Charts, graphs, and ratios are things that come in everyone’s mind after hearing the word ‘Forex.’ However, it’s not rocket science, and you can surely master the art with discipline and practice. Greed and fear need to be kept out of the equation. Here’re some tips that can help you understand the game and make profitable trades.
Selecting the right trading strategy
Before you move from your residence, it is essential to decide how you plan to reach your destination, by bus, rail, cab, or in your car? Your journey needs to be scheduled according to the mode of transport that you select. Similarly, you need to choose a trading strategy accordingly to reach your desired investment, profit goals.
The level of risk is different in each strategy, so, the trader needs to keep a specific approach and attitude. If you cannot sleep with trading stress, you should avoid open position trading and opt for simple day trading instead.
On the other hand, if you dare to take the risk and practice patience, you can consider opting for position trading.
Leverage ratio and charges on transactions
Leverage is a loan option offered by the broker to the account holders. This feature allows traders to buy more commodity than the deposit amount in their account. Leverage is denoted in ratio, and the percentage may vary from one account to the other.
After opening the account, you would have to make an initial deposit before starting trading. Most of the brokers allow account holders to make the deposit payment with credit/debit cards, PayPal, online funds transfer, and wire transfer. Account holders can withdraw funds via bank or wire transfer in most countries. Some online trading platforms also charge a small fee on deposit and withdrawals.
Before selecting an online trading partner, make a list of at least five good brokers. Make sure that the online broker operates under ASIC, CySEC, or FCA’s regulatory control. Read the FAQs related to the broker’s commission, fees, margin requirements, and other charges applicable to transactions. Also, check the forex currency pairs that the trading platform offers. Don’t forget to read FAQs about types of spreads, the rollover policy, and slippage policy as well.
MetaTrader WebTrader, Supreme Edition MetaTrader, MetaTrader 4, and MetaTrader 5 are some of the most used trading software solutions.
Trading strategies that do not sound like rocket science
Due to the cryptocurrency bubble-burst, a lot of investors are desperate to sell their digital coins and enter the comparatively safer forex market to invest their money. The split in Bitcoin has triggered a wide-spread panic amongst young investors who referred to cryptocurrencies as the next ‘gold,’ and the future currency of the world. Anyway, it is never too late; you can study trading patterns and enter forex anytime. The following are the most popular strategies used by traders.
• News trading strategy
News trading involves closely analyzing economic development and news from the selected country and then buying or selling its currency accordingly. It is simple, but a trader must be able to understand the type of data or news that can impact the value of the selected nation’s money. Government data on foreign investment, job creation, public expenditure, fiscal deficit, current account deficit, etc. can influence the national currency. A trader using the news trading technique should have the time and patience to go through all the numbers and news items on a real-time basis and gauge the possibility of its impact.
News has the power to move the market at least for a couple of hours. Traders can easily make money out of these short-term market movements. The impact of news can be witnessed in the US market after the Federal Government released its data on jobs every year. A trader would be able to reap the benefits of this strategy only if he or she manages to remain on the top of the news to navigate volatility.
• Active trading or day trading strategy
Day trading is perhaps the most widely used trading strategy around the globe. As the name suggests, it involves trading throughout the day and closing all the positions by the end of the day. It is also referred to as active trading, and its ‘get in, get out’ on the same day works perfectly for those who do not wish to remain under trading stress while sleeping at night.
Price movements on various dates need to be analyzed with the help of previous patterns, indicators, and charts to set trade entry, exit points and to take advantage of small movements.
This technique is not recommended for novice traders due to the pace required in decision-making. It is surely not something that people who have recently opened a forex trading account should try. Often considered as advanced strategy, day trading is used by investment specialists and professional traders.
• Scalping trading
This is yet another trading technique that requires constant attention. Currencies experience minute fluctuations (ups and downs), and scalping involves selling the currencies as soon as they start moving upward. To make money out of these little price swings, a trader needs to trade in a large quantity for a quick profit making. Plus, make sure that your online trading partner processes orders on a real-time basis and supports this strategy. High-transaction fees can clean-up the small profits.
• Reversal trading
Buying a falling currency after predicting its up wave sounds crazy. The courageous decision of entering the market during highs and lows is something that only experienced traders would try doing.
It requires a careful study about the up wave and down wave pattern shown by the currency during the last few years. The risk ratio remains high as the traders’ buy currency when it is experiencing a down wave.
No matter whichever strategy you use, placing a stop loss is crucial to make sure the losses remain a minimum. Stop loss is a feature that automatically exits the trade on your behalf when the selected security incurs losses and reaches a specific position.