Category: Technical strategy

How to start your day as a trader

There are many aspects of trading to think about especially before each trading session before you begin analysing and making decisions. We will take a look into the main things to think about along with some tips taken from proficient traders.

 

The Watchlist

 

An extremely important tool for successful professional traders is the watchlist and most won’t think about precisely planning the instruments to trade. Instead, they will open many random pairs or ones they have seen others trade online. Instead, look at which market you are interested in studying and pick 1 to 3 instruments, to begin with. 

 

Once you have chosen your select few instruments or currency pairs to trade it is always a good idea a the start of a trading session to highlight the top recent movers when doing your premarket research. Then it is a good idea to get into the habit to journal the reasons for these top movers and follow along with their journey of them. All currency pairs will indeed have different traits and reactions in certain market conditions. As traders, we need to try and pick up on these to help us know how to trade when a certain instrument is performing a certain way. The better you can pick up on these the better your profits will be. 

 

Fundamental News and Calendars 

 

A lot of professional traders will undoubtedly have a strong view of how the market reacts to the involvement of the news. Many sources of major news around the world can impact the prices of the instruments we trade so it is crucial to keep an active eye on what’s happening out there. 

 

We starting a trading session it is a good idea to look at the overnight sessions to see the actual results of the fundamentals and to see if it reflects the current state of the market. If you are trading in the USA then you will likely want to read about what happened in the European and Asian sessions and visa versa. 

 

There are many different news sources available to traders such as Bloomberg, FX Street, Investing.com, and the financial times to name a few of the majors. Of course, some of the news sources listed will have free and paid versions which will come down to how deeply you want to be connected with the real-time news. Some traders may be 95% technical which will only require summary news or potential upcoming news announcements. Whilst more fundamental traders will require more in-depth news sources. 

 

Calendars for traders can be confusing to start with as the information will show different types of events and impacts. Such as earnings, dividends, expiry, and national commercial/employment rates. Usually, the online calendars will show you the times that the news will be set to go public along with the level of impact which can make it easier to navigate for most traders. 

 

Trading plan and journal log

 

Plans and journals are often overlooking topics or underused tools in this industry. Having a morning routine where you journal and plan your day can put you in the right shape of mind to start trading and work out what is important to focus on. You should have a prebuilt trading plan to follow, but the journal is ongoing documentation which is priceless for increasing your skills as a trader. Knowing your prebuilt strategy is one thing, and knowing which parts to tweak and improve is learned through chart time and trading experience. Much of the knowledge could be lost if not thoroughly journaled.  

 

Journaling can be done through word documents and creating folders on your computer if you are tech-savvy or you can use a notepad and pen which can be kept near your computer and used as your trading brain for logging results and your emotions before and after a trade. This is a good idea if you feel like your emotions can take over, getting your thoughts written down and saved can help you get control over your emotions and take the losses as vital lessons. 

 

Other aspects of a successful trading routine 

 

Whilst the above pre-trading routines will help with your edge in the market as you begin your trading day, there are other pre-trading benefits to help you be successful. As we have mentioned many times before in our blog, take care of your mind-body, and health. This might include taking time to exercise and starting your day off with a nice breakfast or coffee. Your health and mental state will play an important role in determining the accuracy of your decision-making for that day. 

 

Try to ensure that your trading workspace is neatly positioned, is comfortable to be in and you are well equipped. The best traders will never jump straight into the market each day. If you are jumping into your trading day without a pre-market warm-up session, consider taking a systematic approach to ensure that your trading day will be successful. 

 

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10 Habits Of Effective Forex Traders

Successfully navigating the forex market is never a matter of luck or chance. Experienced forex traders have a relentlessly disciplined approach, which helps them avoid the pitfalls and maximises their chances of doing well. Here we have a look at the most effective habits you can adopt to make that move from novice to a professional funded trader!

 

1. Have a watertight risk management strategy

Forex trading is not as simple as emulating a formula, and expecting profits to drop into your pocket. Even highly experienced traders sometimes experience losses; they accept this as part of the game plan. The key is to minimise the risk with a clear strategy, which you stick to no matter how your luck is turning.

 

Knowing your risk tolerance means being honest about the amount of capital you have to play with, and how much you can afford to lose. It is essential to work this out in advance, and remain consistent in your approach. Make an assessment of your income, outgoings, and savings, and work out what percentage you can comfortably risk losing.

 

2. Learn to manage your emotions

Professional forex traders are experts and looking at a situation objectively, and not making subjective decisions which are based on a gut reaction. Amateur traders are often led by fear of making a loss, or a greed for greater profits. These are two primitive and powerful human emotions, which we are all prone to at times.

 

The key is to learn to put these emotions to one side, and take a more analytical approach. Always refer to your risk strategy before making a decision, and consider whether it is within your safe parameters. Remember that the markets can be volatile, and profits can very quickly turn to losses.

 

If you are an impulsive person by nature, it can help to learn some mindfulness techniques, which ground you in the present moment, and reduce the tendency to speculate about the future. Even Olympic athletes employ mindfulness methods to help them thrive in the highly competitive sporting arena, so they are worth taking seriously.

 

3. Be prepared to learn

Even old hands at playing the forex market make sure their knowledge and techniques are kept up to date. Learn as much as you can before you begin, from the wide range of books, seminars, courses, and online material that is available.  Read trade journals and economic publications such as the Financial Times, and get to grips with the technical stuff.

