Category: Technical strategy

Seven Steps To Solid Risk Management In Forex Trading

Posted on by FTUK

The world of forex trading is exciting and potentially lucrative, but it’s also a fast moving business, and traders need to be prepared for every twist and turn in the road. One of the cornerstones of a successful trading strategy is sound risk management. The most consistent profits come to those who manage risk carefully rather than take chances.

It is impossible to avoid making losses occasionally, and even the most experienced traders accept that losses are inevitable. However, smart trading is all about mitigating against the risk of losses, and that starts with solid risk management.

This may seem obvious but a lack of planning and preparation in this area is the downfall of many a newbie trader. Here are seven steps to building an effective risk management plan that will help to maximise your rewards and minimise your losses.

Understand the nature of risk in forex

First of all it is important to define what is meant by risk. The forex markets are highly liquid, meaning that currency pairs can be easily bought and sold and there is a high amount of trading activity. It trades almost 24/7 and has a daily turnover of about $6.6 trillion. This liquidity also influences how volatile the markets are.

Volatility in forex is the measure of how far the price of a currency pair fluctuates. If there are sudden sharp upswings or downturns in the market, it is said to have high volatility. If there is not much fluctuation of price, then the markets have low volatility.

The higher the level of volatility in the market, then the greater the level of risk, because drastic unexpected price movements significantly increase the chances of making a losing trade (and of making a profit). There are several different factors that can increase market volatility, so it’s important that you understand what these are and how to monitor them.

This will help you to take calculated risks that are based on probabilities, rather than guesswork or ‘instinct.’ Forex trading is not so much about natural talent and no one has a ‘gut instinct’ about a good trade: your decision making must be based on objective and well researched information at all times.

To protect your assets you need to be able to manage risk well, and have the emotional maturity and discipline to stick to your strategy in the face of rising panic. This can be easier said than done, because you will find that forex trading brings about intense emotional states such as fear, greed, anger and anxiety.

Even if you consider yourself to be immune to subjective influences, it is very easy to be taken by surprise or to make decisions based on unconsciously biassed thinking. When you are about to act in haste, put your ego to one side, and learn to step back and refer to your risk management plan. Without further ado, let’s look at how to put together a solid strategy.


Know your risk tolerance

The first step is to work out your risk tolerance. This means determining how much capital you are willing to risk on each trade. Newer traders are advised to risk no more than 1% or 2% of the total value of their account per trade. This will protect you from damaging losses while you are finding your feet and gaining experience.

The level of risk is also determined by how much capital you put into your account in the first place. This should always be disposable income or savings rather than money that you need to pay for life’s essentials.

Be realistic about the amount you can comfortably afford to lose and don’t stretch yourself beyond your means, because this will put you under too much psychological pressure and could lead to biassed and unwise decision making.

Use stop losses

Stop losses are tools that allow you to set in advance a price point at which a trade will exit the market. This will help you to avoid incurring damaging losses if the markets move against your expectations. No one can be right 100% of the time, so a stop loss acts as a kind of safety net should your currency pairs be caught up in market turbulence.

A stop loss will be automatically triggered once the predetermined price point is achieved, removing the temptation to hang on in there and hope for a change of fortune. Sometimes, you just need to cut your losses and run. We can all make wrong calls, especially when we are under pressure, so a stop loss removes temptation and contains the damage.

The stop loss order can be adjusted after the position has been opened, but most of the time it’s best to leave well alone unless you have a very sound reason to make a change that is aligned with your overall trading strategy.

Inexperienced traders often either exit a trade too early and fail to maximise on a profit, or hold out for a bigger profit, only for the market to turn and send the profit nose diving into a loss. Therefore stop losses are recommended as a standard risk management tool for all novice traders.

Be cautious with leverage

One of the reasons that so many people are attracted to forex trading is the high amount of leverage available. This is money loaned by the broker that allows you to trade with far larger positions than you would otherwise be able to.

