First what is Forex: The FOREX or Foreign Exchange market is the largest financial market in the world, with an volume of more than $1.5 trillion daily, dealing in currencies. Unlike other financial markets, the Forex market has no physical location, no central exchange. It operates through an electronic network of banks, corporations and individuals trading one currency for another.
Forex trading ? it's one of the most exciting new ?games? in town. The stakes are variable enough that almost anyone can play, and the potential winnings are high enough to tempt even the most conservative into the running. There's something romantic and dashing about trading in money ? a cachet that stock, bonds and mutual funds just don't have. With trillions of dollars changing hands everyday, it seems like everyone's got a fail-safe method that will make you rich overnight. Here are nine failsafe facts that will guarantee that you fail in forex trading.
There is a failsafe method to make money on every trade.
Just like there's no such thing as a free lunch, there's no such thing as a failsafe method. You WILL lose money on some trades, it's inevitable. Expecting to always win is a guarantee that you will hang on to trades long past the point that an experienced trader would have found an out.
You don't need to know anything about the market to make money in it.
Not knowing your playing field is a sure way to hit every bump and hole in it. It's not enough to read a few articles from your dealer. You need to make a concentrated effort to understand the forces that drive the market so you'll know the best times to make a move.
You can play a winning game by making frequent trades with small profits.
If your goal is to make a few hundred dollars a day, you may be ahead of the game, but you're seriously limiting your profit potential. The only people getting rich on frequent tiny trades are the dealers taking commission on them.
You don't need a plan to make money in the currency market ? making money IS a plan.
Trading without a well-thought out plan is like jumping out of a plane without a backup chute. Your plan is what keeps your eye focused on your goal, and gets you through the inevitable losses. Currency trading isn't a short-term game, but most new traders (95%) quit within the first year because they didn't have a plan to follow.
If you stick with a losing trade long enough, it will turn around.
Sticking with a losing trade is a good way to lose more money. When a deal isn't going the way that you expected, it's hard to admit that you were wrong and get out ? but it's the best way to avoid losing even bigger money. Winning on one trade isn't going to make you rich overnight. Consistently knowing when to get out ? whether it's to cut your losses or grab your winnings ? is the way to be a successful currency trader.
Where there's smoke, there's fire.
Rumors are just that ? rumors ? 99% of the time. If you want to win at the game, base your trades on reality, not hearsay. On the other hand, rumors can alert you to look at what's really happening and make a decision based on the movement that you see.
The more currencies you trade, the better your chances are of scoring a big profit.
The more you know about a currency, the easier it is to predict how and when it will move. The more intimately you understand the way it behaves, the better your chances are of consistently making successful trades in that currency. If you're trying to focus on too many different currencies, you'll be spreading yourself too thin to really get to know any one of them.
Thinking long-term and trading short-term is a sure way to make money in the long run.
That's one of those logical fallacies that sound good on the surface. Look at it more closely though. If you're trading in the short term, then you need to keep your eyes on the short term rather than trading to what you think the market will be in a week. Today is today ? if you make your best trade today every day, you'll consistently be ahead of the game.
The way to make money in forex is to always have a trade in motion.
Sometimes there just isn't a trade that's going to profit you. Making a trade just to make a trade is a sure way to do yourself no good ? and possibly a great deal of harm.
How?
When you trade in the forex market you take advantage of margins, leverage and the low minimum amount required to start trading. These factors combined make the foreign exchange market ideal for individual investors on low budgets.
The problem is a large amount of traders never make money and most lose all of their trading budget within the first year.
But why?
The problem comes down to 6 main factors:
1 - Lack of research. Trading successfully in the forex market is not easy. You can pick up the basics pretty quickly, but mastery is difficult. Successful traders make it look very easy, but in reality predicting the ebb and flow of currency prices is a complex task.
Being a small trader you are at a disadvantage, you don't have the same resources as the big financial institutions, who can have teams of people following trends and analysing every economic indicator. You've got to do all the grunt work yourself. So you need to make sure you spend plenty of time learning and practising with demo accounts before you ever consider going 'live'.
2 ? Crazy expectations. A lot of new traders hear about forex trading and the 'easy' money being made and jump straight in head first, losing all in the process before they realised where they were.
Forex trading has never been a get rick quick money making scheme. Hard work, research, planning and a strong head are needed. With all these factors met, you're still going to get losing trades. Every good trader loses, the trick is knowing when to get out, and when to stay in.
3 ? Poor focus. You can potentially trade with a lot of different currencies, so when you first get going focus only the popular currencies, the US Dollar, the Euro and The Yen. For every new currency you get into, you have extra data to process and analyse to identify trends. It's much easier and better to focus on a few and really dig deep into the data than to spread yourself thin.
4 - Taking a gamble. Don't try to beat the market without doing thorough research. It doesn't work. Never trade on a hunch if you want to keep your house. You'll see the occasional person who does this, wins a few traders in the short term, gets over confident, then gets annihilated further down the line. Don't gamble, don't take risks you can't afford to lose.
5 ? The biggie. Failing to have a trading system. Trading systems are ten to the dozen, you can find them everywhere (even on ebay), and there are lots to choose from. Some are free, but the best ones you'll have to pay for. Find a system that is right for you, based on you available capital, 'your style', and most importantly your goals. If you don't have a system you may as well be playing Russian roulette.
6 - Failure to stick to your chosen trading system. There's absolutely no point in having a trading system if you don't follow it through in both good and bad times. As with most things it's easier said than done. You may get greedy and take a stupid risk, or you may get cold feet and exit too early. You have to block out your emotions, use your system to identify your entry and exit points. Don't ignore them or you put yourself at risk of losing out on a huge upturn or being taken out by a trade that goes horribly wrong.
The big 'dogs', the best traders, understand that timing your exit point from a trade is as important as entering at the right time. Use your system, use your brains and leave your emotions and ego at the door.
Both David Mclauchlan & Justen Robert Case are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.