 

The more you know, the better you will become at predicting which way the markets will move, and this will give you a competitive edge. Good traders have a strong grasp of the current market conditions and are comfortable with carrying out performance analysis.

 

4. Know your exit strategy

Of course, you should put a lot of thought into your entry strategy, but having a plan for your exit strategy is absolutely crucial. This will prevent you from making hasty decisions under pressure, which you will regret in hindsight.

 

How you determine your exit plan will depend on your level of forex experience, what your risk tolerance is, and whether you are looking for a long-term or a short-term trade. There is no need to develop a complex strategy if you are a novice trader; in fact, a simple strategy can be just as effective.

 

One of the most common methods employed by traders of all levels is the stop-loss order. This is an order placed before the entry point, which automatically triggers an instruction to sell, once a predetermined market price has been achieved.

 

This avoids the temptation to chase a higher profit and risk it turning into a steep loss, and provides a safety net against serious and damaging losses should the markets experience volatility. Stop-loss orders are flexible, in that they can be moved to a higher or lower position after being placed.

 

5. Track your performance

Use a journal or a spreadsheet to keep track of your daily profits or losses, so you can analyse your performance over a period of time. This will help you to see if your strategies are working, or if they need tweaking or rethinking. Look out for which currency pairs are performing best, and what your most successful time zones are.

 

Review your records on a regular basis. If your results are disappointing, see if you can identify the reasons for this. If you are on a successful run, pinpoint what you are doing right and build on that. This is a technique that all successful forex traders employ, to help them keep on top of their game.

 

6. Keep up with economic news

Top forex traders know how to read the forex markets, to give them a head start and spot opportunities at exactly the right moment. There is no need to be put off if you don’t have an extensive knowledge of economics; even an understanding of the underlying economic forces that drive the forex markets will be beneficial.

 

For example, because the US dollar is the most popular and frequently traded currency, any news relating to this will have the most impact on the markets. Look out for data relating to inflation rate changes, interest rate rises, Gross Domestic Product (GDP) data, the Consumer Price Index (CPI), and the unemployment rates.

 

Another factor to keep an eye on is the balance of trade between nations. In other words, if a certain commodity, such as oil, is in high demand, then countries which are major producers will be likely to have favourable exchange rates at that moment in time.

 

Most professional traders use the economic calendar to keep track of the latest data releases which influence the forex markets. This is a great habit to get into, whatever your level of experience. All major economies produce their own versions, which can usually be downloaded free of charge.

 

7. Be proactive and flexible

Take a proactive approach and check up on your positions every day. If you have losing positions, always refer to your risk management strategy rather than crossing your fingers and hoping for the best. On the other hand, just because you are on a successful run, it is not always the best strategy to keep the position open, or increase the size.

 

Sometimes, the markets can experience a period a volatility that few people predicted. In this scenario, be ready to pivot your strategies to protect yourself from damaging losses. While a consistent approach works best in stable conditions, at times you need to move quickly to adapt to the market.

 

8. Develop a niche

Some of the best traders thrive because they have honed their expertise in one specific area, which allows them to keep ahead of the game, and gain a competitive advantage. This makes sense, because it is impossible for any one individual to be an expert in all the diverse factors that move the forex markets!

 

For example, some traders specialise in scalping, which is the practice of making a series of short-term trades, usually with a few hours or even minutes. Although only small profits are to be made with each trade, the volume of trades placed throughout the day can mean the profits add up to a more substantial amount.

 

For those who cannot devote themselves full time to forex trading, swing trading may be a more suitable area of proficiency. The trader will typically hold a position for days or even weeks, so they do not require the same level of concentration and vigilance as day or scalp trading.

 

However, swing traders still keep a careful eye on market conditions, especially if there has been a new political announcement, or turbulence in the general economic situation of the major currencies. It’s all about having an understanding of the big picture, and keeping up to date with the financial press.

 

9. Use technical analysis tools

Experienced forex traders study charts to help them spot the right opportunities. The most commonly used charts are line charts, which allow the trader to see at glance the closing trade price for each currency, and to see the wider pattern of rising and falling prices within each currency.

 

Bar charts provide more specific information, with a focus on smaller time scales than line charts. They can be useful to identify if it is a good time to sell or buy. The bars are colour coded to make them easier to read, so the viewer can see at a glance the opening price, the closing price, and the highest and lowest price achieved for each currency.

 

10. Have a good work-life balance

Finally, if you find yourself waking up at 2am to check your positions, it might be time to question your work life balance. It is impossible to trade effectively if you are tired and burnt out, so make sure you keep on top of your sleep and exercise routine, and eat healthily.

 

The forex markets trade more or less 24/4, so it can be easy to get drawn into a vortex. However, stepping back and having regular breaks will make sure you are bringing your best game to the table when you do trade.

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10 Trading Pitfalls To Avoid

Everyone learns by making mistakes, in forex trading as in life. But by having a heads up on the most common pitfalls that befall traders, you can learn to steer yourself safely away from the danger zones. Here is a guide to ten of the most common mistakes that even experienced traders make, and how you can avoid them!

 

1. Jumping in with no strategy

Novice traders can tend to jump in with too little preparation, but this is little better than gambling! You must make a trading plan before you make any serious moves on the market. This will help you to minimise your risks, and avoid making decisions under pressure.

 

Your trading strategy should be determined by how much time you have to devote to trading, how high your profit targets are, and how much money you are prepared to lose on each trade. This last point is usually referred to as ‘risk tolerance’; in other words, it is the degree of variability you are prepared to accept in return for your investment.

