Posts Tagged ‘trading psychology’
One can answer this question having estimated financial status, spare time and personality. Everybody who is familiar with the specificity of Forex market knows, that there are a few regimes of trading and hundreds of strategies, that is why a person can make an individual scheme of investing. Thus there is no super profitable system, still it is important to select the methods that are most convenient for you.
For example, long-term trading will be convenient for those who have considerable capital which can stand significant price fluctuations. The trades remain open for a long period of time – for months and even for years. If a trader has some skills of capital management and is able to make efficient analysis then the risk of losses becomes minimal. Trading long-tem requires less time spent in front of the computer, as there is no need to control trades 24 hours a day. Consequently, the stress is lower. Aside from that it is advisable to keep in mind that this strategy involves certain patience as it does not bring fast result. Moreover, not all instruments of the currency market are appropriate for long-term trading.
Intraday trading (short-term) demands less money, private traders as a rule conduct a lot of trades during the trading day which are of smaller volumes thus they get profit from short-term currency fluctuations. If the situation slightly changes for the negative, then it is possible to exit the market right away and the risks are not high, if one follows the rules of money management. However, the intraday trader should be stress resistant as he / she has to estimate the situation instantly and make fast decisions. The prices are constantly altering and it is impossible to have a free moment from the screen in order not to miss a profitable moment for conducting deals.
Midterm trading is peculiar as positions here are open for approximately 10 days. Thus there is some time for precise analysis and making a proper choice. In this case a larger initial capital can be necessary. The pressure is lower and the potential gain is higher. Still it should be kept in mind that exiting a trade when you want can be difficult.
Individual trader is also considered as a profession. And every occupation requires professional skills as well as certain traits of character depending on the type of personality. Theoretically determining the sphere of activity, individual features of temper should also be considered in order to use one’s individual potential correctly. Thus in trading, having estimated one’s potential adequately, it is possible to find a more appropriate style of trading. The profit should not be the decisive moment here, as no strategy can guarantee instant wealth. At the same time every method of trading should be successful if one plans the trades correctly.
Added by Svetlana Degtyareva,
InstaForex Clients’ relationship manager
The modern currency trading technologies enable the taking of big profits in a short period of time: brokers provide their clients with leverages; client terminals support the function of automatic trading etc. Indeed, with Forex it is possible to become rich in a moment but it is also possible to lose everything at once.
Let us discuss the main market and non-market risks.
Exchange rates volatility
One of the main properties of Forex is its volatility that reflects the dynamics of prices. The market is considered as volatile if there are frequent and significant price fluctuations. Price spikes can lead to financial losses. While opening a deal a trader should consider that prices are subject to various fluctuations. Therefore, it is necessary to control the opened positions or to place limit orders.
Dynamics of prices is affected by various economic and political events as well. The release of breaking news can provoke significant price changes. Moreover, from time to time the central banks carry out the currency interventions in order to influence the exchange rate of the national currencies. Interest rates also play an important role as they can lead to the changes in exchange rates.
The risk of using a leverage
Leverage serves as a comfortable and effective trading tool. The profitability of deals can be significantly multiplied if you use the assets borrowed from a broker. The higher the profit is, the greater the risks are. The losses cannot exceed the equity of a trader, but if a trader uses a big leverage, then even the slightest price movement in the opposite direction can reduce the deposit to zero.
In order to control deals and to find a right moment for making a buy or a sell deal, a trader needs a computer and a constant access to the Internet. There is always a possibility of unexpected power cutoff, equipment errors or disconnection. As a rule such alternative devices as smartphones, laptops and tablet computers can be a good solution.
Unfortunately, while trading on Forex there is a risk to choose an unreliable broker. But it is quite easy to find a reliable company as there are lots of comments in the Internet. While opening an account you should learn the information concerning the organization, check out the presence of all necessary licenses, read attentively the trading conditions. These measures are essential for security.
Prestigious brokers are not really interested in losses of their clients. That is the reason why they try to ensure the maximum transparency of their activity and propose the effective trading instruments. Reliable companies neither deliberately change the exchange rates nor play against the client! Moreover, you can detect such “bucket shops”, you just need to be cautious.
Available trading and high speed of deals execution can seem easy and simple. If you consider the trading as an exciting game, you can pay for this with your own money. A trader’s decision is influenced by various psychological factors. Therefore, it is necessary to learn how to control your emotions.
Added by InstaForex Staff
Foreign exchange market enables everyone to make substantial profit. However, it implies much hard work. Becoming a successful trader requires taking well-thought decisions on the market. Once failed, beginners tend to put the blame on the market peculiarities, hindering earning money. It is not the case though. We are going to deal with some stories of traders who wasted their deposits away and the ways to avoid mistakes.
The story № 1.
