SECRETS TO SUCCESSFUL FOREX TRADING: A GUIDE FOR 2023

The daily volume of the Forex market is $6.6 trillion, making it the biggest marketplace in the world. No surprise more and more people are getting interested in making currency trading their source of income. You can trade currencies 24 hours a day Monday through Friday regardless of your geographical location and time zone. Unlike other financial instruments, it allows you to start with minimum investment – your initial deposit can be as small as $1. These are only a couple of reasons that make forex trading from home sound attractive. You can find 7 valuable recommendations on how to become a currency trader in this article.

What Is a Trader?

Briefly, a forex trader is a person or institution that sells or buys currencies on the foreign exchange based on predictions about their future price. Individual traders in their turn vary from professionals who often trade for financial firms or multiple clients to amateur traders who trade either as a hobby or to diversify their sources of income.

Same as any kind of investment, currency trading deals with the risk of money loss. This is why it is crucial to understand how this market works in order to become a successful forex trader. Read our 7 thoughts on what it takes to be a thriving currency trader below.

1. Find a Reputable Forex Broker

Finding a broker that protects your interests as a trader might be difficult but it is worth the effort. There are many options online offering bells and whistles as well as tempting trading conditions. But the first thing you should look at when choosing a broker is the security of your funds. So make sure a broker is trustworthy before depositing live money. Read reviews and check licenses to make sure your funds are safe. Another important thing to consider is transaction costs. You don’t want to pay huge commissions and fees to withdraw your money or lose cash because of wide spreads. Check what’s there on the market and pick the best one.

With JustMarkets you get the best spreads and 0% withdrawal commissions that guarantee your profit won’t be eaten away by high fees. And if you have any questions, contact our round-the-clock customer support. Offering a wide range of trading instruments and reliable service, JustMarkets has earned high regard among traders all over the world.

2. Educate Yourself

For choosing the best way to trade currency (what pair to trade or in what direction to trade), forex traders refer to specific data. There are two forms of analytical models widely used by professional investors – fundamental and technical analysis. The evidence of analysis helps traders make decisions about potential trading opportunities and whether or not to buy or sell a particular instrument.

Fundamental analysis deals with factors that contribute to a future supply-demand ratio. In terms of the currency market, it can include monetary policy expectations, GDP data, and unemployment statistics of a particular country which can impact the currency rates.

As for technical analysis, it uses patterns of price directions and technical indicators from the past in order to predict the prices in the future. These patterns can help indicate potential price movements. Technical and fundamental analysis may show information in different ways but both methods can lead to the same conclusion or even urge the same trade being placed. Ideally, a trader refers to both technical and fundamental sources in order to make the most sound trading decisions.

If you want to be a trader, reading currency market analytics should become part of your daily routine. Following up on financial and political news and understanding its impact on currencies is equally important. To learn more about current market trends, follow up our newest market reports and daily forecasts.

3. Choose a Trading Strategy

One of the essential steps in your research should be finding a viable strategy designed to help you reach your goals. A great trading strategy must assist you in analyzing the market and executing successful trades. Strategy choice often depends on fundamental and technical data. Multiple trading signals that urge a trader to buy or sell a currency are taken into consideration in each trade. Experienced traders choose a strategy based on the risk-reward ratio as well as the amount of time they are ready to spend on its implementation.

Remember, there is no need to reinvent the wheel – choose an existing strategy that has already worked for other traders. From price action trading to scalping and swing trading – there is at least one that will bear fruit. Try implementing it several times. If it brings you profit, use it for bigger trades. If the chosen strategy proves to be inefficient, try another one before you have one that works for you. Though keep in mind that none of the strategies should be seen as a one-size-fits-all approach.

4. Demo Trade First

Practice is the best way to learn forex. But before you actually start investing real money, it makes sense to learn how a trading platform works and what is the most efficient way to use tools designed to boost your trading results. A demo account allows beginners to get in terms with the fx trading platform interface and place their first orders. This kind of teaching account uses the same terminal, shows the actual situation on the market, and gets the real quotes. It has the same functionality. The only difference is that no deposit is required from your side. People trade with fake money which makes it impossible to withdraw any profit.

Using a demo account allows you to do all the same things as the real account. You can learn how to place an order, change leverage, set stop-loss and take-profit limits, etc. Though it is often said that the emotional involvement of a trader as well as execution of orders is different when trading live money. So after you get comfortable with a demo account, try your hand at a real one.

