trader within a much shorter time frame. For more information on how to use an instant prop funding firm, visit our website today.

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WHY A WEAK EGO HAS NO PLACE IN FOREX TRADING

Posted on by Chris Miles

Why A Weak Ego Has No Place In Forex Trading

While every trader will develop their own unique personal style of trading over the years, there are a couple of golden rules and a few universal truths that will always apply, no matter who you are and how long you’ve been trading.

 

Getting to grips with these early on will really stand you in excellent stead if you have plans in mind to make a lucrative career out of forex trading.

 

The most important of these rules is something that we blog a lot about – and with good reason. If you fail to prioritise it, then you’ll never reach the upper stratospheres of trading success.

 

We’re talking, of course, about emotion. More specifically, the importance of keeping your emotions in check, both good and bad.

 

Being a good trader is about being self-aware and being honest with yourself about your best and worst qualities, your strengths and your weaknesses.

 

Arming yourself with this knowledge will help you focus your attention where it’s needed so you can build resilience and become a better trader, more capable of reacting in positive ways that will only benefit you on the trading floor.

 

Turn the lens inward and think critically about your emotional responses to both positive and negative stimuli. Are you levelheaded? Can you remain objective and rational? Or do you find yourself panicking, stressed out and anxious in the face of failure? Are you self-congratulatory and peacocking when on a winning streak?

 

Uncontrollable emotional responses to trading events and outcomes will ultimately spell your end as a trader. Initial emotions are to be expected while trading (as they are in life) but if you let these overwhelm you, your performance will be affected and you’ll find yourself facing losses with increasing regularity.

 

Something to be particularly mindful of is the concept of the ego. In psychoanalytic theory, the ego is the part of our personality that we experience as the “I” or the self, giving us consistency of behaviour and continuity throughout our lives by giving us a way to relate to past events with our actions now and in the future.

 

The ego can change as the years go on and it can be influenced by all sorts of factors, so even if you have a strong ego right now, one that’s working hard for you and keeping you on the straight and narrow, you could easily develop a weaker ego later down the line. So be on your guard for that, as it could affect your trading abilities if you don’t pay due care and attention.

 

What is a strong ego?

 

Ego strength is a concept that traders might find particularly interesting if they’re keen to improve and grow their career as they’d like.

 

A strong ego is one that serves you well, characterised by the ability to view both the external world and the inner self objectively, the ability to follow personal resolutions through to completion and the ability to choose decisively when presented with different alternatives.

 

Wondering if you have well developed ego strength? Ask yourself if you’re optimistic, resilient and are highly capable of handling challenges when they come your way.

 

If you adopt a learning approach to life, are able to tolerate discomfort, can regulate your emotions and look at life with a curious mind, one that embraces the idea of change, you’re in an excellent position… and you should see this outlook and state of mind reflected in your trading performance.

 

The better your ego strength is, the more likely it is that you’ll be comfortable in taking control of your problems and finding workable solutions, looking at the bigger picture and seeing what can and can’t be changed – and how best to react to this in a practical and proactive way.

 

What is a weak ego?

 

In contrast, a weak ego will actively work against you, characterised by a lack of resiliency and a yearning for what feels comfortable… whatever that may be. If something doesn’t feel comfortable, a weak ego will do all it can to steer well clear, which means that progress will be hampered and your growth as a trader (and a human being) will falter.

 

An individual with a weak ego will typically have unrealistic expectations about outcomes, expectations that are firmly rooted in their psyche by core beliefs that are rooted in anxiety and fear.

 

This means that they’re likely to be stuck in damaging thought patterns that have the potential to make them think they don’t have the resilience or resources to handle situations that crop up.

 

It can be very difficult to break these patterns and a weak ego can make other paths seem impossible, which gets in the way of developing ego strength and leaves us stuck in a repetitive loop of problematic behaviour, such as impulsiveness.

 

Think back and be as honest as you can with yourself about how you reacted during recent trades. Did you rely on defence mechanisms like denial or losing your temper?

 

Were you able to accept what happened and move on quickly, or did you find yourself lost in a maelstrom of emotion, unable to process your feelings sufficiently to give you the freedom to move on and focus on future trading opportunities?

 

Being able to identify where you’re stuck and what you need to do to help yourself will be key as a trader, so now’s the time for (potentially) brutal honesty. What vulnerable areas will you find to work on?

 

How to improve ego strength

 

The most successful traders out there know that in order to win big and win big consistently they need to be motivated and dedicated to the fine art of forex. It’s not something that can be dabbled in if the ultimate goal is to be a professional trader. You have to give it your all, or you’ll flounder sooner rather than later.

 

The same is true for building up ego strength… it takes time, effort and a lot of dedication, so be prepared to put the hours in. The good news, however, is that you’ll start to reap the rewards relatively quickly and this is sure to spur you on, as you see how it translates to trading success.

 

Developing insight and self-awareness will be key to amassing ego strength and a good place to begin is with journaling. This is something that we advocate strongly for and all the top traders out there will track their progress as they go, making it easier to identify vulnerable areas within yourself so you can grow and evolve.

Taking yourself out of your comfort zone deliberately and exposing yourself to new experiences and ideas, trying out new strategies and ways of working, can also help build up ego strength.

 

You need to start challenging yourself and your own thoughts and beliefs, about yourself and about the outside world, if you’re to rid yourself of your weak ego and forge ahead with your trading plans.

 

Once you’ve done some ego work, you’ll find that you’ll become increasingly competent at deciding how you feel and what you think, as well as how you want to respond, instead of relying on your ego to do all the hard work for you.

 

When a weak ego is in charge, you’ll quickly be led astray but the more you regain control, the more work on your inner self you’ll actually want to do.

 

Alongside your journaling, what about practising saying positive affirmations to yourself? It can be incredibly beneficial to repeat certain phrases and statements to yourself over and over again, helping you to reconnect with your inner self, build resilience and feel stronger overall.

