Forex is one of the world’s largest exchanges, trading around $4 trillion every day, making it a great investment opportunity. However, though there are great investment opportunities trading Forex, it is very difficult. The reality is that 96% of Forex traders end up losing money, and eventually quitting. This is a terrifying statistic, and highlights that to be a successful Forex trader you need a combination of both practice and skill.
What exactly is Forex trading?
Forex trading is the process of trading currencies over the Foreign Exchange Market. The process of trading currencies is essential for all foreign trade to occur. For example, if you are living in the U.S. and decide to purchase Italian mozzarella, you must pay the Italian distributor in Euros. This means that you, as the the U.S. importer, would have to exchange the equivalent prince in U.S. dollar to Euros. This exchange is how and why Forex exists.
Making money through Forex trading is certainly hard, but there are a variety of factors that can make it significantly easier. To become a successful forex trader, you need to:
- Decide a currency pair to trade
- Stay flexible
- Practice, practice, practice!
- Take advantage of technology
Decide your currencies
To make money trading forex, you must decide what pairs of currency you want to trade. It takes a lot of research to find a suitable currency pair for trading. You should consider every factor about the currencies you want to trade. Two of the most important factors are volume and volatility.
Volume is a measure of how many units of a currency are exchanged. We can use volume to identify trends in currencies. For example, if the volume of trading of a currency pair is trending upwards, it could be a sign that the market size is increasing.
Volatility is how much the value of the currency is changing. One technique that uses volatility is moving averages. In moving averages, a trader gets the closing price for each time period that he or she selected. After these closing prices are added up and divided by the number of periods in their time frame, the resulting calculation is your average. Each of the different moving averages is charted, and shorter periods will show more volatility than longer periods. When the line for a longer period average crosses the line for shorter period average, it can be an indication that the market is about to turn. Investors can use this to decide when to buy or sell a currency pair.
Practice makes perfect
Possibly most important factor is practice, which includes having a solid trading method. This includes having a good idea of possible market moves, such as which stocks are correlated to each other. Many of these strategies are developed through a trial-and-error process, which takes both time and practice. You will ultimately never be able to perfectly predict how the market will move, or to what extent, but having a general understanding of the market will help limit the errors you make. Once you have developed a strong trading plan it is also essential that you adhere to it.
Stay flexible
It is essential to be flexible, even as you gain experience! The way the market works is always changing, and it is essential that you change with it. Some traders assume that, because they have years of experience, they don’t need to continue to learn about the markets. This is a huge mistake, as there are always new stocks and news events entering the trading world.
“One of the biggest mistakes traders make is that they stop being students of the markets.”
Take advantage of technology
Practice makes perfect, but it would be silly to not use the statistical programs that are now at our fingertips. The ability of AI to analyze historical information and predict the course of action is valuable advice to any Forex trader. There are many platforms in the market that now provide this information, and below are a few of the best.
For professional traders, some of the most expensive, but most powerful platforms are:
- Bloomberg Terminal, 2000$/month
- Reuters, $1200/month
If you are looking for a professional, but more economical platform:
- Tradingview, $0 – $100/month
- Bettertrader.co, $0 – $100/month
All of these provide a great way of keeping up with live events and getting trading advice. Good software, combined with the right preparation and plenty of practice can help make you a successful trader.
Interested in learning more about trading Forex? BetterTrader can help. Learn about some of the best Forex brokers for US traders, or check out the BetterTrader.co web app to start tracking Forex markets.