 

It is advisable not to risk more than 1% or 2% of your total capital per trade at first, until you have gained more experience. Ultimately, how much you are prepared to risk depends on your personal financial circumstances, as this will dictate your comfort zone when it comes to withstanding losses.

 

2. Overtrading

At first, many new traders think the more, the better. However, forex trading is very much a game of quality rather than quantity, and less is more in most cases. Start with one trade at a time, and don’t be tempted to hold on to a losing position in the hope that it will turn around. Learn to be disciplined, and stick to your exit strategy. 

 

It is rarely advisable for a novice trader to throw themselves full time into forex trading, in the hope of making a living from it. You will put too much pressure on yourself to make money, and this is never good news in the unpredictable world of trading. Remember, even skilled traders make losses, and consistent profits rarely happen in a short timescale.

 

3. Letting your heart rule your head

Forex trading is rich material for psychologists, because on the one hand, it requires cool analytical logic, and on the other hand, it requires a certain amount of intuition and quick thinking.

 

Add into the mix the primal human emotions of fear and greed, which come to the fore when we are in danger of losing, or in sight of a lucrative reward, and it is quite fascinating for those on the outside looking in! Once you are in the thick of it, it is essential not to let your emotions get the better of you.

 

Of course, you need to stay alert to the risks of a losing position, and allow yourself to enjoy the satisfaction of turning a profit, or you would be somewhat missing out on the point of trading! The key is to question your decision-making process and every step, to check that your actions are aligned with your trading strategy.

 

If you are on a losing streak, don’t be tempted to keep repeating the same mistakes over and again in the hope of recovering your losses. Take a break, and look over your records to try and pinpoint where you are going wrong. If you have a run of success, allow yourself to enjoy it, but don’t become overconfident, as this could soon lead to poor decision making.

 

4. Not keeping records

It is important to keep track of all your trades in as much detail as possible. This could be in a paper notebook, or a digital spreadsheet. At first, this might seem like an unnecessary encumbrance compared to the thrills of making your trades, but over time you will thank yourself for your efforts.

 

This is because detailed records allow you to analyse your performance. If you make a run of bad trades, look over your records to try and identify a pattern to see where you went wrong. Likewise, if you have a flush of success, work out what you are doing right, and fine tune your strategy.

 

This is not to say it will guarantee success every time, but forex trading is all about checks and balances, and small changes can go a long way. Review your trading journal once a month, regardless of how well you are doing.

 

5. Not keeping up with data releases

The forex markets are highly dynamic, and move quickly in response to news releases. Some traders build their whole strategy around economic data releases, but this is best left to the more experienced. That is not to say that economic news is not important in forex trading.

 

The biggest factors to keep an eye on include the interest rate, the inflation rate, and the unemployment rates of the major economies, or for whichever currencies you choose for your trading pairs. Bear in mind that the US dollar is the most popular and widely used currency, so any US-based news is likely to impact the markets the most.

 

Keep an eye on the demand for the major commodities that the countries of your currency pairs produce. If the demand is currently strong for a certain product, then the relevant currency value is likely to rise, and conversely, if demand drops off, it will generally fall. Be aware that this can be influenced by seasonal and geopolitical events.

 

It is important to bear in mind that the major players on the forex market will have already made their moves ahead of any influential data releases, so the markets may not move in the way that you expect them to. Therefore, it’s best to wait a few hours to let any turbulence settle down before placing your trade.

 

6. Setting numerical targets

If you set yourself a numerical goal, such as reaching a certain percentage of success ratio, or a profit target, you are setting a giant bear trap for yourself. This is because at some point you will make a decision that is not based on your strategy, but is based on reward, or to be less polite about it, greed. This will cloud your judgement, and it is self-defeating.

 

Remember that successful forex traders always make their moves based on risk management, and careful position sizing. Chasing the dollars is not their priority, as they know that profits are a side-product of a solid trading strategy, rather than a goal to pursue at all costs.

 

7. Overthinking your trades

Of course, it is important to have a strategy, and educate yourself about the complex world of forex trading. However, it can be easy to fall down a rabbit hole of overthinking each move, and analysing charts constantly in the hope of increasing your profits. Remember, it is always discipline and sticking to a strategy that will win out in the long term.

 

If you find yourself meddling with your trades after you have placed them, and waking up in the middle of the night to study data releases, it is time to take a step back. Maintaining a healthy work life balance is important in the world of trading, to help you keep a sense of perspective and to avoid becoming too emotionally invested in your trades.

 

8. Taking too much leverage

One of the attractions of forex trading is that there is a low barrier to entry. You can get going with a forex funded account even if you have relatively modest amounts of capital to play with. However, high amounts of leverage (or loaned money) mean that the risks are greater. It’s much safer to start small than to over-leverage.

 

Study risk to reward ratios to weigh potential profits against potential losses for each trade. For example, a 1:2 risk to reward ratio means that the potential profit is double the potential loss, which is a positive figure. Many novice traders ignore or overlook the importance of risk to reward ratios, but it should be a key part of your strategy.

 

9. Taking inconsistent position sizes

Your position size always needs to be in proportion to your account size, and aligned with your overall trading strategy. Just because you have spotted a promising opportunity, it doesn’t mean that you should automatically increase your positions, and certainly not by any drastic amounts.