 

Try out statements like “I can do anything I put my mind to”, “I am the master of my own destiny”, “I am stronger than my fears”, “I believe in myself”, “it’s OK to step outside my comfort zone”… and so on.

The more you say these phrases to yourself, the more they’ll be absorbed into your psyche and the easier it will be to enact the practical steps required in order to achieve what you want. Fake it till you make it, in a sense!

 

Affirmations have long been a go-to for many a successful trader over the years and it could be a good place to begin if you’ve been feeling a little stuck in a rut with your trading performance of late. So why not give it a go today and see what difference it could make?

 

Looking for a new forex funding program at the moment? We have a range of options available so have a browse of our site to see which one is the right fit for you.

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WHO ARE THE MOST SUCCESSFUL FOREX TRADERS IN THE WORLD?

Posted on by Chris Miles

Who Are The Most Successful Forex Traders In The World?

Anyone embarking on a new venture in life needs some guidance and inspiration to set them on the right road. By reading about people who have successfully forged a path before us, we can gain confidence in our own future, and also pick up some useful advice along the way.

This is as true of the world of forex trading as it is of sport, politics, or any other field of endeavour. There have been some extremely successful forex traders over the years, even if they are not all exactly household names. Here’s a look at some of the best and most influential currency traders in history, and what we can learn from them.

George Soros

By most accounts, George Soros is undisputedly the most successful forex trader of all time. He was born in Budapest in 1930, and emigrated to England during the Nazi occupation of Hungary. He studied at the London School of Economics and embarked on a banking career. 

Soros worked for a series of merchant banks in London, before moving to the United States and starting his first hedge fund in 1969. In 1973, Soros established his own financial firm, Soros Fund Management, which became highly successful, making multi-billion-pound profits.

However, Soros will be forever known as “the man who broke the Bank of England”, after he sold 10 billion US dollars’ worth of pounds sterling during the Exchange Rate Mechanism (ERM) crisis of 1992, earning $1 billion.

This is the most classic example of why it pays to follow the economic news on a global scale to help you make good trading decisions. The ERM was a fixed exchange rate agreement between a coalition of European countries, which between 1990 and 1992 included the British pound sterling.

The other countries in the ERM wanted the UK to devalue the pound so that it stayed within the fixed parameters of the agreement.  However, the prime minister at the time, John Major, and the Chancellor, Norman Lamont, resisted the pressure.

Eventually, they were forced to withdraw from the ERM amid a market frenzy of buying and selling. The subsequent crash of the pound’s value came to be known as Black Wednesday. Forex traders such as Soros who had been following events closely made multiple rapid sales of the pound during the crisis, as the Bank of England was obliged to accept any offers.

Soros has claimed in interviews that he often follows a gut instinct when trading, which goes against much of the advice given to new traders. Some people believe that because Soros is so well informed about economics, he can rely on his existing knowledge of the market more than most people, which is why he is a seemingly instinctive trader.

The vast majority of traders will never reach this level of instinctive ‘gut reaction’ modus operandi. It is always a knowledge of the markets and technical analysis that will ensure steady success as a forex trader. Another point to bear in mind is that as a multi billionaire, Soros has a high-risk tolerance and can stand to make heavy losses if necessary.

For most traders, working out a risk management strategy to avoid incurring damaging losses should be a top priority. Soros is said to have a person fortune of £8 billion, and has given away a large portion of his wealth through his Open Society Foundations, which work to support humanitarian causes around the world. Certainly lots of food for thought.

Stanley Druckenmiller

Druckenmiller was born in Pittsburgh, USA, in 1953 and studied English and Economics and Bowdoin College in Maine. After graduating, he embarked on a financial career at the Pittsburgh National Bank. In 1988, he was employed by George Soros at the Quantum Fund. The two worked together to pull off the legendary $1 billion Bank of England (BoE) trade.

In rare interviews since, Druckenmiller has said that despite the stunning success of their strategy, neither of them was 100% that the pound sterling would fall at all, or by how much. However, what he did very much understand was the risk/reward ratio. This is a way to measure the potential of loss on a trade versus its potential profit.

Once you have calculated the potential risk and reward of a trade, you can then divide the risk by the reward to find the ratio. This gives you a useful method of deciding whether a trade is within your risk tolerance margin, and how much it is worth risking per trade.

In more technical terms, it is the difference between a trade entry point and a stop loss order and a take-profit order. A risk/reward ratio of less than one means that the investment carries a greater potential reward than a risk. A ratio greater than one means that the risk outweighs the potential reward.

Druckenmiller has said that he calculated a risk/reward ratio of 40:1 on the BoE trade, meaning that he knew there was the potential to make forty times more than he was risking. While this is no guarantee of profit, and risk/reward ratios do not take into account the odds of making a successful trade, it’s certainly a useful tool to have in your skillset.

Bruce Kovner

Bruce Kovner is an inspiration for those who are embarking on forex trading for the first time, after following other paths. He was born in New York in 1976, and studied political economy at Harvard. Despite being a high achieving student, he did not initially settle into a career, but had a series of jobs including a writer, cab driver, and political campaigner.

In fact, he not make his first trade until 1977, when he was 32 years old. He borrowed $3,000 on his MasterCard, and saw his trade grow to $40,000, before dropping to $23,000, at which point he made a sale.

Since this initial rather lucky gamble, Kovner learnt to take risk management very seriously, and forged a successful career by making well informed and objective trading decisions. He founded the highly respected Caxton Associates before retiring from forex trading in 2011.

Kovner’s career is an example of how a sound risk management strategy is the cornerstone to success in forex trading. His nerve racking early gamble paid off, but he was smart enough to realise that gambling doesn’t lead to consistent profits. Forex trading is not about the relentless pursuit of profit; rather it is the vigilant assessing of risk.