It’s possible to open an account without a fairly small amount of capital and control positions many times the value of your deposit. For example, if the broker offers leverage of 100:1 then for an investment of $1,000 you can control a position to the value of $100,000. Some brokers will offer much higher leverage than this.

However, as you have probably already realised, these potentially higher rewards come with a higher risk. The best strategy is to start small because leverage is the most inherently risky aspect of forex trading. A leverage of 5:1 or lower is considered to be a manageable amount for new traders.

Before you start live trading, always test out your strategy on a demo account first. This will give you a chance to get familiar with the user interface of the trading platform and give you a taste of how well you can stick to your trading plan without any risk attached.

Keep up to date with economic events

The forex markets are influenced by a range of political and economic factors that affect the value of currency pairs. In particular, follow the news for reports of interest rate rises or decreases, inflation rate changes, unemployment levels, and the consumer price index. These are all indicators of how well an economy is doing.

Geopolitical events such as elections, wars, and natural disasters also affect currency value. This information should guide your choice of currency pairs and alert you to any potential market volatility, and is referred to as fundamental analysis.

Apply some technical analysis techniques

Technical analysis tools will help you to understand the dynamics of the market and make well informed decisions about future probabilities. This in turn will help you determine price points at which to enter and exit the market. Even technical analysis is not an exact science and you will need to make judgement calls based on fundamental analysis as well.

However, they are an essential tool to help measure risk and stack the odds of making a profitable trade in your favour. Line charts and bar graphs are straightforward to understand and will enable you to analyse historic price patterns and gauge probabilities for future movement.

There are many more complex technical strategies and tools that you use, so it’s worth investigating what these are and adopting ones that you feel confident about using. However, it’s still possible to be a profitable trader without a complex technical strategy, so don’t be daunted if this area is not your forte.

Learn to accept risk and deal with losses well

Finally, even experienced traders who have honed their risk management skills over several years still experience losses. It’s important to understand that it is not possible to eliminate risk entirely, and successful forex trading is all about minimising risk.

Good traders use losses as learning opportunities to see what might have gone wrong and what can be done to improve the situation next time. They do not regard losses as a sign of failure or react with shame, fear, or retaliate with revenge trading. They simply accept the loss as a business expense, take note of any points for future reference, and move on.

By adopting a similar approach and learning how to build your own effective risk management strategy, you will always have some degree of control over the outcome of your trades and will be well on your way to making steady and consistent profits.

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What Is Behavioural Finance Theory?

Posted on by FTUK

At the end of the day, people are the driving force of economic markets.

 

This can be either directly through individual traders, investment groups and proprietary firms, or the ultimate human hands behind the methodologies and algorithms that assist the myriad of trading technologies seen throughout the market.

 

This is also why prop firms will evaluate new traders and find ones that not only make successful investments but do so using an appreciation for risk and a strong overall market knowledge.

 

None of this is new, of course, and even early classical economists such as Adam Smith would explore the connection between psychology and economics, long before the term behavioural finance was even coined.

 

To understand the market and how it has changed over the years, it is important to look at behavioural economic theory, its core fundamental aspects and why for over 60 years it proved to be incredibly controversial amongst economists before being embraced once again.

 

Behavioural Finance Vs The Economic Man

 

Behavioural finance theory is perhaps best explained in contrast to more empirical and utilitarian theories that dominated economic discourse from the dawn of the 20th century until around the 1990s, often grouped under the name Homo Economicus (Economic Man).

 

The economic man theory, first suggested by utilitarian philosopher John Stuart Mill, is a hypothetical person who makes decisions based on a perfectly rational perspective and a narrow sense of self-interest, seeking maximum utility for each purchase as a buyer and maximum profit as a seller.

 

In the stock market, an economic man is someone who makes decisions based on an entirely consistent rationality and an interest only in maximising their own investment, which for traders is almost always maximising ultimate profit.