 

10. Not working with a demo account

Demo accounts exist for a very good reason: they are there to let traders try out their strategies before risking real money. This is doubly important for newbies. Please do not be tempted to skip this step, no matter how keen you are to get going.

 

Even if you think that your strategy is watertight, you will still not be familiar with the nuts and bolts of using the account, and may be prone to making basic keying or admin errors. The demo account will give you experience of operating in live market conditions, and work through any problems before it actually affects your account balance.

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THE IMPORTANCE OF BUILDING CONFLUENCES

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In this video we breakdown the importance of trading confluences and what we need to look for when entering a trade.

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THE IMPORTANCE OF REST FOR TRADERS

They say that the markets never sleep and, while there may well be a big grain of truth in this particular old adage, it certainly should not apply to FX traders… at least, those FX traders who actually want to make a successful career for themselves.

 

We spend a third of our lives asleep or thereabouts and, while it might well seem like it’s a bit of a waste of time when you could be out there earning yourself some cold hard cash in trading pairs, rest assured that sleep is absolutely essential if you want to remain clearheaded enough to make the best decisions for you and your portfolio.

 

As a first-time trader, it might be advisable for you to stick to short session day trading so you can get your eight hours a night and really get to grips with what trading is all about.

 

Once you’ve grown in confidence and have a better idea of what’s involved, you can think about night trading, as well… and this is when you’ll really need to prioritise a proper sleep routine, or your trades could start to suffer.

 

One trap that people often fall into is thinking that they’ll just go without sleep and it will all be fine. But when has going without sleep for a prolonged period ever yielded any kind of positive results?

 

You need to be sharp and alert to trade and lack of sleep can really get in the way of this, not to mention all the other detrimental health impacts associated with insufficient rest.

 

What happens if you don’t get enough sleep?

 

We all know how to lead a healthy lifestyle… get consistently good sleep, follow a well-balanced diet and get regular exercise. But, of course, hitting all three of these goals is often easier said than done and all sorts of different factors can affect our sleep quality, which can have serious repercussions if we’re not careful.

 

In the short term, sleep deprivation can lead to lack of alertness (not good for traders!), sleepiness during the day, poor memory and other cognitive processes, moodiness, increased stress levels, inability to deal with stress and so on.

 

None of this will help you hit your trading goals, so if you’ve been wondering why you’re not doing as well as you thought you would, maybe it’s time to hit the hay!

 

As for your long-term health, sleep deprivation is associated with all sorts of dangerous health conditions, everything from high blood pressure and diabetes to stroke, heart failure, heart attacks, obesity, depression and suppressed immune system function.

 

So, as well as making sure that you do your best as a trader, getting good-quality sleep will also help you lead a healthier life overall. It’s a win-win for all.

 

With all this being said, what can be done to help make sure you can strike the right balance between getting your beauty sleep and following your trading strategy to the letter? Here are some top tips.

 

Practise good sleep hygiene

 

Clean sleeping is where it’s at and, while it might sound strange, it’s not that tricky to achieve. Once you’ve made a few adjustments and put them into practice for a few weeks, they’ll become second nature and you won’t even think about it.

 

Sleep hygiene or clean sleeping simply means following good sleep habits – and consistency is key in this regard.

 

So, make sure that you’re going to bed at the same time each night and getting up at the same time each morning, whether it’s on a weekday or at the weekend. Your bedroom needs to be quiet and dark, preferably without any distracting devices in there, like your smartphone, TV or computer.

 

Your caffeine intake is also something to make note of. Avoid drinking caffeinated drinks before bed (preferably not after midday), or you could find you have disturbed sleep. The same goes for alcohol… only you know what your vices are and only you can do something about it. It’s simply a matter of deciding what’s most important!

 

Take your trading strategy into account

 

It’s easy for non-traders to get into a good routine when it comes to sleep, but the trading profession is 24/7 and, of course, you’re going to want to capitalise on this as and when you can… which is why traders often suffer in the sleep department.

 

When it comes to creating your own sleep routine and schedule, think about your trading strategy and come up with a schedule that you can maintain consistently. Sleep should form a key part of the strategy you devise, so work out what your ideal market hours are and then build your bedtime routine from there.

 

Embrace the power nap!

 

Naps aren’t just for little children, you know. Adults can also benefit from a quick snooze here and there during the day and, in fact, power naps can even help you sleep better at night, so you could really do yourself a big favour if you do indulge from time to time.

 

Taking short power naps can bring all sorts of benefits with them, although it’s important to make sure you don’t sleep for too long, or you could wake up feeling a little on the drowsy side. Anything between 20 and 30 minutes should be fine for a catnap, helping you take advantage of all the benefits of sleep, without any potential grogginess.

 

A little nap during the day can help drive improvements in your mood, your alertness, your short-term memory, your focus and concentration… if you are starting to feel frustrated with your trading and feel as though your performance is dipping, it might be time to go and catch yourself some 40 winks.

 

Still don’t believe us? Have a read of Sara Mednick’s book Take a Nap! Change Your Life: The Scientific Plan to Make You Smarter, Healthier, More Productive.

 

Other traders have found this programme to be an effective way of fighting fatigue. The book explains the five stages of sleep and what the benefits of each one are, as well as revealing how to assess your tiredness and devise your own sleep profile.

 

It comes with a Nap Wheel on the cover of the book, as well as graphs and charts, to help you work out when your optimum nap time is and how long you should be napping for. You can even use it to design your naps to help you in certain areas, such as creativity or even improving your memory.

