How to Trade forex and Be Successful

Trading is hard and time consuming to learn, but the rewards finally come to those who persevere. How to trade forex the right way boils down to determination.

Determination is the key in all endeavours in life, trading is no exception. Learning the fist steps usually starts on some online forex forum or through a forex trading course, or with the help and guidance of a mentor. These are only the first steps so as to entice the new trader to learn more about this exciting market. Explore the different ways to analyse and trade this market. Failures always happen in the early stages, and we all learn from failure not success. But it is true, successful results tend to make us all feel confident and stop questioning things.

Trading Requires Thinking Outside the Box

Many courses on learning to trade the forex market teach so much about discipline and rigid rules, that the new trader thinks has to follow. But the real world doesn’t work on rigid rules and absolute discipline, if there’s no flexibility and exceptions to rules, things go wrong. As with all missions and endeavours in life, the more rigid one’s plan is, the more likely they are to face something completely unforeseen and unpredictable. Great thinkers are great because they push things beyond the obvious, and question established opinion. Especially established opinion that lacks substantial proof. So approaching the markets with an open mind is a good start for all traders in order to learn how to trade forex successfully. Educational materials are still good, despite their lack of methods and trading tips. If one combined the best elements from various different sources, they can be way ahead in the trading game. Traders also need to accept that indicators, even the best out there, are bound to be false around 50% of the time. This is because they only lead the market for a while, then they need to spend as much time readjusting, and during that time they make no sense. So the trick is to believe that they are bound to be wrong half the time and try to distinguish leading phase from lagging phase.

Traders use divergences formed between market price and indicators to figure out price direction. Market price usually will go in the direction that the indicator hints. But notice that as one indicator shows a divergence, another indicator may be in its own lagging phase. So one cannot rely on one indicator only, non stop. But rather they have to shift from one indicator to another and look for the latest divergences formed.

Implementing Few Simple Strategies without the Pressure to Be Successful

Everyone wants to trade to make money. But the very necessity to make money there and then, sabotages traders and makes them stressful, unable to look at market charts with an unbiased mindset. So traders who have a long trade on for example, tend to see all kinds of buy signals, and yet somehow downplay all bearish signals on their minds. So a good chart reading starts with an unbiased mindset, which requires having no trades on, and ideally when markets are closed. Finding a good forex broker is also essential, as different brokers have different platforms and trading tools. Ideally one needs a broker that makes them feel comfortable and whose trading platform is easy to use. Things such as leverage, pip size stop loss order etc, should be easy to handle. The first steps in trading should be simple and the trader should find trading activity as a enjoyable task. If there’s too much pressure, too much stress and routine involved trading becomes difficult.

Use Forex Charts For Risk Minimization and Better Trading

All kinds of foreign currency trading rely more or less on charts as well as on patterns and signals seen on those market charts. Day trading forex strategies rely even more heavily on market charts, and every minute of price action recorded on these charts is important to the trader. There are however some patterns that matter more than others. There are also patterns that might be irrelevant from time to time. Using market charts more selectively frees the trader from the burden of unnecessary observations.

Using Those Currency Pair Charts Efficiently

Efficiency is all about relying on one, or two correlated markets. And using forex charts on various time frames to see which patterns are relevant right now, which will be relevant tomorrow, and which will be relevant to later days. Some patterns simply contradict each other, and have to be ignored from time to time. Using various time frames can help make things clearer in that regard. Foreign exchange currency trading is all about being careful at time, and relaxed at other times. Being too focused at all times doesn’t work because it tends to overload the trader with all kinds of not useful, but still emotion-triggering information which is nothing but market noise. It’s kind of like working as a radar operator, which is a boring job. The operator has to be suspicious of unidentified targets, unusual behaviour etc, but they cannot investigate every single source of suspicion. Radars for example can easily be fooled by the enemy using fake targets, getting all the operator’s attention at the wrong time, while the enemy plans to attack from elsewhere. Hence for all the attention to detail and dedication of the operator, he can still fail. His attention to every detail can work against him. It’s the same with market charts, one signal may appear perfectly good and fast, making the trader think they have to act upon this signal. And then the signal proves to be false and the market simply moves in the opposite direction. So it’s critical to keep the balance and not overreact to every signal, because false signals are bound to appear. Whether one is a day trader, or a long term trader, they can only check the market as far as they can properly analyse it. Overwhelming oneself with tons of information and suspicion leads to confusion and no useful observations.

Traders attempt to focus away from market noise, and on the underlying trend as defined by the time frame of interest. The hourly trend may be down while the daily trend may be up and so on.