Good traders always know how much they can stand to lose on each trade, how much leverage is safe for them to work with, how to select the right position size and use stop loss orders, and how to calculate risk/reward ratios. On top of all this, they are aware of the importance of managing their emotions.

Trading the forex markets can cause even the most stoical personalities to be influenced by excitement, greed, fear, anxiety, or even boredom. By letting your emotions inform your trading decisions, you will end up making poor judgement calls. Most experienced traders use some method of overriding those ‘gut feelings’ and staying strictly objective.

Bill Lipschutz

Another highly successful and respected trader who learned about risk management the hard way is Bill Lipschutz. He was born and raised in New York, and began trading while studying at Cornell university. Early in his career, he made $250,000 from a $12,000 investment, but subsequently lost it all on another trade.

Many people would not recover from such a substantial loss, but Lipschutz doubled down on his determination to be a successful trader. He says that he has subsequently learnt to always focus on a 3:1 risk/reward ratio, i.e. a three dollar return for a one dollar risk.

During one interview he commented: “If you make any mistake in calculating the trading size and winning or losing trade, you may have to pay the price with your trading capital. However, it is also essential to understand the big picture of the market, which is a crucial element of price action trading.”

Lipschutz has also commented that the best traders have a sharp eye for detail, are highly focused with a strong work ethic, and understand the markets very well. He also seems to have learnt a powerful lesson from his early mistake, which was perhaps driven by overconfidence or greed.

He advises that while it is important to control the emotions, traders should never become numb to the pain of a loss, which can lead to a swift downward spiral.

He says: “When you go through a losing streak, all the self-doubts come out and you do get very reluctant to pull the trigger. There is nothing you can do that is right. Just every single thing you do is wrong.”

“That is something you just have to learn to control. You really have to learn how to control that fear. You have to feel the pain of a bad trade, or a wrong trade. If you don’t, and are numb to it, then it’s over.”

There is certainly a lot that anyone with a forex funded account can learn from studying the careers of these four inspirational traders.

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6 WAYS TO KICK START YOUR TRADING CAREER IN 2023

Posted on by Chris Miles

6 Ways To Kick Start Your Forex Trading Career In 2023

If you have been toying with the idea of beginning to trade forex, then let 2023 be the year that you finally turn the dream into a reality. Building a successful forex trading career takes time and commitment but it’s certainly possible with the right preparation. Here are the steps you need to take to kick start your Forex trading journey in 2023.

 

Whether you want to supplement your income with part time trading, or launch a full time trading career, forex is a potentially lucrative and rewarding way to boost your finances.  With low barriers to entry and fantastic opportunities for leverage, anyone can access the liquid forex markets within a short time frame. Here’s how.

 

Educate yourself

The more you understand about the world of forex trading before you begin the stronger your position will be. The concept is simple: it’s the exchange of one currency for another. Sometimes this is carried out simply for reasons of international trade or travel, but professional forex traders carry out transactions with the aim of making a profit.

 

There is no centralised forex exchange, meaning that anyone with a computer connection can carry out an electronic over the counter transaction. Trading takes place across all time zones in the major world cities such as London, New York, Paris, Tokyo and Zurich.

 

Therefore the markets are open almost 24/7, so even if you work 9-5, you can still make trades at peak times, such as when the UK markets open at 8am.

 

Until the early 1970s, most currencies were pegged to the value of the US dollar, which in turn was pegged to the value of gold. This arrangement was known as the Bretton Woods Agreement, and it was designed to create a stable environment for international trade to grow and flourish.

 

By 1973, the amount of gold available was no longer enough to support the rapidly emerging world economies, and the Bretton Woods Agreement was abolished. Since then most world currencies have floated freely in the markets, subject to the pressures of supply and demand.

 

This created ideal conditions for forex trading because profits could be made by carefully tracking the upturns and downturns in the market, and buying or selling currency pairs at the right time. At first, only commercial and investment banks had access to the markets, but the internet has changed all this.

 

Now, anyone can learn how to make profits from changes in the exchange rate and taking advantage of the interest rate differential between two currencies.

 

To learn more about the tools of the trade such as leverage, price movements, pips, and bid spreads, there are plenty of online tutorials, courses, e-books, podcasts, and more. It may seem complex and overwhelming at first but once you have mastered the basic concepts learning about forex trading is really not at all difficult.

 

Create a risk management strategy

When you are comfortable with your level of knowledge the next step is to but a solid risk management strategy in place. This will prevent you from trading more than you can afford to lose, which is a common mistake for novice traders to make. The main two issues to consider are your own level of personal finance and your attitude to risk.

 

While there are great opportunities to make profitable trades, there is also the risk of making damaging losses if you are not careful with how much capital you risk per trade. You do not want to compromise your ability to pay for life’s essentials by failing to manage your trades properly.

 

As a general rule, novice traders should begin cautiously, risking no more than 1% of their capital per trade. It is also important to use stop loss orders to protect yourself from making potentially major losses. A stop loss order automatically triggers an instruction to sell a currency pair at the market price once a specific price is reached.

 

This prevents you from uncontrolled losses during episodes of market volatility. As you become a more experienced trader, you will be able to refine your method of setting stop loss orders by using in-depth technical analysis. This will ensure that you are not missing out on profits by being overly cautious, or leaving yourself vulnerable to substantial losses.

 

Define your trading strategy

Everyone has their own strengths and weaknesses and you can use these to decide which trading strategy will suit you best. It may be a process of trial and error before you land on a particular strategy that works for you. Even experienced professional traders tweak and refine their strategy from time to time.

 

Common trading strategies include day trading, where trades are opened and closed within one day. Beginners often start out with this method, because it avoids the risk of large overnight swings in the market. Positional trading involves waiting for much longer periods of weeks or months to take advantage of long term market trends.

 

Which approach you adopt may depend on how long you have to devote to your trading each day or each week and what your current level of technical knowledge is. It may also depend on your individual personality. For example, day trading requires a high level of concentration, sharp reactions, and the ability to remain calm under pressure.