 

Set up trading alerts

 

Living in the digital age brings with it all sorts of amazing advantages – and, for traders, trading alerts has to be one of the biggest of them all. You can set yourself up with trading alerts that use artificial intelligence to provide you with market insights, trade opportunities, market news and price alerts.

What this means is that you’re then able to get some quality rest without having to worry that you’re going to miss out on anything. Alerts help to free up your time a little, so you don’t have to spend hours trawling through the economic news to see what’s coming up. Just let technology do all the hard work for you so you can get the sleep you need!

 

Eat your way to sleep success!

 

If you’re struggling with trading-related insomnia and find that you can’t get good-quality sleep if you have trades open at night, why not try eating different foods that can supposedly promote better rest.

 

Kiwi is just one fruit that could potentially help you with your sleep, full of all sorts of amazing vitamins and minerals, including vitamins C and E, as well as folate and potassium. A recent study even found that eating two kiwis an hour before going to bed helps you fall asleep faster, as well as getting more sleep and enjoying better sleep quality.

 

Or what about having a nice glass of milk before bed? Milk contains tryptophan and melatonin, which both help you fall asleep and ensure you get a good night’s sleep, so this could be a great habit to get into if you are struggling with your sleep right now.

 

If you’re not keen on the idea of milk at bedtime, chamomile tea could have similar effects. Chamomile has apigenin in it, which is an antioxidant that binds receptors in the brain that have been found to potentially promote sleepiness and help reduce insomnia.

 

So there you have it!

 

As you can see, successful trading is all about a successful sleep routine as much as it’s about coming up with a winning strategy. We hope these tips help you nod off at night and that you start seeing the wins you’ve worked so hard for soon.

 

Looking for a forex funded account? Get in touch with the FTUK team today.

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WILL THE MARKET RISE OR FALL?

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Do you know if the market will rise or fall in certain situations? Take our short test and see if you know if the market will rise or fall!

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It’s All Just A Matter Of Timing…

What makes the forex market so attractive to would-be traders isn’t just the fact that it’s the biggest financial market in the entire world. It’s also because the market is open 24 hours a day and traders will always have at least one opportunity for investment at any given moment in time… the markets never sleep, after all!

 

By that extension, naturally, you can probably expect to adjust your own sleeping patterns somewhat if you do want to see success as an FX trader – and if you’re not already a morning person, you might want to take some steps to make a few changes in this regard, so you can be ready to rock and roll at a moment’s notice. Time is money, so they say.

 

Our top tips to help you get to grips with all those early starts include setting yourself a consistent sleep schedule, having strong nighttime and morning routines, getting regular exercise and maintaining good sleep hygiene… all of which can help you wake up feeling refreshed, even if it’s 4am where you are.

 

You’ve got to be up and at ‘em to ensure you’re present when the various markets open and close. Trading opens each day with Australasia, then Europe and then North America, with the different time zones between continents making it possible for the forex market to stay open all the time, in some capacity or other.

 

Understanding time differences and what these can mean for your trading will form a key part of any successes or failures you see in your career as a trader.

 

They say that when God closes a door, somewhere he opens a window – and the same is true for forex markets. When one market closes, another will just be opening up and traders will also be able to take advantage of overlapping markets from time to time, which represent some of the most active – and most lucrative – trading periods of them all.

 

Forex trading hours

 

Make a note of the time that each market will open up in every participating country as a first step towards furthering your trading career. There is overlap in some time zones, but they are typically accepted as being:

 

• Sydney: 5pm-2am EST (10pm-7am UTC)
• Tokyo: 7pm-4am EST (12am to 9am UTC)
• London: 3am-12pm EST (8am-5pm UTC)
• New York: 8am-5pm EST (1pm to 10pm UTC)

 

Top note: Although the trading volume will fluctuate session by session, you’ll typically find that it is at its highest when the London afternoon and New York morning markets overlap, so this could be something of a sweet spot to try and hit as and when you can. Trillions of dollars in value are traded at this time!

 

If you prefer life as a day trader, you might find you’d rather avoid holding positions overnight, because even though the markets are closed they can still move at any moment and you could find yourself compromised when you wake up and check your trades.

 

Although the market does close at the weekend to retail traders, FX trading can carry on over the weekend through organisations like central banks. Price differences are often seen between the close on Friday and the open on Sunday, a difference that’s known in the ‘biz as ‘a gap’.

 

If you don’t want to risk your position at this time, all you need to do is close your position on the Friday and put limits in place to manage the risk. No nasty surprises… hopefully!

 

When is it best to trade?

 

Although the market is open 24 hours a day, five days a week, this doesn’t mean that all hours of the day are created equal where trading is concerned.

 

Being familiar with the overall market is a must, since the best time to trade is when it’s at its most active. If you have one or more of the four markets open at the same time, it’s an incredibly exciting time for traders and you’ll definitely feel a buzz of anticipation and thrill in the air. Positively palpable!

 

Between 8am and midday, the US and London markets overlap. Since price activity will be high at this time, you’ll find that this is the best opportunity to trade.

 

Between 2am and 4am, the Sydney and Tokyo markets overlap, with EUR/JPY the two main currencies affected – and therefore the best currency pair to set your sights on.

 

And between 3am and 4am, the London and Tokyo markets overlap. It would perhaps be best to put this one at the bottom of your priority list for now, since this overlap will see the least amount of activity because the majority of traders in the US will be in bed and an hour isn’t really enough time to see significant changes take place.