 

Whilst it can be helpful in the construction of mathematically-focused economic models, it does not accurately reflect investment behaviour or the market itself. Investors do not always make decisions based on rational criteria and either through bad data or bad interpretation can make irrational decisions.

 

Even taking into account that someone can make entirely rational decisions and still lose a trade, there are almost no investors that are truly rational actors, and everyone on the market floor has their own biases and limits, both of which can lead to errors.

 

Behavioural finance theory takes this into account, and works under the assumption that every trader is not an “economic man” but instead may have a set of cognitive biases, gaps in their knowledge or be influenced by a range of sociological and psychological factors.

 

Whilst the psychology of finance and economics had been explored before this, the big turning point for the field was the Nobel Prize-winning work of Daniel Kahneman and the late Amos Tversky in what they described as “prospect theory”, an evolution of Adam Smith’s loss aversion theories, in 1979.

 

Ultimately, behavioural finance theory is the idea that everyone who participates in financial markets is human and subject to the same foibles, flaws, bad days, brain fog, biases and fallacies as everyone else.

 

Assuming that people are perfectly rational and entirely selfish is why so many traditional models of economics fall apart when applied in practice.

 

Instead, it can be far more beneficial for both analysts and traders to explore not necessarily the rationale behind market movements but the biases, fallacies and irrational heuristics that could cause the market to move in unexpected ways.

 

Core Concepts Of Behavioural Finance

 

Because behavioural finance explores how psychology affects trading decisions and whether these decisions can be made better, there are a lot of different concepts to explore in behavioural finance, and likely far too many to be able to cover in depth.

 

They can, however, be separated into two distinct groups of concepts, which themselves can be separate and sorted as well:

 

● Heuristics – These are the mental shortcuts we use to make decisions when we do not have the time to gather and review our options. These can themselves be divided into heuristics focused on searching for information, and other mental effects.

● Biases and Fallacies – A bias is a weighting towards a particular decision, whilst a fallacy is a fault in our decision-making that ostensibly appears plausible.

 

What Are Search Heuristics?

 

Search heuristics are the shortcuts we use when gathering information that leads us to make a decision, often a necessity as carefully weighing up each option is often an impossibly slow option, especially when trading in a volatile market.

 

There are many different types of search heuristics, and a combination will apply to nearly any decision, but there are three in particular that affect financial decisions the most.

 

The first is elimination by aspects, often simply known as the “process of elimination”. This is a decision-making technique where a group of options are compared based on a quality about them that matters the most, with those that do not meet the requirements progressively eliminated.

 

After the first search eliminates options, the search is refined according to the next most valued quality until a clear winner emerges. This can be seen when comparing investments with enough similarities, such as an angel investor looking at startups to invest in.

 

Another common heuristic is “satisficing”, which is the opposite of elimination, where the first option that meets a minimum threshold is chosen because it is “good enough” at the expense of finding the best answer.

 

Other Cognitive Effects And Mental Shortcuts

 

There are a lot of different mental shortcuts that affect decision-making, especially in the unique world of financial markets, although some of these are often discussed in other contexts as well, particularly the first concept in this section.

 

Herd behaviour, or herd mentality, is the idea that people make decisions based on what everyone else is doing and follow the consensus. This is often a reason why a stock can rise and fall so quickly, as when a few people buy in or cash out, the rest will tend to do the same.

 

Another common mental shortcut is anchoring, which is how success and failure are often perceived as relative to a set mental reference point, which on the stock market tends to be whatever price it was bought for.

 

This often leads to traders often being reluctant to realise a small loss in a difficult market decision despite that being the rational decision, or conversely selling too early in a surging market.

 

As well as this, there is the concept of linguistic framing, which is the tendency for decisions to be made not necessarily based on the merit of the choices but instead on how they are presented to the trader.