 

If you are patient and disciplined, and dislike having to make quick decisions, then long-term trading might be the best approach for you.

 

Set up a demo account

So you’ve read up on forex trading, you’ve got a plan and you know how to manage risk. The next step is to set up a brokerage account. Before you plunge into live trading, it’s highly advisable to start with a demo account. This allows you to test out your strategy without risking any real money.

 

You might be tempted to skip this step if you are keen to get stuck into the real thing after weeks of preparation, but it can be a big mistake. Even experienced traders use a demo account before working with a new strategy or platform. This helps to highlight any flaws in a plan, and allows for the necessary adjustments to be made before any harm is done.

 

As a newbie it will also allow you a way of getting to know your way around the trading console. You certainly don’t want to make any errors in your live trading because you couldn’t find a certain feature or you pressed the wrong button.

 

Trading involves making fast decisions under pressure, and practicing with a demo account is a great way to get used to this experience. Even the most cool-headed person can be prone to making the wrong call when the stakes are high, so it’s well worth using your demo account for at least two or three months to help develop your trading mindset.

 

Establish a trading routine

Anyone who has achieved any level of professional success will tell you that they succeeded with a little bit of talent, a lot of hard work, and the discipline of sticking to a routine. This is true of sports stars, singers, doctors, and definitely forex traders.

 

Traders may have an image of being octane-fuelled thrill seekers, but the truth is that successful traders are well organised and never act spontaneously. They will keep a list of all the daily tasks that they need to accomplish, and work their way through them. This helps them maintain accurate records of their trading decisions.

 

Following a routine will mean that checking the economic calendar and studying the current economic conditions will happen at the same time each day, and you will never be caught out by a sudden period of volatility in the markets. You will also have the chance to identify the best trading opportunities for the next few hours.

 

Work on your emotional discipline

As someone prepared to take on the challenge of forex trading, you will already be no stranger to mental discipline. However, forex trading can be an emotional rollercoaster that takes even the most stoical personalities by surprise. It’s helpful to read up on the basics of trading psychology to help you understand the hidden pitfalls that trading can bring.

 

Professional forex traders put a lot of work into learning how to make objective decisions, which are based on logical analysis rather than a subjective ‘gut instinct.’ This is because most of the time, gut reactions are based on raw but powerful emotions such as fear and greed. We are all subject to them no matter how tough we think we are!

 

This is especially true when it comes to the prospect of losing or making a lot of money. As human beings, we have evolved over centuries to fear losses and pursue wealth, because it was a basic survival strategy. However the emotions are a dangerous tool when it comes to forex trading.

 

It is not possible or healthy to suppress your emotions completely, but you should train yourself not to act on your first instincts, but to step back and take a cool logical look at a situation. This takes practice but it certainly pays off. 

 

If you are looking for an instant funding prop firm, please get in touch today.

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HOW TO CULTIVATE A TRADING EDGE

Posted on by Chris Miles

How To Cultivate A Trading Edge

Enjoying a lucrative career as a professional forex trader is, of course, the holy grail… something that all traders seek out and aspire to, but which remains elusive to the vast majority, just out of reach no matter how hard they try.

 

Trading requires a range of different skills and aptitudes, which will need to be worked on and developed over months and years if you do want to hit the big time and this often proves to be something of a stumbling block for many would-be traders.

 

Putting in the hard work and turning the lens inward can be a little uncomfortable and you have to park your ego at the door in order to improve your self-awareness and see what needs to be done so you can achieve your ultimate goals in life.

 

But if you are able to look at yourself objectively and if you can identify your personal strengths and weaknesses, you can then start to consider what practical steps you need to take so you can address your vulnerabilities and turn them into strengths themselves.

 

This can be incredibly empowering and is sure to translate into success on the trading floor if you keep your eye on the ball and let go of anything that doesn’t serve you and your ambitions.

 

Being more insightful can also help you work out what your trading edge is, something that all the top traders out there focus on in order to drive consistent profits their way. Of course, you can be successful as a trader without discovering your own unique edge, but it’s likely that you’ll plateau at a certain point – or, worse, you may even see your losses start to accumulate.

 

So what exactly is a trading edge… and how do you go about getting one?

 

Trading edges explained

 

No two trading edges are ever the same and it comes down to the individual as to what their emerging edge becomes. When you first start trading, don’t expect to discover your edge immediately. All the best things take time and as you trade, you’ll find that your edge starts to make itself known the more your other skills develop.

 

It could be something specifically related to the markets themselves or it could be something more personal, some kind of attribute or characteristic you have that could help you make profits in situations where others might fail. In forex trading, losses are an absolute certainty but an edge can help you maximise your wins and keep any losses to a minimum.

 

Once you’ve found your edge, you can then use it to help you work out what currency pairs to trade and how to go about trading them, including your entry and exit strategies. The idea is that by applying your edge consistently over the long term when certain market events and conditions are triggered, it will lead to profit more often than not.

 

How to develop your trading edge

 

Trading without an edge is more like gambling than anything else, where your decisions are made based on a whim, when you just decide to take a punt and see what happens.

 

Once you’ve identified your trading edge (and you will probably have more than one!), you can apply it extensively to all your trades so you know you’re making decisions based on actual facts and analysis, rather than just a ‘cross your fingers and hope’ attitude.

 

In terms of developing your edge, you first need to find it. If you have a hunch, pursue it and see where it leads. You may find that it’s a non-starter, in which case you’ll need to go back to the drawing board and think again, but this trial and error approach is the best way to go about identifying a successful edge, one that puts you well ahead of the competition.

 

Once you think you’ve found a workable edge, you’ll want to put it through its paces and this is where backtesting really comes into its own. Of course, you can just jump straight into live trading but this could quickly spell disaster, which is why the top traders out there will always backtest their new strategies to see how they stand up.

