Trading successfully is by no means a simple matter. It requires time, market knowledge and market understanding and a large amount of self restraint.
Anyone who says you
can consistently make money in foreign exchange markets is being untruthful.
Foreign exchange by nature, is a volatile market. The practice of trading
it by way of margin increases that volatility exponentially. We are therefore
talking about a very 'fast market' which is naturally inconsistent. Following
that precept, it is logical to say that in order to make a successful
trade, a trader has to take into account technical and fundamental data
and make an informed decision based on his perception of market sentiment
and market expectation. Timing a trade correctly is probably the most
important variable in trading successfully but invariably there will be
times where a traders' timing will be off. Don't loose heart if you loose
on some trades. Experienced and seasoned traders do not expect to generate
returns on every trade.
Let's enumerate what a trader needs to do in order to put the best chances for profitable trades on his side:
Trade with money
you can afford to lose:
If in doubt, stay
Trade logical transaction
Identify the state
of the market:
Many traders get in the market without thinking when they would like to get out, after all the goal is to make money. This is true but when trading, one must extrapolate in his mind's eye the movement that one expects to happen. Within this extrapolation, resides a price evolution during a certain period of time. Attached to this is the idea of exit price. The importance of this is to mentally put your trade in perspective and although it is clearly impossible to know exactly when you will exit the market, it is important to define from the outset if you'll be 'scalping' (trying to get a few points off the market) trading intra-day, or going longer term. This will also determine what chart period you're looking at. If you trade many times a day, there's no point basing your technical analysis on a daily graph, you'll probably want to analyse 30 minute or hour graphs. Additionally it is important to know the different time periods when various financial centers enter and exit the market as this creates more or less volatility and liquidity and can influence market movements.
Time your trade:
You can be right about a potential market movement but be too early or too late when you enter the trade. Timing considerations are twofold, an expected market figure like CPI, retail sales or a federal reserve decision can consolidate a movement that's already underway. Timing your move means knowing what's expected and taking into account all considerations before trading. Technical analysis can help you identify when and at what price a move may occur.
Gauge market sentiment:
In a perfect world, every trader would be looking at a 14 day RSI and making trading decisions based on that. If that was the case, when RSI would go under the 30 level, everyone would buy and by consequence the price would rise. Needless to say, the world is not perfect and not all market participants follow the same technical indicators, draw the same trendlines and identify the same support & resistance levels. The great diversity of opinions and techniques used translates directly into price diversity. Traders however have a tendency to use a limited variety of technical tools. The most common are 9 and 14 day RSI, obvious trendlines and support levels, fibonnacci retracement, MACD and 9, 20 & 40 day exponential moving averages. The closer you get to what most traders are looking at, the more precise your estimations will be. The reason for this is simple arithmetic, larger numbers of buyers than sellers at a certain price will move the market up from that price and vice-versa.
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