 

Finally, in portfolio management, there is the concept of mental accounting, where money is automatically sorted into different pots based on what the money is for or where it came from.

This is why in some cases unexpected trading gains are reinvested more recklessly, a concept often referred to as “playing with house money”.

 

Biases And Fallacies

 

The most common topic discussed when it comes to behavioural finance is the logical fallacies and cognitive biases that lead to irrational trading decisions and aberrations in the market compared to models that assume rational actors and equal access to information that could affect the market.

 

The most well-known of these, as well as the first one to bring behavioural finance theory to the attention of a wider group of economists, is loss aversion, which is the fallacy that a loss will affect a trader far more than an equivalent gain.

 

That intensely negative feeling will cause traders to opt for strategies that avoid losses rather than maximise their overall profits by avoiding trades that would otherwise have an acceptable level of risk.

 

However, it is far from the only cognitive bias out there. Several biases are widely cited and discussed outside of the financial markets but have particular resonance for traders, including:

 

● Confirmation Bias – a cognitive bias where we place greater weight on any information we already agree with compared to information that stands opposed to this.

● Recency Bias – when we place more weight on recent events or information than historic ones. In market terms, this is the assumption that a bull market will keep going up and a bear market will keep falling.

● Familiarity Bias – when people stick close to what they know rather than researching new markets and solutions.

● Status Quo Bias – where people opt for choices that keeps their situation as close to the way it is as possible instead of seeking more radical changes.

● Present Bias – where people prefer to take a small gain now rather than a higher payoff later.

 

There are also several fallacies based on how people handle incomplete or difficult-to-process information:

 

● Narrative Fallacy – This is where people tell themselves or other investors stories to connect random events and information. This is often part of a black swan event or a surprising major financial event rationalised after the fact.

● The Gambler’s Fallacy – The idea that an event that has happened recently is less likely to happen again, even in cases where that should not affect the odds. This is often why an investor dealing with a string of losses will keep going assuming the next win is around the corner.

● The Hot Hand Fallacy – The opposite of the gambler’s fallacy, this is the belief that a string of successful trades should be continued, even if the most rational option is to trade more conservatively or study the market’s trajectory.

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. 

 

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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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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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5 USEFUL TRADING STRATEGIES

Posted on by Chris Miles

5 USEFUL TRADING STRATEGIES

The end of the year is extremely nigh and we can probably all agree that it’s been something of a tumultuous 12 months. There have been highs and there have been lows, but with 2023 just around the corner, there’s perhaps no time quite like the present to look to the future and start making plans for the year ahead.

 

Of course, this time of year is also perfect for a spot of reflection and we certainly shouldn’t ignore everything that’s happened over the last few months, especially from a forex trading perspective. Looking back can help us move forward in a positive, proactive and meaningful way, helping us to grow and progress as traders… and as human beings!

 

So, with all this in mind, here are just a couple of new year’s resolutions you might like to consider making come January to help you hit your personal and professional goals and really bring the successes you’ve been chasing home to roost.

 

1. Follow the news

 

Currency pairs are greatly affected by what’s going on around the world so keeping up to date with all the latest economics news can make a huge difference to your performance as a trader.

 

All signs are currently pointing to a global recession in 2023, with central banks all over the world now hiking interest rates in response to inflation, which is definitely something to keep an eye on.

 

As we all know, economic recessions are completely unavoidable and it’s only a matter of time before they come around again, so now’s the time to think about how best to go about navigating your way through a downturn. You may find you’re able to turn changes in national economies into trading opportunities with just a little bit of preparatory work.

 

If we do indeed see a recession next year, factoring this into your strategy now could be useful. Consider your investment timelines as it’s possible that the slowdown could last for years and be strong when it comes to cutting your losses if you need to, as this will allow you to maximise the returns on your profitable trades.

 

2. Focus on your health

 

Yes, health goals are always a really popular new year’s resolution whether you’re into forex trading or not, but ensuring that you do make your mental, emotional and physical health and wellbeing a top priority will certainly stand you in excellent stead as a trader throughout the year.