 

In terms of times to avoid, you could potentially have a lie-in on Monday mornings because it takes a bit of time for the market to warm up… but make sure you’re present and correct come the afternoon, so you can see what’s going on and plan the rest of your week accordingly.

 

You’ll likely find that it isn’t until Tuesday at the very earliest that you start to notice the market reaching peak liquidity (with liquidity referring to the ability of currency pairs to be traded without having a big impact on its exchange rate). Trading activity typically reaches its peak in the middle of the week, so this is something else to bear in mind.

 

The worst times to trade

 

In as much as there are profitable times in which to trade, there are also times that you might be wise to avoid if you want to maximise success and minimise failure.

 

The crossover between Sunday afternoon and Monday morning doesn’t hold much promise of gold for FX traders, so you can chill out with the paper and a leisurely yet healthy breakfast at the start of the week without having to worry that you’re compromising your position. You can rest assured that everyone else will be doing exactly the same, as well!

 

However, this does also represent an excellent opportunity to focus on other parts of your trading strategy, assessing the previous week and plan for the coming week accordingly – so perhaps a working breakfast could be a great habit to adopt on Mondays.

 

It’s also important that you hold firm on any trading positions if you’re expecting any major news releases, updates, reports, data and so on. This is why it’s so important to stay up to date with the daily economic news, so you can put a calendar together of major releases and plan in line with what’s coming up.

 

As you’re sure to already know, the forex market is affected by political news and updates, economic data and financial reports – and a hugely important part of being a successful trader means gaining a robust understanding of the news and how to react to what’s going on.

 

National holidays are also a time to avoid trading if you can avoid it. Because banks shut up shop at such times, forex trading transactions drop off significantly, which can mean you start seeing erratic market behaviour… and this can represent a real danger zone for traders, especially those just starting out – so it’s perhaps wiser to just steer clear where possible.

 

Our top tips for timing the market

 

Whether you’re a novice or an old hat trader, it can be difficult to get the timing of the market right, but it’s absolutely essential that you do if you want to see the kind of successes you’ve only dreamed about thus far.

 

Our first top tip is to come up with a trading strategy that covers you for as many eventualities and variables as possible, as well as helping you to time price movements more accurately. Of course, you won’t always get it right but a solid strategy will always help you predict trades more effectively as time goes on.

 

And our second tip is to not become too wedded to your trading strategy. Yes, it’s a necessary guide but you should always be prepared to see it evolve and develop, particularly as you become more aware of how markets work and how you can react in line with what’s happening.

 

It’s also important to make sure that you follow a robust risk management procedure as well, having stop losses in place and only trading those funds that you can realistically afford to lose.

 

If you’re keen to get started and are looking for a funded forex trading account, get in touch with the team here at FTUK to see what we can do together. You can trade where you like, when you like with us – all you need to do is join any of our funding programs and start building up your proprietary trading experience immediately.

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How To Use The Economic News For Forex Trading

The dynamic forex market is strongly driven by news events. Therefore, traders follow the economic news closely in order to anticipate market movements, and make profitable trading decisions based on this. Here is a guide to the most relevant news releases to follow, and how you can use this information to best influence the outcome of your trades.

Which type of news is important in forex?

The most relevant news to forex is economic data releases, such as Gross Domestic Product (GDP), inflation, Consumer Price Index (CPI), interest rates, and unemployment figures. There is data released on a daily basis for all of the major currencies. As the US dollar (USD) is the most popular currency, the market responds to US based data most sharply.

Keep an eye on countries which have other major currencies including the Euro (EUR), the British pound (GBP), the Canadian dollar (CAD), the Japanese yen (JPY), the Australian dollar (AUD), the Swiss franc (CHF), and the New Zealand dollar (NZD).

 

How should you select which news releases to follow?

Of course, you should select which news to follow based on the currency pairs that you trade with. Be aware that some data will only have a low impact, so it is important to know what the key releases are, and how they affect your chosen currency pairs. The significance of the data varies according to the country, and the state of the economy at the time.

Traders use the economic calendar to keep track of upcoming data releases and events that affect the movement of the markets. Each country or major economy will have a specific economic calendar, which can usually be viewed online for free. Bear in mind that there may be discrepancies between them, depending on who the website is aimed at.

As you become more experienced at forex trading, you will probably find that you need a customisable calendar, so you can focus in the currencies and indicators which are most relevant to you. Most of the information on the calendars relates to current financial and economic reports, and projections and consensus about future financial events.

Unemployment rates

The unemployment rate is one of the key releases that impacts the forex market. The world’s major economies are designed to maintain a low rate of unemployment, which means that the majority of the workforce can obtain gainful work, either as an employee, or through self-employment. It’s a sign of a healthy economy that is functioning well.

On the other hand, a high unemployment rate is a sign of a struggling economy. Consumers will have less money to spend on non-essential goods and services. Government expenditure and borrowing will increase, because of extra pressure on the benefits system, and reduced tax revenues.

All this reduces the demand for imported and domestic products, so the GDP of the economy is lowered, which also affects the value of the currency exchange rate. This means that foreign investors will look elsewhere, and this further depreciates the currency.

The central bank may respond to a higher unemployment rate by cutting the interest rate to encourage more borrowing and spending. This in turn may lead to a movement in the forex market. If the unemployment rate is reducing, the central bank might decide to raise interest rates, to control inflation and add value to the currency.