How Traders Deal with Routine Tasks

Wise traders have routine tasks to do, but they have found ways to make most of the tasks interesting. They know history doesn’t exactly repeat itself in the markets. Especially when investing in foreign currency for long term exposure, they look at geopolitical events, economic factors and things that are not routine and are interesting to read. Forex charts provide a basic roadmap, showing the forces of supply and demand and possible critical price levels. Traders and investors know that some of the observed signals will be false, so they take things slowly and without much stress. They also know that fundamentals and other unforeseen events can overpower past price history seen on the charts. Good traders see something unique on every chart, and not a routine task having rigid rules.

CFD Trading to Hedge Currency and Other Risks

Hedging is nothing new, but when one is trading stocks on a big scale they can hedge all downside and upside risk, through CFD trading, in ways that make sense.
CFD trading offers unique tax benefits in most countries as opposed to high frequency stock trading where the tax liability on profits is significant. Moreover CFDs allow you to short a stock even during the worst market conditions when there will be restrictions imposed on short selling. So the opportunities are wider and better with the use of CFDs in high frequency trades as well as hedge trades.

Hedging Protects against All Kinds of Risks

Hedging can be implemented through CFDs to limit the downside accounting loss on a long term stock investment. It can also be used to limit the upside risk on a stock that the investor has not yet actually purchased due to uncertain timing or lack of funds. CFDs through their leverage offer big buying power and unlimited holding time. And they allow for less than perfect timing since the trader can hedge one CFD trade with another CFD trade in the opposite direction, either on a related stock, or on a major stock index. The days of simply buy and hold are over for most investors. As markets may spend a great deal of time going up and down, in a neutral kind of trend. The concept of trading CFD is seriously underestimated.

All traders can trade crude oil. But also ordinary business owners whose businesses are influenced by the price of crude oil are able to hedge the profitability of their businesses against extreme price increases in the price of crude oil. Of course this hedging only covers the actual rise risk, but not permanently high crude oil prices. Despite that, the savings are often massive in the short term. While the business has the time to later slowlly adjust to the high prices, should oil prices stay there for too long.

Forex is No Exception as Traders Can Hedge Most of the Risk

Here too, in all kinds of foreign currency trading traders can limit risks. Currency trading requires good planning and use of sound strategies, but there are some differences compared to stocks or commodities. This is because currencies don’t collapse, as one currency rises another is falling. The concept of investing in foreign currency is good as well, as long as one knows what they are doing. Some currencies spend years appreciating against other currencies. And there are people who even take property mortgages denominated in falling foreign currencies. This takes years off the repayment period and the homeowner saves a fortune. But if that said homeowner realized they are wrong on the timing, and some kind of counter trend is about to happen for few months, they can take action. This action is to hedge the risk that the counter move will pose to the planned mortgage repayment plan, through some cost and tax free CFD trading in the opposite direction. Changing the mortgage every few months is out of the question because it is too much hassle and too costly in fees and taxes. Only CFDs can come to the rescue and cover most of the short term risk. While allowing the mortgage to benefit from the long term trend which is unlikely to change.

Is it Really Possible to Profit by Trading Online?

Many traders get involved in the forex market in an effort to change their lives. And while some of them do in fact make it and and up making unbelievable amounts of money, many others fail, more or less. Successful trading is about finding a good strategy, and a good forex broker to facilitate that strategy. But the strategy part is so complicated, that most new traders become disoriented, and start trying out different strategies based on wishful thinking rather than facts.

Trading Offers the Chance to Profit Big

People who are absolutely determined to profit from trading online can, and will find ways to do so. It takes effort, mistakes, losses, and more learning, but those determined are never willing to give up. By analogy one should think that it takes years to become successful, in every field of expertise. Treasure hunters for example may spend as many as 15 years hunting a single lost treasure, while other smaller treasures of little value may or may not be found. What we can learn from treasure hunters is that true, well balanced perseverance finally pays off. It’s the same with trading, but people who start trading are usually in a hurry to make money, and they want to succeed there and then. Traders who become good and make a lot of money, are focused on principles and techniques. And they never lose this focus at any moment. It all starts with basic forex training, and choosing possibly the best forex trading platform, but all the rest of the effort goes into fine tuning parts of the strategy, as well as making some important changes to other parts of that strategy.

Why is the Market So Profitable?

