Forex Trading in a Nutshell
In the past, we talked about the difference between currencies and shares. Now, let’s focus on Forex. Forex is the trading of currencies rather than shares. Although a trader may want to trade all the world currencies, it would be very impractical to try to keep up with that many shares. Forex is for people who want to make a bit more money from what they already earn and already own.
You may think of this as “stock trading” in a sense, but the profit you make is always based on what you paid for the share rather than what you are now selling it for.
There are many advantages to trading currencies:
One advantage is that currencies are used to predict and forecast the future course of the market. You can expect a currency to fall when the economy is shrinking, and to rise when the economy is growing. You can use Forex to trade these expectations.
Forex trading is very liquid, which means there are lots of trading venues to choose from. Many people consider trading Forex to be a very risky type of investment, but this is only because they do not trade enough currencies to get used to the ways of the market. You do need to have a certain amount of experience with the ways of the market to truly understand the risks and rewards of Forex trading, but as your experience grows with other currencies you will become more adept at gauging the risks and rewards.
And Forex trading is also very anonymous. Many traders believe Forex is a haven for the rich and powerful, and this is not true. Most of the large retail brokers will have an online trading platform to use, and you will never know who the broker is or what they do. Forex trading is accessible by the general public who wish to trade.
I said Forex trading may be an island of anonymity, but that is because Forex is an electronic medium of exchange. You will always be identifiable through your account and your trading. The general public may think this is because they don’t do enough trades to be noticed. They are not thinking of the fact that you may be doing a lot more than they are, but how many trades you actually do. If you have done a lot more than a large broker, then you may be an island of anonymity, but more often than not you will end up with their profile.
With Forex, you must manage your risk carefully. If you are trading more than you should, your account will begin to grow, and you will be on the hook for more trades than you should. The problem with that is that if you do run into a market fluctuation, and you did not do the research or have done the trades wisely, you will be on the hook for a lot more than you bargained for, and very likely will have to close your account. There are no golden rules for avoiding market fluctuations. There are however very good rules that can greatly improve the chances of avoiding market fluctuations, and these rules can be used with any currency pair.
One good rule that can be used with any pair is the following:
* Be aware of market conditions.
If you are trading more than you should, and your account is growing, then your profile is beginning to stand out, and you are starting to attract attention. Most traders do not run into this until much later in their Forex career. They have been doing enough trades to know that their trades will stand out, and that other traders will notice them, but they do not know that they will be noticed by the larger traders, who tend to be the largest retail traders. They will be looking for smaller traders to copy, and if they find one they will often invite them to join their team, and work closely with them.
This is a time when you need to be very careful. Even if you do not want to join a big team, you should still be aware that other traders are watching you closely. They will be interested to know what you are doing, and that you are getting positive results. By getting these results, and then trading differently, they will see that you can be profitable, but only with a different set of criteria. They will want to know how you can be profitable and consistent with the criteria you chose, and you should take advantage of this, by looking at the examples listed at the end of this article, and work on them.
Be aware of what is happening, and make sure that you do the best you can with the criteria that are set by the trader. They have set the parameters, and if you are able to compete and win, then great, but if not then you can move on.
You should be working on the trade that you are currently doing, and if you are doing well, then you should be working on the other strategies that you are focusing on, and why. These will also help you to pick the criteria you choose, and that will help you to become consistent.
When you have identified and been working on your strategy(s), it is now time to trade in the manner that you chose when you set out. Now is the time that you should be focusing on the time, and how much you will commit to the trade, and the reasons behind your decisions. A common mistake is to be seduced by flashy charts, and unrealistically optimistic price targets. The reason you choose to choose a certain price action is that that is how you choose to trade. If you have set the criteria, then you should be using the methodology you chose to choose price action, and you should be focusing on the price action and the entry. The reason you have chosen to trade this way is that that is how you prefer to trade. All about the principles that you chose to focus on, and when you are distracted by the market noise, you are more likely to make a mistake.
You should be aware of what is happening, and make sure you have a trading plan, and that you are following the plan. When you are distracted by the market noise, you are more likely to make a mistake.
You should be thinking about how you will deal with price action, the market noise, and the other trader traders in the marketplace.
So when the price action is reaching your target and your indicator tells that you have met your criteria, and you have traded it as you chose to trade it, then your focus should be on the reason why you traded that particular price action, and how you have been planning to deal with the market noise, and how you will trade your price action, and how you will manage the trade once it is in your account.
And you should be focusing on the time, what price action you chose to trade, how you traded that action as you chose to trade it, and how you will trade the trade once it is in your account.
So when you are distracted by the market noise, you are more likely to make a mistake.
If you don’t have a trading plan or a trading system, then you have no focus.
And if you do have a trading plan, and you don’t understand how the plan works, then you are not focused on the time and how price action should have been traded, and what you should have been doing, and you are also not focusing on the other traders in the marketplace, and the broader market noise.