The major economies release monthly unemployment statistics, which are followed by a short period of volatility in the markets. If the rates are higher than expected, the currency of the country is likely to take a downturn. Conversely, if the rates are lower than expected, the markets may respond with an upswing, based on the prospect of higher interest rates.

Therefore, in the hours after the latest statistics are released, forex traders will look to sell the currencies of countries with higher-than-expected unemployment rates, and buy the currencies which are supported by a lower-than-expected figure.

Other key indicators

The unemployment rates are key because they tie in with most of the other major indicators, such as the GDP, interest rate, inflation rate, retail sales, consumer confidence surveys, trade balance, business sentiment surveys, and the CPI.  Sometimes, the market will prioritise one particular release over another, so keep an eye on what is trending.

For example, energy prices are volatile at the moment. Prices have been rising sharply in the past few months as a consequence of shortages, Covid disruption, and the sanctions against Russia following its invasion of Ukraine.

The Organisation of the Petroleum Exporting Countries (OPEC) controls about 44% of the world’s crude oil production, and therefore holds an influence over oil prices. This means that currencies of countries such as the US and Canada, which are major oil producers, are more affected by changes in oil price than those with low or no oil reserves.

The markets also react strongly to geopolitical events, such as elections, wars, civil and political instability, pandemics, and natural disasters. Therefore, keep an eye on the current affairs of those countries who use your trading currencies. 

News trading strategies

So now you know what news items to follow, but how do you apply them to your trades?

Spreads in forex widen during periods of volatility, meaning that the difference between the broker’s sell rate and buy rate increases, and this heightens the risk of losses. The major currency pairs tend to be least affected by this, so if you are relatively new to forex trading, it’s best to stick with those, and avoid exotic currencies.

Sometimes, the predicted reaction will not occur, or the opposite reaction may happen. There may be a whipsaw effect, which is where the market shoots in one direction, only to bounce sharply back in the other direction. If you hastily make a move before being certain how a particular currency will react, you will risk incurring heavy losses.

Why is consensus important?

Before the news item is released, analysts will reach a consensus on what that data will contain. For example, based on the available stats and other information, they may predict that the UK unemployment rate will increase to 6%. This would mean that major traders sell off their GBP, and buy up other currencies, ahead of the news.

If the rate is confirmed at 6%, although this represents a weaker economy, the currency rate for GBP may not be affected. This is because the most influential traders have already made their move. If the data was unexpected, such as a fall to 5%, then the demand for GBP might shoot up, because lower unemployment rates are a sign of economic strength.

This is not to say that this will definitely happen, because other factors also influence currency price, or the higher employment rate can be explained by an uptake in seasonal temporary employment. It is important to look for a range of influences, rather than have an individual focus.

Trading before the news release means you can enter the market in a lull. Read up on the consensus, so that you know how the market is likely to react. As we have seen, this is not without risk, as sometimes the consensus is not played out in the actual figures. This is likely to cause high volatility in the markets.

It is advisable to use stop loss or stop limit orders to mitigate against losses or protect your profits, should the news defy expectations and the markets turn strongly in the wrong direction.

Trading post-news release

It is a more common strategy to trade post-news, which is referred to as the breakout. It may be tempting to respond instantly, but the best strategy is usually to wait and see what the reaction in the markets will be. The movement in the first minutes or hours after a release can be distorted by speculative traders, who will not drive longer term trends.

Although it is possible to take a profit from speculative trading, experienced traders will avoid this, due to the higher level of risk comparative to the potential rewards. Wait it out, until the artificial spike in the market has passed. Most news is traded on a short-term basis of days, but sometimes the impact may be felt for weeks.

Research the previous performance of the news release you are interested in, to see whether it plays out with a short term or a long-term impact. For a short-term trade, monitor support and resistance lines, and identify potential bounces. Buy at a point just slightly below the level of support, and sell near the level of resistance.

For a longer-term trade, track the overall trend rather than the smaller fluctuations that occur within short timeframes. Remember that there will always be an element of unpredictability when trading on forex news releases, so it is essential to have a robust risk management strategy in place.

Know in advance how much money you are prepared to lose in the worst-case scenario, and do not be tempted to go over your limit in the heat of the moment. News trading can be particularly high-pressure, as there are so many variables and unknowns, so you need to toughen up psychologically as well as have a solid trading strategy.

If you are looking for instant funding forex prop firms, get in touch today.

 

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How To Determine Your Exit Strategy

Traders will often spend a lot of time perfecting their entry strategies, but the most crucial point in a trade is knowing when to exit. This should not be left to the inspiration of the moment, but needs to be determined in advance. Here is a look at why you need an exit strategy, and what you need to consider when determining yours.

 

Why do you need an exit strategy?

If you don’t have a plan, you are likely to make a decision under pressure, which is not based on rational thought. The dilemma is understandable: if you err on the side of caution and exit early, you could lose out on a good profit. On the other hand, if you go for more, and hold a position too long, you could end up taking a loss.

 

To avoid such an emotion-led response, it is important to implement a well thought out exit strategy. There are some steps you can take to help you exit a trade as close to the profit peak as possible. However, there is no one particular rule that works for everybody; your approach will be determined by your individual circumstances and trading goals.

 

What do you need to consider for your exit strategy?