 

By backtesting, you will be able to see how your strategy performs against historical data (there’s software out there that can help you with this). It’s important to remember that backtesting won’t help you predict what’s likely to happen in the future, but you can better identify the strengths and weaknesses of your latest strategy by seeing how it would have performed in the past.

 

If you find that your latest strategy wouldn’t have done so well in the past, it’s highly likely that it will struggle in the future, so at this point you would need to review and improve it, or discard it altogether. If you want to forge ahead, you can forward test your new idea using a demo account for a couple of months before risking any of your trading capital.

 

Always bear in mind, however, that true edges can be tricky to find and the vast majority of ideas will fall apart when tested… so be prepared to fall down and get back up many, many times before you do discover a workable edge that could drive potential profits your way.

 

Be wary of curve fitting

 

Something to be on your guard against while backtesting your latest trading edge ideas and strategies is curve fitting.

 

Backtesting trading systems on historical data is incredibly useful, but it can also steer you in the wrong direction, since these systems are themselves designed based on this historical data… and bending the rules to fit a precise data set won’t work when you try to apply this to real-time trading.

 

With curve fitting, the trading strategy is adjusted to match exact market conditions during the backtesting process, including assets, timeframes, overselling, overbuying, volume, spread, range and so on… and these exact conditions will never be repeated in the future, so developing a strategy based on curve fitting could see you take some big hits.

 

Give it time!

 

When it comes to trading, it’s important to remember that it’s a long-term game. If you think in the short term, your trading strategies will never yield the results you’re looking for, not because they’re not robust enough but because you haven’t given them sufficient time to work their magic.

 

Strategy hopping can see you run into trouble but it’s a trap that many inexperienced traders can fall into when they see their latest idea starting to falter a little. You need to make sure you’re giving your strategies enough time to perform consistently so they converge towards the expected value that you will have defined in your analysis.

 

Using a demo account can really help you when you’re first starting out, giving you the confidence you need to trade in real life, with real money. Patience is a real skill and something that will stand you in excellent stead as a trader, so give yourself the time and space you need to develop in certain areas before piling on the pressure and trading for real.

 

You could also consider paper trading to help you practise and try out new strategies and ideas. This is a simulated trade that will allow you to practise buying and selling without having to risk any of your capital.

 

Here, you record all your trades by hand instead of using technology to track trading positions, profits and losses, although to get the most out of it you will still need to ensure you’re following genuine trading practices and objectives.

 

Of course, because there is no real risk when you’re paper trading, you may find your investment returns are somewhat distorted and you may also find that your reactions and decisions are different than when there’s real money in play.

 

As such, making the move to a live account sooner rather than later can help you develop as a trader… so don’t get too comfortable with paper trading. After all, the name of the game is to make money – and you can’t do that when you’re simulating trading!

 

You will also only really be able to fully develop your trading edge when you’re engaging with the markets on a regular basis in real life. Immersion is the key to success when it comes to forex trading and if you want to make a lucrative career for yourself, you really do have to give it your all.

 

If it’s something you’d like to pursue in the new year, our forex funding programmes could be just what you’re looking for to help you get started. We currently have a holiday promotion running with ten per cent off all programmes, with double max trading day add-ons available free of charge.

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THE BEST FOREX STOP LOSS STRATEGIES

Posted on by Chris Miles

The Best Forex Stop Loss Strategies

One of the most important elements in a successful forex trading strategy is knowing how and when to exit a trade and take a profit. As you may already know, there are a lot of factors which can influence the markets, and it’s not always possible to make the right call 100% of the time.

 

However, there are some fantastic opportunities to be taken advantage of, especially with instant forex funding available.  The key is to manage your capital in a way which mitigates against risk.

 

One of the most effective tools to help you manage risk and minimise losses is the stop loss. Here’s a look at what they are, how to use them, and the best way to incorporate them into your forex trading strategy.

 

What are stop losses?

 

Imagine you are on a blind date in a swanky cocktail bar. After a drink or two, you decide that this isn’t the one for you, but your date has a taste for the most expensive beverages on the menu, and you aren’t sure who’s going to pick up the tab. You decide it’s time to bail before the evening turns into a big costly waste of time.

 

That’s basically how stop losses work. You have worked out that you are in a losing situation, and the best strategy is to cut your losses and leave. It saves you hanging around in the hope that things might improve, and saves you from doing some serious damage to your account.

 

Like the world of dating, the forex markets can be an unpredictable and volatile place. If the markets are moving against your initial predictions (which they sometimes will), then a stop loss can be determined in advance to exit the trade at a specified point below the entry price. This will prevent you from incurring sweeping losses in the worst-case scenario.

 

Stop-loss orders can be automatically triggered to sell the currency pair when the pre-determined price is achieved. The contract for the stop-loss is executed at the market price, which can be higher or lower than the stop loss price. The stop loss order can be adjusted after the position has been opened, if necessary.

 

Why do you need to use stop losses?

 

You might be thinking, well I’d rather just judge for myself when to exit a trade, and not go through the hassle of deciding in advance and setting a stop loss order. There are many reasons why this is really not a good idea, and even very experienced traders tend to avoid it.

 

Leaving it to the last minute may feel as though it is all part of the thrill of the chase, but this is not what successful forex trading is made of. 99% of successful traders will tell you that making steady profits is all about being cautious and implementing a well thought out strategy in advance.

 

Even the coolest of heads can make a poor decision under pressure, which is led by emotion rather than logic. When it comes to managing capital, the natural human instinct is to drive for bigger profits (some might call this greed) and avoid losses (which is driven by fear). However, these primal instincts can lead to ruinous trading decisions.

 

Without a pre-determined exit strategy, you will always be facing the temptation to err on the side of caution and exit too early, thus losing out on a good profit. On the other hand, you may be tempted to hold out for a bigger profit, and incur a thumping loss if the markets turn suddenly.

