5 Simple & Effective Forex Trading Techniques
In fact, if you learn the ropes well, you will have a much bigger chance of garnering profit than if you just speculate blindly or resort to trusting your "gut feelings". Forex trading is, for the people who do it properly, a profitable business. Like any business, it involves some amount of risks and has some tried and tested techniques to make it work in your favor. Let us discuss some basic techniques that will help you cut your losses and increases profits in Forex trading.
Knowing when to buy and sell
The most basic technique of Forex trading is to buy a currency when the rate is relatively low and try to sell it when the rate increases, and vice versa. A careful study of market trends can reveal the rates of which currencies are on the rise. There are probably thousands of e-books available that claim to teach you how to determine this high and low factors. It is better if you rely on your own common sense and be your own master. Learn it the hard way by trying out different strategies rather than studying a lot of articles, which will only leave you confused.
News news news
Read your newspapers thoroughly. Keep abreast of all current affairs, especially the news that can affect the currency rate of your own country as well as other countries. Make watching international new channels your hobby. Even apparently insignificant news can hit the currency market hard, making the rates fluctuate.
This is probably the most important factor in Forex Trading. It is what separates the men from the boys, so to speak. Manage your money well. Before investing a certain amount of money, ask yourself if you are going to face great difficulty upon losing this money. If the answer is 'yes', then don't invest this money. Wait until you have a capital in your hand, however small, which you can lose without your livelihood being dependent upon it. Also, keep a track of your profit and losses. If you see that your losses are outweighing your profit, stand back and research why this is happening. The point is to ensure that, for each trade you make, you only risk an amount that you are willing to lose. You must be able to come out of it once that amount is crossed.
Using good exit strategies
Exit strategies are your strategies for closing out your active trades in the market. In simple terms these are your plans about when to sell the currency you bought (or vice versa) and complete the trading cycle. This is extremely important, especially to stop losing too much money if the market turns against you.
In any business, you need to have a tight rein on your emotions. If you find that your speculation is correct and the rate of a particular currency is going up, don't be so excited as to fail to make an exit in time. The market is so volatile that before you understand what is happening, the rate may shoot down, robbing you off the opportunity to make a huge profit. Similarly, do not be very frustrated if you do lose some money. It is a part of the game. Try to take it in your stride and plan your strategy better next time.
Stick to your plan
When you have entered the market using a particular strategy, don't change your strategy in the midway because you happen to see a move that favors another strategy. It can be really dangerous for you. Stick to your strategy and complete the trading. You can try out an alternative next time. Also, remember it is not at all advisable to change your Forex strategies at the drop of a hat. Develop a good strategy and stick to it rigidly.