Forex trading is a popular method of making money online. It involves buying currencies the trader believes will rise and shorting those they believe will decline. Millions of people are doing forex trading globally. This article will highlight some of the most important tips that will instantly improve your trading.
Using a stop-loss
A stop-loss is a tool provided by most forex brokers that automatically closes a trade when a certain price is reached. For example, if you open a buy trade at 1.1200, you could set a stop-loss at 1.1100. In this case, the stop-loss will close the trade automatically if it reaches that level. As such, in case of a major drop that sees the trade move below 1.100, you will be safe.
You should always protect your trades with a stop-loss because of the volatile nature of the market. For example, in March 2021, the Turkish president suddenly fired the then CBRT governor during the weekend. When the markets opened on Monday, the USDTRY rose sharply.
Turkish lira price action after Erdogan fired CBRT governor
Therefore, traders who had a sell-trade without a stop-loss experienced substantial losses.
Embrace a trading journal
The concept of having a trading journal often seems outdated. For starters, a journal is a document where you write everything about your trade. In it, you write the currency pair that you have bought or sold, the reasons for executing and exiting the trade, and your profit and loss.
The trading journal will help improve your forex trading for several reasons. First, you will use it for future reference. For example, five years from now, you will probably look at it to compare with the trades that you are making now.
Second, it will help boost your trading discipline. In my trading experience, I have noted that discipline can make or break a trader’s career.
Third, a trading journal will help you think twice before you execute a trade. Therefore, I recommend that you start using a journal and see how it boosts your trading results.
Avoid revenge trading
A common mistake that has cost many traders a fortune is known as revenge trading. It is the process where you initiate a trade in order to recoup some of the money you lost. For example, assume that you opened a buy trade on the EURUSD pair. Instead of going up as you had expected, the pair goes down, and you lose money. In this case, you can decide to move on and find opportunities elsewhere.
Alternatively, you can decide to hastily open another trade in order to recover the funds you lost. This is known as revenge trading. While at times it will help you recover some of the money you lost, it is a risky behavior, keeping you from conducting adequate research on the new trade.
Combine forms of analysis
There are two main methods of analysis in forex trading. There is the fundamental analysis that involves looking at the news, economic data, and macro events.
Second, there is a technical analysis that refers to the use of indicators and chart patterns like triangles and pennants to predict the direction of the trade. Some of the most popular indicators in use today are MACD, Moving Average, and Relative Strength Index.
You can instantly improve your trading by combining the two methods of analysis instead of using one. For example, before you enter a trade, you can look at the macro overview of the currency pair. After that, you can use technical analysis to find an entry point and measure your risk.
Avoid too many indicators
There are hundreds of technical indicators in forex trading. These indicators are of several uses. For example, trend indicators are used mostly in trend following and to detect reversals. Volume indicators are used to confirm the overall trends in volume. Oscillators like the Relative Strength Index (RSI) and the Relative Vigor Index (RVI) are used to identify overbought and oversold levels.
A common mistake that many new traders make is that they use tens of indicators to analyze currency pairs. This is wrong. Instead of doing this, we recommend that you embrace the power of using fewer indicators. Indeed, I have seen many traders who only use two indicators. Personally, in most cases, I use just the Moving Average or the VWAP. Start using a few indicators and see how your trading results will change.
Psychological well being
Trading psychology is an important concept in trading. It refers to how a trader handles his emotions when trading. For example, how do you handle a big loss or win? Do you get overjoyed when you make or do you get angry when you lose money? Handling your emotions well can help you improve your trading instantly.
Indeed, I have seen many good traders lose money simply because they did not handle their emotions well. We have also read stories of people who have committed suicide or moved to depression simply because they made a big loss. You should learn about how to improve your emotions and psychology and see how your trades will improve.
Trading equipment
Due to technological advancements, it is possible to trade by both computers and smartphones. For professional traders, we recommend that you focus on using a computer. Still, regardless of the equipment that you use, you should go for one that performs well. For example, go for a computer that has a good processor. Having good equipment will help to improve your trading.
Summary
In this article, we have looked at some of the most important tips that will help you improve your forex trading. We have seen the role that emotions play in the market and how upgrading your computer can help you. We have also looked at the role of a stop loss and a trading journal in becoming a better trader.