Financial markets are so profitable because they are risky, and this risk keeps the crowd away. Again if we look at treasure hunters such as Mel Fisher. It took him many years to find the big treasure, while in the meantime he had dedicated big amount of money in what then was a risky investment. And it was risky as several members of his crew actually drowned in the sea during various search and diving operations. So these big risks and costs kept the crowd away from going and getting that massive treasure. It’s the same in trading, one has to devote time, effort and money, but the rewards do exist and in the case of the financial markets they are really big. Some traders generate so large profits from trading that their success defies belief. Because we all were told at some time that trading is difficult and nobody really ever makes any money. Well the truth is there are some that do make tons of money. Just like any other endeavour in life where some are very successful.

Investing in Different Market Sectors and Rotation of Capital

Investors often need to rotate their investment capital through investing in different market sectors, this offers greater returns and helps avoid risks. What sector rotation really offers investors is the ability to take capital out of market sectors where most stocks have risen excessively and reinvest that capital in lagging stock market sectors. These different market sectors may offer much greater appreciation over time and overall less downside risk, since most stocks have not yet risen substantially along with the rest of the market. Lagging market sectors, especially those that tend to move in different, later phases of the economic cycle, are usually sectors in the commodities or brick and mortar sectors of the stock market, whereas the leading sectors are usually with high tech stocks, and even the high tech side of the market has different sub sectors.

How the Stock Market Rallies

Stocks in the different market sectors tend to differentiate when an economic recovery is under way, real estate and high technology stocks rally first, leaving commodity and brick & mortar stocks behind, but as the rally continues and the economic recovery spreads out, high tech stocks have less upside margin, whereas the lagging sectors have much more margin to rally and actually do so in the end. Commodity stocks are more complicated themselves, they too can lead or lag one another, and there are many cases where a single commodity, such as sugar or corn, may have been left behind relative to the rest of the commodities. Sooner or later the laggard commodity will catch up with the rest of the commodity index and relevant stocks will follow suit.

How Technology Can Put One Sector Ahead of Another

Technology itself can change so much the stock market, so that one high tech group of companies can lead an entire economic cycle, and many other companies get left behind as their nature puts them in a less important place for the entire economy and ultimately for investors. But equally the high tech industry faces competition from within, and a single company (such as a semiconductor or software developer) can lead the entire high tech industry and may end up splitting the sector into leading and lagging companies as well. Generally it is the largest companies that take longer to make decisions and amendment to their strategic planning, and the smaller companies are the ones that can change very rapidly. When a radical new product is launched, the smaller companies that can adapt fast, will lead right away, and their stocks will rise, whereas larger better financed companies will see their stocks rising much later on, maybe to higher highs and to new exciting levels, but it will happen much later. So investors look for large companies that are too big to make fast changes, but still want to go ahead and adapt to the new market place.

Understanding Gambling and Trading

Many people believe that financial trading is just another form of gambling, and specifically passive gambling where the player has no control over the odds whatsoever. Nothing could be further from the truth however, since even classic gambling is not straightforward itself. All gambling games are based on principles of probability and house advantage, but not all games of luck offer equal chance of winning. Gambling is inherently associated with conflicts of interests between the house and the clients.

Even Classic Gambling Offers Diverse Odds

Some people believe that trading is hopeless because the odds are against the trader, this is not necessarily so. Opportunity and risk naturally co-exist. Beyond that, even classic gambling games (which are zero sum games), can in some cases be beaten through sophisticated analysis and meticulous methodology. So similar concepts are applied to financial trading by serious traders and investors determined to win. Even though gambling and trading are significantly different, the concept of odds and probability analysis applies to both of them. Many techniques can be developed that can change the odds for the better.

Zero Sum Game?

Casino games of luck do operate on the zero-sum principle, since they are closed systems. This doesn’t apply to the financial markets as these are decentralized, and all brokers more or less operate as open systems. The main difference between gambling and trading in this case is that gambling is all about zero sum games, but trading is not. In fact trading has to do with the open financial market which allows traders to open and close orders which are not even processed on a one-to-one basis between different traders. An excellent example of this is the modern handling of stock option trades when a trader sells an option, most outdated text books teach that this puts the option seller to unlimited risk obligation… But that’s not true, the brokers actually allow these sellers to buy back their theoretically ‘unlimited loss obligation’ at any time through the open market. This is achieved through sophisticated pricing and equivalent transactions. So the trader doesn’t even have to wait for a single option buyer to take the other side of the trade, since it’s not an one-to-one thing, he can close the trade at any time, and the trade is actually absorbed by 1000s of traders on the other side. The financial markets are much more open and sophisticated than any casino, and can afford to offer winners big profits.