Up until now, the best trading advice you may have received was that practice makes perfect or to trade with self-control. While these are certainly true, they don’t paint a specific picture of what you should do with your investment money.
Aside from any technical aspects to trading, you should always have a plan that you can reasonably stick to. Assuming that you or others have your strategy, it should be more of a matter of patience.
Determine Your Trading Style
Just like a combat stance or dance style, there are many styles that traders take in order to make a profit. Each style may suit short-term or long-term trading and may or may not depend on how much your investment capital is.
Positional trading is the style for those that are experts in a certain currency and take action when there may be major shifts in price. These types of traders will follow market data and international news to determine when its best to dive back into the market. With high investment capital and a deep understanding of market fundamentals, this has very high-profit potential.
Day trading is probably what most of us want to do and the goal is to profit before the market at the end of each business day. Overnight trades are usually avoided to its inherent risk of devaluation when markets open the next day and ideal trades may last only hours.
For skimmers or scalpers, the idea to trade in short bursts that lasts minutes or seconds. If using MetaTrader 4 broker or other tick examining software, the user may go against other bids in order to skim a few pips in their favor.
Monitoring Daily Charts
If you are day trading, you will benefit by studying daily charts to determine where the next trading day will go. This allows you to ignore the hysteria and make your trade predictions based on educated guesses instead.
With daily chart trading, you need to determine habits in the market so that trading cycles are predictable. Take a look at where graph trend, tend to consolidate or when there are large dumps. You may need to go back months in trading to get a bigger picture of what a cycle looks like.
Also, if you choose to trade based on daily charts, you need to use stop losses to your advantage. Especially if you are day trading, you will want to put in stops that will prevent overnight positions or trading hours that may not go in your direction.
Trend Technical Analysis
If you are positional trading or taking long-term positions, technical analysis may be a highly useful skill to learn. While it is true that past actions don’t necessarily determine future trades, those that are technically minded would be confident that prices move in trends.
If you are observing a bull market, the lows and highs will be very exaggerated but the overall trend is upwards. At the inverse of a bull market is the bear market, which has the same exaggeration but is going in a downward trend. Both markets are highly profitable if you strategically take the right position.
A horizontal trend, or a ranging market, is usually a bad place for long-term holders to remain. This is due to the difficulty of predicting where the price will swing and there may be a clash of bulls and bears. If you end up in a range market, pay close attention to the news and other external factors.
If you are serious about doing technical analysis on your own, you will want to use charting software like Meta Trader. This allows you to use advanced features and to go back to specific date ranges to make your analysis even easier.
It would also be a good idea to brush up on the different types of technical indicator and theories. This includes theories surrounding momentum, volatility, volume and trend indicators.
Watching The News
If you choose to trade based on real-life events, it is a good idea to tune out technical trends and monitor various news outlets. Of course, this doesn’t necessarily mean the front page of CNN. Instead, you will want to watch press releases.
The types of releases to look for should be related to the country of your preferred currency and should follow important economic events. Events to look for are retail sales figures, interest rate changes, unemployment, industry, consumer surveys, and consumer prices. You should also dive deep into the article to determine the gravity of each release and determine if it will really have sway on the market.
It should also be realized that US-based press releases have the biggest sway on the market due to the USD being a huge reserve currency. Approximately 90% of the forex market ends up in USD, and if that is your end goal, you should follow the money.
Use Leverage Strategically but Carefully
Leverage is a risky way to trade, and quite frankly, some brokers offer very high rates in order to profit from newbie traders. The basic idea you can multiple your trades by 100:1 or more to make a quick profit while essentially borrowing that money from the broker.
Related: High Leverage Forex Brokers
For example, taking your bankroll for $5,000 to $500,000 using a 100:1 ratio could allow you to make hundreds of dollars for briefly holding profitable positions. If your position happens to lose and you hold too long, you may also lose thousands of dollars and zero out your account.
Only use leverage when you are very confident your position will profit in the short term. Don’t leave leveraged trades in overnight or with automated trading scripts as it obviously would be disastrous.
There is no universal trading strategy to use since everyone has different trading pairs, starting capital and end goals. There may be trading gurus out there trying to sell you their private trading strategies, but many of them are charlatans trying to make a quick buck. The best trading strategy is to use your own brain and have the diligence to analyze the market.
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