 

It can be tempting to really go all in when you’re new to trading and it’s not uncommon for people to sacrifice other areas of their lives in order to trade as much as possible. This approach, however, can quickly lead to burnout and, before you know it, you won’t be able to trade – or do anything much at all.

 

In order to ensure that you can continue seeing progress as a trader, make sure that you’re getting consistently good sleep each week so you don’t cloud your judgement and decision-making abilities.

 

Following a healthy diet full of fresh fruit and vegetables can also help you stay on track, as can getting regular exercise. Staying hydrated can also ensure that your mind remains clear and you stay focused on your goals.

 

Just don’t forget that your health and wellbeing also depends on you not being too zeroed in on any one activity.

 

It’s very easy to be lured in by the wonderful world of trading and it’s understandable if that’s all you want to do with your time, but it’s essential that you devote your attention to other interests and pursuits, as well as family and friends, so you can go back to your trading feeling renewed and refreshed.

 

3. Practise discipline

 

There are all sorts of essential skills that you’ll need to develop as a trader but discipline is perhaps one of the most important of them all. Without a disciplined mind and attitude, you’ll find that even the most robust trading plan and even the most stringent risk management approach lose the value they once held.

 

However, the good news is that discipline is most certainly something that can be learned and, in fact, you’ll likely find that it’s something you need to continue learning. Forex trading moves very quickly and it can be a frustrating endeavour, as well as an exciting one – and you are sure to be tempted to stray from the path at some point.

 

Even the most seasoned professional traders struggle with discipline and find themselves considering dubious trades and courses of action, so making this a top new year’s resolution for 2023 could make a big difference to your success rate.

 

There are various ways you can help yourself improve your self-discipline skills. Writing down your goals and putting them somewhere visible can help you keep your eye on the prize, for example, as can setting yourself smaller more achievable goals instead of trying to go for the big one from the outset.

 

4. Keep a trading journal

 

We’ve said it before and we’ll say it again… your trading journal is your very best friend. Keeping a journal is one of the very best ways to drive performance and make you feel more confident about your abilities as a trader.

 

Successful trading is an ongoing learning experience and you’ll find that you never really graduate as a student. There are always new lessons to learn and new ideas and concepts to consider, which is why journaling is so very useful as it allows you to see your strengths and weaknesses, showing you where to divert your attention.

 

Use your journal to record and review your daily trades so you can flick back for future reference and see where you’ve gone wrong or where you’ve gone right. You may well find that in so doing you’re able to progress far quicker as a trader, with your trading plan and strategy based on real-life experience rather than speculation and guesswork.

 

Journaling can also help you offload if you’ve had any particularly negative or positive experiences. Emotion can ring the death knell for successful trades but writing can help you clear your head and allow you to approach your trades in a more clear-headed fashion, facilitating the learning process as you go.

 

5. Find a support network

 

Trading can be a very solitary activity, but it can be damaging to spend too much time on your own, from both a professional and personal perspective. As such, finding a trading support network could help you make new friends, find new points of view, discover new ways to trade and give you somewhere to turn to when you inevitably take a few big hits.

 

There are lots of different trading communities to be found online so it’s simply a matter of doing a bit of research to find one that suits you and your particular needs.

This could be particularly useful if you’re just starting out and aren’t quite sure where to begin and what to do. It can be quite overwhelming when you first start trading but having people with more experience close to hand that can help answer questions you have over time.

 

That being said, don’t forget that you can also go to your family and friends as sources of support and they certainly shouldn’t be discounted in this regard. They’ll also be able to help you take your mind off trading and help you take a break, so make sure you give them a call when you need them, as well!

 

You might also want to consider trying to find a trading mentor, someone you can turn to for guidance as you find your feet as a trader. Make sure you’re careful who you choose, however, as there are scammers out there masquerading as mentors who won’t have your best interests at heart.

