Before getting into the tips, let’s quickly revise the types of trading and you can see if this is the kind of trading you’re planning to pursue or perhaps you’d prefer scalping or something else.
There are four kinds of trading in forex:
Position Trading: Long term. Positions are kept open for months, and sometimes even years.
Swing Trading: Medium term. Positions are kept open for a couple of days to almost a week.
Day Trading: Short term. Positions are closed the same day they are opened.
Scalping: Short term. Positions are closed within minutes, or sometimes even seconds.
This piece is concerned with Day Trading only, but you can find tips for others in our blog section.
Moving swiftly on to the point of this blog.
This cannot be emphasized enough.
When someone says consistent profits, it does not mean that you have to limit yourself to that number or that range. If the market is offering you the chance to make more money then you usually do, then absolutely go for it. But on an average day, don’t change your strategy for every little price movement.
Why it’s important
Say you make a $100 a day for three days but then the third day you decide to change things up a little and that causes you to lose $400. Your net income then is in the negative. So, in forex it’s about the grand total, unless you plan to trade for two days and then close your account.
If you want to keep the account running you have to maintain a certain level of consistency in your earnings.
Also, once you have mastered a strategy and made consistent profits off of it for a good amount of time, you can move your risk/reward up a little. This is because now you’ve learned to discipline yourself and have developed a work ethic. Those are the main strengths of any trader in the forex market. And this brings us to the next point…
This is in line with consistency. You can’t be consistent unless you’re disciplined.
- sticking to the strategy you decided upon
- not letting emotions persuade you to break a proven pattern
- putting in the hours
- preparing for the trade through study and research
Why it’s important
In forex there are many temptations for the trader. For example, there’s the concept of averaging down. This means to add to a position, in other words, buying more of the same pair. Usually this is done when the market begins to move against the trader. A lot of traders think that if they buy more of the same, their loss will be made when the market eventually turns in their favor.
This is a highly optimistic view, and while it may work out in the trader’s favor sometimes, more often than not it does harm.
Discipline will keep the trader from making such rash decisions in a moment of panic.
Set a loss limit and when that is hit, leave. It takes a big stroke of luck in the forex market to turn a situation like this around and so your best bet is to take a small loss and get out.
Logic over emotion
Trading is not art. The most useful human faculty is reason. All trade is basically weighing the profits against the losses. This type of calculation cannot be done proper when your judgment is compromised by emotional thinking.
Emotions to avoid:
Why it’s important
The emotions mentioned above are all harmful in trading, one way or another. Anger and jealousy can cause one to set out for revenge trading. We discussed this in detail in another blog.
Hope and excitement can make one go after losing trades. Hope can be very dangerous in forex.
While fear is the opposite of hope, it has the potential to be equally harmful as it will keep the trader from making the required moves.
In short, when you trade in forex, put all emotions on the side.
4 Set a Time
This can be seen as a subhead of the second point as well. A lot of times, the impression new traders are given is that trading forex is very convenient because the market is open 24/7 and so you can just trade whenever there is time.
Technically, this is right. You could trade any time you like…but you will probably lose a lot of money. This is because even though the market is open all day, the centers are shifting from one geographic area to the other.
Why it’s important
Each market session has its qualities. The momentum, liquidity, volatility are all different. Successful day traders trade based on a fixed strategy and they know the pairs they are interested in.
In order to be one of them, you too should figure out which market session suits you for the kind of trade you want. For example, the market is most liquid when the UK and American session overlaps. So if that means anything to you or you’re looking for liquidity then that’s when you should be trading every day.
Time is an important part of a trader’s strategy.
5 Test and Try Indicators
Pick your favorites and then stick to them. The way to do that is by testing out a few. Some good indicators are:
- Candlestick patters
- Chart patterns
- Moving averages
- Trend lines
These are only a few of the popular ones. There is a wide variety of others.
Why they’re important
Having 10 different markers on your chart will create a lot of noise. A candlestick pattern might emerge and indicate a reversal while the moving average is showing something else.
You have to remember that this is all guesswork and is completely subjective. Therefore, usually not all indicators will point in one direction. You have to pick your tool of choice and eradicate as much of the noise as possible.
These are five tips for traders who are just starting out in the market and perhaps finding it a little hard to make sense of it and finding where to start.