5. Master Risk Management

Higher risk often brings better returns. Although, sometimes it leads to huger losses. Risk management in forex is aimed at minimizing losses and maximizing returns. Amateur traders often fall into the trap of risk mismanagement. This is why before placing an order ask yourself “How much am I ready to lose in this transaction?” and “How much can I make on this transaction?”. You don’t want to risk more money than you can potentially win. And definitely, the last thing you want to do is to blow your trading account in pursuit of unrealistic goals. So don’t forget to place stop-loss orders, think over a viable risk-reward ratio, and choose leverage level carefully. The success of your trading strategy depends on whether you’ve done your risk-reward calculations properly.

6. Control Your Emotions

In order to succeed in anything, you have to be consistent. This is especially true for any kind of investment. Beginner traders often face greed and fear of money loss. These are two things that might make you act in the most irrational way. And they are the ones that you absolutely have to learn to cope with if you want to thrive. To do so, focus on the data you have as well as your strategy. The most common mistakes beginner traders make are panicking and taking hasty decisions if everything doesn’t go as planned. Don't fall into this trap! Remember that practically every strategy is accompanied by losing periods. So don’t let subtle movements on the chart lead you down the wrong path. Stick to your strategy! Impulsive decisions will get you nowhere.

What Does a Forex Trader Do?

Today, Forex trading is processed online. Therefore, traders don't need to spend much time talking to each other by phone or on the trading floor.

A Forex trader reviews diverse factors that impact national economies and Forex price charts. Using this information, a trader can determine whether this currency is overvalued or under-valued compared to another currency. If traders find an undervalued currency, they purchase it to sell it for a higher price later. Currencies are traded in pairs. Therefore, a trader either buys the first currency for the second currency or vice versa.

A trading strategy includes different factors that impact the decision of the trader to buy or sell a currency. Some traders just trade due to price momentum; others consider mathematical indicators to find out whether a currency is overbought or oversold.

All the orders are made at the online trading platform providing traders with access to currency markets that would be open only for banks or institutional investors. Usually, Forex platform software includes price data, charting, and trade execution services.

A foreign exchange trader controls their account, analyses price charts, creates reports about trades and follows the economics news from different countries. Traders worldwide spend a lot of time in front of the screen while following the trends.

Type of Traders and Their Good and Bad Points

There are different trading strategies. According to these strategies, there are different types of traders. Diverse trading styles depend on the time frame and length of the period during which the order is open. Let's consider trading strategies in detail.

Scalp Traders

This is the quickest form of trading. Due to this trading strategy, a trader holds positions open for seconds or minutes. These short-term orders target small intraday price movements. The main purpose of scalping is to make quick orders with small profit gains. Following this trading strategy, a trader can collect small profits throughout the day while making a huge number of orders.

Day Traders

Day trading is a strategy that is suitable for traders who don't like a high speed of scalping trading but don't want to hold positions overnight. Day traders open and close orders on the same day. This allows avoiding the risk of any large overnight moves. At the end of the day, day traders close their orders either getting a profit or facing losses. Orders are usually opened from several minutes to several hours. As a result, this type of trading requires sufficient time to analyze the market and monitor positions throughout the day frequently.

Swing Traders

While day traders hold positions for less than one day, swing traders hold deals for the period from one day to a few weeks. Since a position is open for a long period of time, swing traders don't need to spend all their time in front of the screen while monitoring the charts.

This type of trading is suitable for people who have other commitments besides trading. However, this type of trading also requires a couple of hours to analyze the markets. Swing traders use different trading strategies, including trend trading, counter-trend trading, momentum, and breakdown trading.

Position Traders

Position traders focus on long-term positions to gain maximum potential profits. As a result, the deals are opened for weeks, months, or even years. As usual, the position traders use weekly or monthly price charts to analyze and evaluate the markets. Traders monitor technical indicators and use fundamental analysis to determine potential entry and exit levels. Since position traders don't care about price fluctuations or pullbacks, they don't need to check their positions as frequently as while using other trading strategies. While using a position trading strategy, you just can monitor positions occasionally.

How to Practice Trading Before Trading Live

Before starting to trade live, traders use Demo accounts to train their trading skills. Demo accounts are a contemporary option for paper trading. On the live market, there is slippage. It means that market orders are not filled at a price expected.