 

There are plenty of mind management techniques you can employ to help to stay in charge of your emotions and keep your cool when trading. It’s important to read up on the basics of trading psychology, no matter how good your technical knowledge is. However, psychological tactics should be backed up with some solid strategy.

 

How do you use stop losses?

 

There are different types of stop losses, and the one you use may depend on the amount of capital you are trading with, the current market conditions, and your level of experience and technical strategy.

 

Knowing when to exit a trade is a crucial skill, and the key is to avoid uncontrolled losses. One of the first things to decide is what your risk tolerance is. This means the amount of money you are prepared to lose on each trade. To decide this, you need to take a look at your personal finances and decide how much breathing room you have.

 

If you have a steady income and savings, with no major financial obligations, then you will probably be in a position to take a few losses as you learn to trade and turn stable profits. You are likely to be in position to invest more in your trading account, which can carry bigger positions and are more robust in adverse market positions.

 

On the other hand, if you have an unpredictable income, and/or heavy outgoings, then you are going to need stricter controls, and you also need to guard against making pressured or aggressive decisions which will spoil your trading mindset.

 

Look to strike a good balance between being able to sleep at night, and trading with enough risk tolerance margin to make it worthwhile. The standard amount of capital to risk per trade is 1% or 2%, although more experienced traders or those with a high risk tolerance may risk as much as 5% or even 10%.

 

You could set your stop loss simply based off the percentage point of your account, such as 2%. However, this is a very crude method of using stop losses, and by far the least effective. This is because it can never take into account the current market positions, and while you may limit losses, taking profits will be more or less a matter of chance.

 

Using support and resistance levels to set a stop loss

 

As you have seen, setting a stop loss is not as simple as it first appears. One of the most common strategies is to set the stop loss in accordance with support and resistance levels, which help you to understand price action. This will help you to determine when the markets are in the most favourable position for you to exit a trade.

 

Like all financial markets, the forex market is moved by supply and demand. This can be influenced by many factors, such as seasonal demand for goods, or the GDP of a particular country, especially the major economies such as the US and the Eurozone. It can also be affected by geopolitical events, such as elections, wars, and natural disasters.

 

Support and resistance chart these movements, which can be on any time scale, from hours, days, weeks, months, or even years. Some people like to think of the movement of support and resistance levels as like a rubber ball bouncing across the floor. There will always be an upward or downward trajectory, and the ball will travel at a varying rate of velocity.

 

If the market is on a downward trajectory which is soon expected to pause, this is known as a support phase. It’s a sign of optimism that conditions are about to improve. A resistance zone occurs when an upturn is expected to pause because of unfavourable conditions, such as an oversupply in the market.

 

Traders will use support and resistance levels to anticipate which way the market is about to turn, so they can make a profitable trade, or sell off currency pairs which they expect to soon drop in value. Sometimes, the trend will break through the pause and continue on its current trajectory. On the other hand, it may travel sharply in the other direction.

 

Therefore, setting stop losses at a point beyond the levels of support and resistance is a common forex trading strategy. At the very least, they can help you to break even when you miss your profit targets, and at best, they provide a tool to help you maximise the amount of profit that you take.

 

How to use Average True Range

 

Once you have got to grips with using support and resistance levels to help to determine your stop loss position, you can look at more complex technical strategies. One of the most used market indicators is Average True Range, or ATR. This is a way of measuring the volatility in the markets over a set period of time.

 

By measuring volatility, it allows you to take advantage of breakouts, and also to set your stop losses at the optimum levels. ATR allows you to look at the average range of a currency pair over a variable time period, which you can adjust to your choosing.

 

These are just a few of the ways that you can use stop losses on your account. How you use them will depend on how much experience you already have, and the account size you are operating with. They are intended to help you manage risk and mitigate against losses, which are the pillars a solid trading strategy is built on.

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THE 6 MOST COMMON FOREX TRADING MISTAKES

Posted on by Chris Miles

The 6 Most Common Forex Trading Mistakes

The forex market offers an exciting opportunity to trade the world’s largest financial market. Instant forex funding means that it’s accessible to anyone with a small amount of capital and a computer. The markets are open virtually 24/7, so it’s also possible to fit trading in around your day job.

 

There is a lot to learn if you want to become a successful trader, and it takes time, dedication, and patience. Finding a strategy that works for you can be a process of trial and error, and in fact, even experienced forex traders are always learning from mistakes and adapting their techniques to improve their results.

 

However, there are some common mistakes which a lot of newbie traders make, and sometimes even more experienced ones. Here are the biggest forex mistakes and how to avoid them.

 

  1. Not doing enough research

Forex traders need to be able to read the financial markets to inform their decisions. Beginners often underestimate the scale and complexity of this task. The good news is, there is a wealth of information online so you don’t have to spend long hours slogging through a college course to become reasonably well informed.

 

You may have heard of fundamental analysis, which is all about learning how macroeconomic events influence the forex markets. This is never more important than right now, when the financial world is experiencing a lot of change and turmoil. Follow the economic data releases for events such as interest rate rises and inflation levels.

 

Bear in mind that even if you are not including the US dollar in your trading pair, it is the currency that has the biggest impact on the forex market by far. Therefore, expect any new data relating to the US to lead to movements in the direction of trade, either positive or negative.

 

Keep on top of current affairs and geopolitical events, such as wars, natural disasters, pandemics, and so on. In fact, any social, political, or economic news which is likely to affect supply and demand of currencies and commodities should be carefully monitored.

 

The seasons can also have an influence, as trade for consumer goods picks up in the run up to December, while fuel tends to be more in demand in the summer when people take their holidays.  If there has been unseasonable weather, such as floods which have affected the harvest, then the currency price of the affected countries may go down.

 

It is also important to understand some technical analysis tools to help you identify key price levels at which to enter the market or sell a currency pair. To do this effectively, you should learn how to interpret line charts and bar charts at the very minimum.

 

This will show you the historic price pattern of your currency pair within a given time frame, and enable you to understand the probable future direction of the trend.