This will depend on your level of trading experience, your risk tolerance, and whether you are looking for a short-term or long-term trade. Newcomers are best sticking to a simple strategy, which will not necessarily be any less effective than a complex one. Here are some of the most frequently used exit techniques in forex trading.

 

Stop-loss orders

One of the most common strategies is to place a ‘stop-loss’ on the trade before the entry point. This automatically triggers an instruction to sell the currency pair at the market price once a specified price is reached, and acts as a buffer zone against substantial losses.

 

For example, if a trader has a position worth £50, they could enter a stop-loss order to sell at £45, in order to avoid any further risks. 

 

If you have a long position that is making a good profit, it is possible to move your stop-loss order, in order to protect your profits, should the markets suddenly take a swift downturn. A short position which is performing well can also be protected, by moving the stop-loss from the loss zone, and higher into the profit margin.

 

Stop-limit orders

A stop-limit order is used in a similar way to a stop-loss, and is designed to mitigate the risk of uncontrolled losses. The forex markets can be very liquid and volatile, so unless you are an experienced analyst, stop orders are a very useful tool. Unlike stop-loss orders, stop-limit orders are only filled if the market trades at the pre-determined price.

 

The advantage of this is that the price limit is guaranteed, unlike with a stop-loss which sells or buys at the market price, not the specified price of the order. The disadvantage of a stop-limit order is that the trade may not be executed at all, if the conditions are not met. Should the markets take a sudden plunge, substantial losses may occur.

 

If the trader is prepared to sit and wait out the downturn, the price may well rise again within a short time-frame. However, it’s worth bearing in mind the factors that influence the markets to predict how likely this is to happen.

 

For example, foreign exchange prices are strongly linked to inflation rates, so study what the long-term outlook is for the countries relevant to your currency pairs. Other factors to keep an eye on are the unemployment rates, level of public debt, and current level of demand for the leading exports of a particular country.

 

How to set your stop order levels

Knowing why to use limit orders is important, but it raises further questions about how to use them to maximum effectiveness. Too cautious, and the potential to make gains is limited. On the other hand, too wider margin can leave the trader vulnerable to substantial losses. Some of the decision depends on your personal risk tolerance.

 

Support and resistance levels

To refine your process further, some technical analysis is useful. One of the key methods successful traders use to identify price points is monitoring support and resistance levels. Support refers to the price level where a downturn in the market is expected to pause, because of favourable conditions.

 

A resistance zone is where an uptrend in the market is predicted to pause. Traders watch support and resistance levels to judge which way the markets will turn, predicting whether the price will remain held by the support or resistance level, or whether it will break through.

 

The concept is rather like a rubber ball bouncing off a floor, and hitting the ceiling. Market forces can speed up or slow down the pace. If the direction of travel is wrong, the position can be quickly closed to minimise losses. Support and resistance levels can be monitored visually on price charts, which track the timing, pace and volume of support and resistance.

 

Moving average trailing tops

It is important to be aware of moving averages when making predictions. This is a way of tracking whether a long-term trend is moving up or down, regardless of day-to-day fluctuations.

 

If a trader is looking to make a profit on a long-term position, they will track the moving average, and place a stop order just slightly below the level of support. The theory is that a trader will buy currency pairs when the price is above the moving average. A trader looking to sell will take advantage of a price below a moving average.

 

When the trend begins to shift in an unfavourable direction, the trader will close out their positions, to protect profits or minimise losses. This type of exit strategy is known as a moving average trailing stop.

 

Scalping

Some traders have a deliberate policy of holding positions for a very short time only, usually just seconds or minutes, with the aim of making a small profit. This process is referred to as scalping.  

 

Day-trading is another type of short-term trading strategy, where positions are held for one day at most, and usually closed within hours, or minutes. It’s a strategy often used by novices, because the barriers to entry and risks are lower, and you need less market expertise to be successful.

 

More experienced traders also use scalping, because it allows them to take advantage of the high volumes of leverage available, particularly in funded trading accounts in the UK. This means that large position sizes can be taken for a fraction of the actual cost, offering the potential for lucrative profits in return for a small investment.

 

Traders will often wait for an event to occur that influences the movement of the forex market, such as the release of unemployment rates, or interest rate announcements. This increases the potential rewards, but the downside is that the risks are also maximised. It is safer to trade the most liquid pairs, at the busiest times of day.

 

There are numerous strategies for scalping. One of the most common is to study support and resistance trends, on a short time frame rather than a moving average. The trader will attempt to buy in a support zone and sell in a resistance zone.

 

A more ambitious trader may look for statistical anomalies to take advantage of, for example; the time of day, or day of the week, could cause very brief periods where the chart patterns top out or pull back. A riskier strategy is to take a position in the opposite direction of a trend and wait for pullback. This is known as countertrend trading.

 

Average True Range (ATR)

The ATR is a type of technical analysis, used by forex traders as a market indicator. It measures market volatility from a series of indicators over a 14-day moving average. It originated as a method used in commodities trading, but it is now also widely applied to forex trading.

 

It is important to know that ATR only measures the market volatility, and not the prices, so it should be used in conjunction with other indicators. When determining how to fix entry and exit points using ATR, an experienced trader will calculate the risk to reward ratio.

 

Short term traders may prefer to use a five-day period or less, as ATR can be used with any timeframe. A stop-loss order should be set at just higher than the ATR. If there is a large ATR, then this means that the market is highly volatile, and the wider the range between the entry point and the stop loss order need to be, to secure a realistic profit margin.

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