You can be a very successful trader by trading on a Demo account. However, while starting to trade on a live account, you lose money. This is a normal practice. Some traders face the capital draw-downs right away, and others experience it later. However, each day trader has a transaction period between demo trading and live trading while losing money.

The pressure is much higher when you deposit real money. There is no pressure while you are trading on the demo account. The adaptation period lasts from a few weeks to a few months. You need to understand that every successful trader has gone through the transition phase.

Read more: How to Get Started with Trading: an Extensive Guide for Beginners in 2022

The Basic Forex Trading Framework

The framework presented in this article focuses on trading with the odds. This is not a mechanical automatic trading system. This is a system allowing you to receive technical input and make a decision. The key is to find situations where all of the technical signals are in the same direction.

You can use the programs MetaTrader 4 and MetaTrader 5 to illustrate this trading strategy. In addition, you can use any other program bringing the same results.

Finding Forex Trading Entry and Exit Points

If you don't know how to find entry points, pay attention to the times of all the indicators pointing in the same direction.

There are several bullish and bearish entry points:

Bullish

• Bullish candlestick engulfing or other formations;
• Strong, close support and weak, distant resistance;
• Positive divergences in RSI, stochastics, and MACD;
• Trendline/channel breakouts upwards;
• Moving average crossovers (shorter crossing over longer).

Bearish

• Bearish candlestick engulfing or other formations;
• Strong, close resistance and weak, distant support;
• Moving average crossovers (shorter crossing under longer);
• Negative divergences in RSI, stochastics, and MACD;
• Trendline/channel breakouts downwards.

It's better to place exit points, including stop losses and take profits, before making an order. You need to place these points at key levels and modify them only if there is a change in the premise for your trade. A trader can place these exit points at key levels, including:

• At key Fibonacci levels;
• Just inside of key channels or trendlines;
• Before levels of strong support or resistance.

Money Management and Risk in Forex Markets

Money management is very important in markets with a high level of volatility. Fundamental factors often can cause the swinging of the currency rates in one direction and the change of direction immediately. Therefore this is very important to limit your downside by utilizing stop-loss points and trade when market conditions are profitable.

There are several ways to limit your risks:

• Enhance the number of indicators you use. On the one hand, this will allow you to build stronger protection from available risks; on the other hand, you will have fewer opportunities.
• Set stop-loss points at the closest resistance levels. This will provide you with stronger protection but also decrease available gains.
• Apply stop-losses to lock in profits and limit losses when your trade becomes profitable. However, it can also decrease your available gains.

Forex Chart Creation and Markup

Trading charts are the introduction to Forex trading. A successful trader needs to predict the behavior of the price trend excellently. To become a successful trader, you need to know how Forex charts are constructed, what types of charts exist, what the trading time frame is, and how to set up the visual display of the price action.

In contemporary trading, there are a couple of approaches to predict the future behavior of the price. The first one is named a fundamental analysis and the second one is named a technical analysis. The fundamental analysis focuses on analyzing the external events that impact the behavior of price. The technical analysis is the analysis of the price development. To analyze the price changes, traders use special price charts.

In MetaTrader 4 and MetaTrader 5, there are three types of charts, including line charts, bar charts, and candlestick charts. Earlier, traders created price charts on graph paper. When it comes to the line chart, a line fluctuates along the time axis and price axis (quotes).

A price chart demonstrates the changes in the given data graphically in time and relative to each other. To create the charts, traders apply the following data:

• OPEN is an opening price. This is the beginning price of the trading period;
• CLOSE is a closing price. This is the ending price of the trading period;
• HIGH is the highest price for a certain time period;
• LOW is the lowest price of a certain time period;
• VOLUME is the number of contacts done during a certain time.

Read more: Best Forex Trading Rules for Beginners

Conclusion

To become a successful trader in 2022, you need to start trading on the demo account, and then trade on the live account. You need to understand that the adoption period will take time. While starting to trade on the live account, don't be afraid to lose for the first time. A successful trader needs to choose the trading strategy among the most popular trading strategies, including the scalp, day, swing, and position trading. Each successful trader needs to understand price charts to predict the future behavior of the price. In addition, it's very important to know how to find entry points and minimize risks utilizing stop-loss points and take profits.

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by JustMarkets, 2023.04.24