 

How to stick to your new year’s resolutions

Making new year’s resolutions is only half the battle… now you actually have to stick to them! There are lots of different strategies you can employ that can help you achieve your goals, but don’t forget that you will need a lot of willpower as well.

 

First of all, focusing on one goal at a time can help you see success more quickly. Breaking your goals down into more manageable chunks allows you to progress more efficiently and can help spur you on to the next stage of goal attainment.

 

Writing out a detailed plan of how you intend to go about achieving your goals can also help you visualise what you need to do, as well as helping you to keep your eyes on the prize.

 

And thirdly, practising patience is an absolute must for any new year resolutions. You can’t expect to see lasting change take place overnight, so just make sure that you’re not putting too much pressure on yourself and make sure that you give yourself the praise and congratulations you deserve when you do see those small wins start to add up.

 

 

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6 WAYS TO BECOME A BETTER TRADER

Posted on by Chris Miles

6 Ways To Become A Better Trader

As we approach the year’s end, it is an ideal time to reflect on your forex trading performance of the past 12 months, and start planning your approach to 2023. This may be just to refine a strategy that is already working well for you, or to make a completely fresh start. Whatever your objectives, here are some tips to boost your prospects of success.

 

Learn more

It’s never been easier to access the foreign exchange markets, with instant forex funding available. However, to make the most of the opportunity, it is important to learn as much as you can about the complexities of forex trading.

One of the most straightforward and effective ways to become a better trader is to be a lifelong forex student. Even if you consider yourself relatively well informed, there’s always more to learn, and it’s important to keep up with the latest changes and developments in the field.

There are so many ways to learn, such as listening to forex podcasts from professional traders, taking online classes, or even reading good old-fashioned books! Following professional traders on social media can be a good way to pick up tips and keep up with the latest developments.

It’s also important to keep up with the latest economic news, so that you are on top of all the latest market trends. Follow online financial news sites, and read more in-depth print news such as the Financial Times at least once a week. It is also good practice to establish contacts with other traders, who can offer you useful inside information.

As you learn more about technical analysis techniques, you will probably find yourself conducting your own market research to better understand the movements of the financial markets. This will mean you are in a much stronger position to make accurate and profitable trading decisions.

 

 

Learn to let go of losing trades

A common mistake new forex traders make is to hang on to a losing trade, in the hope that the markets will turn your way again. However, this is an easy way to start making damaging losses, and you could even end up wiping out your account completely. If this has happened to you in the past year, start using stop-loss orders for every trade that you make.

A stop loss is an order to buy or sell a currency pair when the market reaches a specified price. This removes the temptation to make emotion-led trading decisions, which rarely result in a profitable trade. They are a safety net that should always be used as part of your risk management strategy.

If you have a well-defined loss limit, i.e. you have worked out exactly how much loss you can stand on each trade without compromising your personal financial situation too seriously, then mistakes, which happen to even the best traders, will be easier to absorb.

 

Add more diversity to your trading portfolio

New traders often overlook the power of a diverse trading portfolio as a means to sustaining profitable long-term trades, and mitigating against risk. The theory is simple: it is a case of not putting all your eggs in one basket. Therefore, your trades will be less vulnerable to any unexpected volatility in the market.

There are different ways to diversify your forex portfolio. The most obvious is to start using a bigger mix of currency pairs. New traders usually start off with the safer options of the major currency pairs, such as the US dollar (USD), paired with the Euro (EUR) or the British Pound (GBP) and the Japanese Yen (JPY).

If this applies to you, then you could diversify into more specialised economies, such as the Australian, New Zealand, and Canadian dollars. These are still regarded as major currency pairs from strong and stable economies, but they are commodity-based, as these countries are rich in natural resources, such as coal, timber, minerals, precious metals, oil, and gas.