 

  1. Not putting a strategy together

Failing to plan is planning to fail, as they say, and this is never truer than with forex trading. It is imperative to have a clear strategy together before you begin to trade, otherwise you will be doing little more than gambling. The trading plan will be individual to you, depending on your financial situation and profit targets.

 

How much time you have to devote to your trading will also influence your approach. For example, if you are fitting trading in around your day job, for example, then you may want to avoid short term trading, which demands close and intense periods of concentration. Long trading over a period of weeks or even months may be more manageable.

 

You should also have a clear entry and exit strategy, to prevent the temptation of hanging on to a losing trade too long, or exiting from a profitable one too early. Every move that you make should be informed by your plan, which in turn should be backed up by a daily trading routine.

 

A solid strategy helps you avoid building up unrealistic expectations, and clarifies your achievable goals and profit targets.

 

  1. Not knowing your risk tolerance

Many new forex brokers make the mistake of starting to trade with large amounts in the hope of maximising profits. However, it is crucial to manage your finances responsibly, so that you are not risking the loss of more money than you can afford.

 

Be honest about how much you can comfortably risk on each trade without incurring damaging losses to your personal finances. This will depend on how much capital you have available to put into your forex account, which won’t affect your ability to pay your mortgage and cover all your other essential outgoings.

 

  1. Not using a demo account

It is understandable that if you have got a strategy together and you have spent weeks or even months doing careful research into forex trading, you want to dive straight into live trading. However, this is a serious mistake. Even very experienced forex traders will use a demo account before they test a new strategy, or a new platform.

 

Part of the reason for this is simply to help you understand how the trading platform works, and that you know your way around the layout. This will make you faster and more confident, should you have to make fast decisions in your live trading. The last thing you want to do is delay making a sale because you can’t find the right feature to use.

 

It will also let you test out your strategy for any flaws, and allows you to make the necessary tweaks and changes. You can gain experience of setting stop losses, gauging what size of trade to make, and find out how well you perform under pressure.

 

  1. Not understanding trading psychology

Forex trading can bring about highly charged emotions in even the most placid and analytical of people. This is because you will be walking a tightrope between fear of losses, and greed for more profits. Along the way, you may experience excitement, hope, anger, disappointment, and any number of other powerful and primal emotions.

 

While it is not possible or desirable to rid yourself of these emotions, it is important to understand them, and how they affect your trading decisions. For example, fear can cause you to exit a trade too early, and greed can drive you to a rash decision which had no basis in research or analysis.

 

A few successful trades can lead to overconfidence, which may make you feel able to abandon your strategy and trade on ‘instinct.’ Whatever myths are perpetrated in film and media, successful traders work by careful risk management, and not at all by some magical intuition which gives them special powers.

 

On the other hand, the sting of failure after a loss could spur you on to make another trade as soon as possible, to make up your lost money. This is known as revenge trading, and it is a very dangerous road to go down. If you have had a bad failure, pause and try to work out what went wrong before you make your next move.

 

If you have a naturally impulsive personality or a quick temper, it may help to learn some mindfulness techniques to help you centre yourself in stressful situations. These involve listening to the rhythm of your breath, and focusing on the present moment, so that you can view your emotions in a detached and controlled manner.

 

  1. Not keeping a trading journal

If you are not regularly tracking and reviewing your progress, then you will be missing out on learning opportunities. Every mistake, as well as every success, is a chance to review your strategy and find out what works for the best.

 

For each trade, record your entry and exit points, the currency pairs, and time and date. Note down your motivations for making the trade, such as an interest rate rise which was expected to cause a downturn in the markets, or rising commodity prices for a country which is a major exporter of that commodity.

 

Note the outcome of the trade, and any other relevant details. Did it go how you expected, or was there room for improvement? This may seem like making extra work for yourself, but it’s a technique used by many successful traders, to help them strengthen and refine their strategy.

 

Over a few months, you will be able to pick out patterns in your most and least successful trades, which you can then employ to your advantage in the future.

 

Remember that even experienced forex traders make mistakes, and you will inevitably make some along your journey. The important thing is to learn from each outcome, so that you become a more effective trader as time goes on. Understand your strengths and weaknesses, and adapt the strategy to suit these best.

 

Your plan will become more refined over time, but it is crucial to get into the habit right from the start of sticking to your plan, and avoid making any hasty and panic-driven decisions. Successful forex traders take lots of baby steps on their journey, and they have exceptional risk management discipline.

 

This may not sound like the high-octane image you may have had of forex trading but it’s a sure route to success!

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LOW RISK TRADER REACHES THE 10% TARGET!

Posted on by Chris Miles

LONG TERM TRADER PASSES THE 10% TARGET!

https://youtu.be/9yeR6lVAbi4

Here we interview Ananth who recently passed his level 1 instant funding account and has gone on to make several withdrawals with FTUK. He has show long-term consistency with us with some great results to show for it.

He has had a very positive experience with FTUK and we very much look forward to seeing more positive results with this trader!


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HOW TO TRADE YOUR WAY THROUGH A GLOBAL RECESSION

Posted on by Chris Miles

How To Trade Your Way Through A Global Recession

Ah, the economy… something that every trader hungry for success will need to get to grips with if they’re to start raking in the serious wins over time.

 

While there isn’t just one single factor that will determine your overall performance as a trader, understanding economic cycles and how they work, and keeping up with global economic news, will really help you grow and develop, maximising your chances of turning trading into a potentially very lucrative career… which is the dream, after all!

 

There’s a lot of talk flying around right now that a global recession is on the horizon for next year or the year after and, although various sources disagree about whether or not it’s going to happen or when exactly it’s likely to bite, doing some trading prep work right now just in case could help you navigate any potential storms in the future.

 

Remember that recessions have happened on numerous occasions throughout history and it’s natural for economic cycles to experience peaks and troughs… something you may well have already noticed on your trading journey, as well as how it affects your various trades.

