Making money in forex trading can sound simple – buy low, sell high. But as statistics clearly indicate, with 90 percent of traders reported to lose money on their forex ventures, trading currencies, or any financial asset for that matter, can be more than what average Joes and Janes can handle.
Fortunately, it doesn’t take an Ivy League education or decades of investing experience to start making money in the trillion-dollar industry of foreign exchange. Here are six ways on how to sharpen your investment skills:
Stay on Top Of News
The three market-moving factors to follow include microeconomics, macroeconomics, and monetary policies, according to Casey Stubbs who is an experienced forex trader and writer of various investment-related content.
These three things can move currency pairs up and down by a significant amount. If you aren’t aware of an upcoming monetary policy announcement, such as the Feds deciding to cut interest rates in half, your account could get swept off its feet.
Substantial financial losses can be incurred if you do not pay attention to these three factors. Stay on top of them by watching economic news on TV or reading articles. While majority of these economic reports are lagging, meaning they’ve already happened before the news came out, having a good sense of where big players and market makers stand can help you position yourself on the safe and potentially profitable side.
Learn How to Decipher Investment-Related Content
Investment-related articles posted on sites like CNBC, Forbes, and Wall Street Journal are very helpful to traders and investors, yet only a handful of people actually know how to use them to their advantage. Stock investors have company balance sheets and earning reports to digest while forex traders have meeting minutes released by central banks and interest rate hikes/slashes announced every few months.
Learning how to decipher the information involves understanding the keywords and terminologies used in these paraphernalia, such as pip, margin call, spread, distribution and accumulation, and overnight swaps.
Make Use of Indicators
Technical indicators and analytical tools can help sharpen your investing decisions using statistical data and historical prices. Bollinger bands, Stochastics oscillators, moving averages, and the powerful ZigZag indicator are good tools to implement.
It gives your trading approach some structure and minimizes chances of committing the most common trader pitfalls, such as overtrading, that lose them money over time. Put your chosen indicators to the test through rigorous back-testing and forward-testing. Make any necessary adjustments to increase the effectiveness of the said indicator/s.
Trade With a Demo Account
Demo accounts are helpful to traders of all skill and experience levels. It lets you test out custom-designed and existing strategies used by other traders to see how it would perform in a real trading environment. Since all trades done on a demo account are not real, there is zero risk involved.
Many articles would advise you to trade with a demo account for at least six months before moving onto a real account. But even after six months, intermediate and experienced traders can benefit from regularly using their demo accounts to refine their strategies or even just to satisfy their need to trade.
Stick to Basics
In an interview for the book “Inside the House of Money” by Steven Drobny, former central banker Dr. Sushil Wadhwani acknowledges the fact that the basic underlying principles behind money management remain the same despite the constantly changing markets.
The technologies, stories, and players might change, but the characteristics that make the market dangerous and appealing at the same time, such as market volatility and bubbles, continue to endure.
A lot of novice traders enter the markets armed with their newly learnt technical indicators and strategies and the hope that they’ll make it big in forex. Unfortunately, these rookies tend to complicate things. They try to absorb advanced mathematical models and algorithms to try and outwit everyone else. As a result, they get mentally burnt out and make mistakes that cost them money.
Track Your Progress
Record your trades in detail, down to the reason/s why you opened and closed it. Having access to this data helps you determine which types of trade work and gives you the ability to adjust accordingly rather than just blindly making trades.
Track your progress by writing trade details on a notebook or starting a blog of your own. Record important trade details, such as the position size, currency pair, and time frame. A detail that many traders who blog overlook is the psychology behind each trade. What were you feeling when you entered and closed the trade?
Sharpening your forex trading skills is an investment worthy of your time and energy otherwise you are no different from a gambler losing money on casino tables night after night. Use the information above as guidelines to help steer you in the right direction.