While the currencies of these countries are less liquid than those with larger or less specialised economies, they offer some good trading opportunities for those who follow the commodity prices carefully. If the larger currencies are going through a period of market turbulence, then the commodity currencies can offer a safe alternative.

Trading minors and exotic currencies can also be well worth the effort, especially if you are already skilled at close market analysis and have a reasonably flexible risk tolerance. It is important to note that minors and exotics are much less liquid than major currency pairs, and often require more capital to trade.

However, they have the advantage of being in a much less crowded and competitive trading arena, which is in general less sensitive to the market conditions which can make trading the majors so intense and time-consuming.

Overall, the more currency pairs you have from different regions, which are influenced by different forces, the stronger your forex trading portfolio will be.

 

Experiment with different trading strategies

Even if you consider your trading to be backed up by a solid plan, it is still easy to get stuck in a rut and operate on autopilot. It can pay off to make tweaks and take different approaches now and then, even if these do not become a permanent part of your strategy.

For example, if you are in the habit of always making your trades at certain times of day, experiment with different windows if your daily routine allows for it. This is not always possible if you are fitting trading around a full-time job, but you could switch up a few trades from the morning to market closing time at around 6pm.

 

Know your psychological strengths and weaknesses

Forex traders can sometimes be dismissive about the more abstract sides of trading, such as emotional control and trading psychology. They may even regard themselves as immune to it all, and see investigating techniques such as meditation as a sign of personal weakness.

However, whether you like the idea or not, trading draws on powerful and primal emotions, and not acknowledging this can lead you down a dangerous path. All professional forex traders work on containing their emotions, reining in impulsive behaviour, and honing their mental discipline and concentration.

This helps them to make quick decisions which are based on logic and market knowledge, rather than gut reactions, which will usually be incorrect. Furthermore, they will be aware of how their personality might influence their decision-making process, and learn how to work this to their advantage.

Forex markets are not just moved by facts and figures: sentiment also plays a major part. The two primary emotions which drive trader’s moves are fear and greed, which are hardwired into the human psyche of almost everyone.

Indeed, it would be a dangerous thing to stifle these emotions entirely, as they can be useful, but they need to be well managed. In forex terms, that means understanding the fear of losing, but also fear of missing out on gains. Greed is another basic instinct, which drives us on to gain more, which in forex can soon lead to damaging losses.

The most straightforward way to avoid emotion-led mistakes is to build a solid strategy, and always stick to you plan, no matter what your heart is telling you. This means knowing your risk-reward tolerance, setting stop losses, and closing trades when you hit your profit target.

Some forex traders also practice meditation techniques, to help them learn how to detach themselves from their emotions at will, and look at situations objectively rather than subjectively.

Meditation can also help to develop the discipline to control a wandering mind, and really focus on the present moment. This has obvious benefits in the world of forex trading, where you will need to make quick decisions, and be nimble-minded and mentally sharp for sustained time periods.

 

Keep a trading journal

If you have traded your way through the past year without keeping consistent and accurate records of all your trading activity, then you are depriving yourself of a vital way of revising and improving your strategy. It might seem like an unnecessary chore when you can view a record of your trades on your broker’s account.

However, there are several benefits to keeping your own separate journal, either on paper or on a digital spreadsheet. It is a method of reviewing your performance in one glance, so that you can easily identify any patterns, whether positive or negative.

Keep a note of which currency pairs are performing best for you, and which time zones are yielding the highest profits, and so on. Also note down the reasons you entered the trade, where your entry point was, and why you closed it when you did (or what your stop loss level was, if more relevant.)

Over time, you will find that your trading journal can help you learn from mistakes, and make more objective trading decisions in the future. If you experience a losing streak, instead of revenge trading (entering a spiral of losing trades to try and offset your losses), sit down and try to identify the causes of your losses from your journal.

 

By following some of the simple rules above, you will be well on your way to becoming a more successful and profitable forex trader!

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