 

Think of it like ocean waves, reaching their peak and then inevitably falling back down to be absorbed by the sea… then back up again, back down, back up and so on. When the economy is on the rise, this is known as economic growth, but when it’s receding, this is known as economic contraction (or downturn).

 

In order to be classified as being in recession, an economy needs to contract for two quarters in a row and there are many different reasons as to why this can happen. Unfortunately, it’s not always possible to anticipate or prevent a downturn, which is why preparedness is key.

 

What causes a recession?

 

There are, of course, lots of different theories as to why recessions happen, but this is perhaps to be expected, since there are lots of different economic, financial and psychological causes behind them.

 

During such times as these, businesses often feel compelled to scale back on production and limit the risks they face, with recessions often characterised by drops in levels of spending and investment. The GDP then declines and unemployment rates start to climb as workforces are reduced in order to minimise costs.

 

Research from the World Bank, published back in September, suggests that the world is on its way towards a global recession next year, with central banks simultaneously driving up interest rates in response to inflation.

 

Apparently, over the last 12 months or so, central banks all over the world have been hiking interest rates with a degree of synchronicity the like of which has not been seen in the last 50 years… and it’s expected that this trend will carry on well into 2023.

 

What’s more, unless labour market pressures and supply chain disruptions relent, it’s possible that interest rate increases could see the global core inflation rate reach approximately five per cent next year.

 

David Malpass, World Bank Group president, said: “Global growth is slowing sharply, with further slowing likely as more countries fall into recession. My deep concern is that these trends will persist, with long-lasting consequences that are devastating for people in emerging markets and developing economies.

 

“To achieve low inflation rates, currency stability and faster growth, policymakers could shift their focus from reducing consumption to boosting production. Policies should seek to generate additional investment and improve productivity and capital allocation, which are critical for growth and poverty reduction.”

 

With this particular threat looming on the horizon, it certainly can’t hurt to put a few plans in place, even if the situation does turn itself around and we do narrowly avoid the predicted downturn.

 

If you fail to prepare, you prepare to fail, after all! And the good news is that there’s a lot you can do to ready yourself for potential turbulence… and focusing on your forex trading career could be a great place to start.

 

Investment opportunities

 

Recessions are inevitably hard work and they can represent a huge amount of upheaval and uncertainty for a lot of people… but if you’re a forex trader, you may well be able to turn the situation to your advantage if you’re savvy with your work. They don’t say that forex is a recession-proof industry for nothing, after all!

 

Of course, for the many who believe that forex is recession-proof, there are just as many who say the opposite – so it’s all just a matter of making up your own mind and the only way to do that is through practice and experience.

 

You may find that you’re presented with some interesting investment opportunities over the coming months, since you’re able to choose your stocks from a wide range of currency pairs, going long or short as the situation requires.

 

Different currencies will be affected differently during a recession so there will always be opportunities to be found if you can spot them. The currency market is also likely to be more volatile in the near future, so you may find that even more trading opportunities come your way.

 

Forex trading in a recession

 

The forex market is a great one to focus on during a recession because it behaves in a different way to other asset classes, like the stock market which you would typically see take a nosedive during a downturn. With currency pairs, however, you are likely to see that those currencies that belong to stronger economies will do quite well, while weaker economies will see their currencies falter and slip.

 

Currency performance and demand is basically linked to the economy of any given country. During a recession, if a country that exports lots of goods sees a drop in demand from its international partners, it will inevitably mean that a drop in the value of that country’s currency will also be seen.

 

If you are going to maximise your profits during some potentially rocky months ahead, it’s essential that you keep up to date with all the changes and developments where interest rates and market conditions are concerned. Interest rates, in particular, can be used by governments and central banks to prop up economies and these are adjusted regularly.

 

Reductions in interest rates can have a positive knock-on effect for economies, stimulating spending and spurring the economy on. Looking for currencies that could offer you higher returns could be a good move – and to find them, you’ll need to have a good understanding and knowledge of the different economic fundamentals of different countries around the world.

 

The fear factor!

Something else to take into account when trading during a recession is the fear factor. This can have a big impact on demand for different currencies and, as such, should not be ignored when you’re reviewing your trading strategy.

 

Safe-haven currencies like the Japanese yen, the Swiss franc and the US dollar are expected to see an increase in demand during recession periods. These handy little fallbacks are your trusted trading options, those you choose to have in your portfolio to help minimise your risk when the markets are starting to show signs of turbulence.

 

They generally retain their value even when faced with a downturn and, in some instances, you may even get lucky and see them appreciate in value because they’re negatively correlated to the market. Want to stock up? Keep a look out for a stable political landscape, strong economic growth, high liquidity and permanence of demand.

 

Major currency pairs also typically do quite well in a recession, so focusing your attention here over the year ahead could help you navigate the choppy waters of a downturn more successfully.

 

Currency volatility

 

No matter what happens externally, it’s essential that you remain confident in your abilities and that you continue to have faith in your trading strategy. All the analysis and prep work you did before you started trading will really stand you in excellent stead during tougher times, especially where currency volatility is concerned.

 

Big price swings are normal during a recession because it’s such a volatile scenario, which means that you will see more opportunities to generate some fast profits for yourself than you would do during quieter markets, but the risk is also higher… and you could lose big just as easily.

 

What makes it tricky is that currency volatility is by virtue of its own nature very unpredictable, so you may struggle to track it, but you can use historical and implied volatility data to help you trade.

 

What is key, however, is to understand the difference between volatility and risk. You have no control at all over volatility, but you’re the master of your own risk management destiny and you should always only ever take risks based on your own judgement and analysis, following your own personal risk management strategy.

 

There’s always an element of risk with volatile markets, but as long as you’re prepared, you should find that you’re able to trade during a recession with relative degrees of success.

 

Looking for funded forex trading accounts right now? See if any of our programmes suit you and where you’re at as a trader at the moment.

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