I started my work on Forex with learning the related literature and then I opened a demo account to test my trading strategy. Little time has passed before I was able to successfully conduct my own strategy on the market. This is when I opened a real account. My initial deposit was but USD 10. Having spent a month and half trading, I boosted it up to USD 50. And so the day came when I decided to put at stake my whole deposit and clicked “Buy”. But the very moment I closed the deal I got a message that read “the price has changed, would you like to close the deal for the present price?”. This situation occurred to me more than once. I decided to wait some time, though there was not much to expect. The price changed its direction and started to move downwards, destroying all the positive experience I gained, my self-esteem and the deposit.
Any trader should keep in mind the following rules:
1. Not to open a deal for the whole deposit and observe the money management rules;
2. Not to forget to place stop orders.
3. In order to start trading on real accounts, it is necessary to train trading on a demo account.
The story №2.
Having worked some little time on foreign currency market, I registered a demo account and began to gradually get to know forex processes. At first, my demo trading was rather successful and so I decided to start real trading. I registered a real trading account. My initial capital of USD 100 was not sufficient to cover losses, but I carried on. To cover the losses of one unprofitable deal, I opened another one. All the deals I made caused losses. The market appeared to me absolutely unpromising. I lost an awful lot of money and abandoned Forex once and forever.
The main mistakes of the most beginning traders are emotional inexperience and covetousness. In order to succeed, a trader should not only follow certain risk management rules, but also learn to control emotions and avoid getting consumed by them while trading. It is important that a trader does not let avarice be responsible for trading decisions and is able to close deals in time to avoid losses.
The story № 3.
As most traders, I began my Forex experience with a demo account. I opened one for USD 5000. I started trading, everything was quite good and in a couple of weeks I decided to open a real trading account. I used to enter the market when I wanted, without following event dynamics and taking into account the schedule of trading sessions and releases of major economic news. What I did was turn on the computer, draw a trendline on a 1-hour graph and simply buy or sell currency according to it.
After this I turned off the computer and checked the result after some time. If the price moved along with my expectations, I got profit; if it did not, which happened in most cases, I suffered loss. Eventually, such trading ceased to be profitable at all. This is how my Forex trading ended.
In order to trade on Forex one should possess theoretical knowledge of major market mechanisms. In this respect, before real trading you should spend enough time training on a demo account along with reading Forex literature, which will give you the basis and explain the peculiarities of forex trading. All decisions should be analyzed and weighted up. Only in this case your trading will be profitable.
Added by Yana Krupko,
Popularity of Forex market is growing from day to day and due to development of the Internet and modern technologies currency trading became available for everybody. Thereby, many people with lack of experience and knowledge came to the Forex market. However, sooner or later every beginning trader faces the necessity of learning the basis of currency trading. So books about Forex will teach traders the essence of currency trading on the international currency exchange market Forex.
At present day, Internet carries a great number of literature on Forex trading – these are books on fundamental and technical analysis, books on the psychology of trading, books on capital management and so on. Thus, not only the beginning but also the experienced traders have a huge variety of literature on Forex to choose.
Below let us discuss a few categories of books on Forex, why they are useful and what every trader can find useful in them.
The books on fundamental analysis comprise the literature on economy, which dwell on different financial sides of not only Forex market but the whole global economy. Though not all books on the economy will be identically helpful, you should select only those who are destined for traders.
It is necessary to remember that in the process of trading not all traders keep to fundamental analysis. However, those traders who do, will have a handicap as due to the fundamental factors the international currency market starts to move more often. From the stated above it follows that even those traders who do not adhere to a based on fundamental analysis trade should definitely study the books on Forex fundamental analysis.
The books on technical analysis
The books on technical analysis are most popular among novices of the market. This happens because technical analysis is easier and in simple words deepens a trader into the principles of Forex trade. Exactly with reading these books the majority of traders begin their Forex work. Nowadays it is possible to find plenty of books on technical analysis in the Internet. Though there exists one disadvantage, connected with applying this analysis in trading process. Most part of the available books are too old, so a trader will not get the desired effect. Nevertheless it does not mean that technical analysis should be avoided, simply every trader using technical basis for operating on Forex should modify the applied strategies for himself.
The books on trading psychology
This type of literature should be read by absolutely every trader irrespective of his experience on the market. As it is psychology of a trader’s behaviour which can determine the traders correct actions and the correct schedule for the working day with no harm to health and your funds. Very often traders are making actions not in the accordance with the situation on the market but overwhelmed by emotions. The books about Forex psychology will teach you how to suppress your emotions without letting them into your trade.
The books on capital management
This section of Forex literature is very important and it cannot be omitted. Every participant of the market should study the books about managing the capital. These books help a trader to work out the maximally profitable and correct trading strategies. Moreover, this type of books is significant also because in the Internet there is not so much information devoted to capital management and reading it will not take much time.
Absolutely every participant of trade irrespective of his experience on the market should practice self-education. Analyzing Forex literature together with permanent practice will make your trading profitable and exciting.
Many of the described above sources of information can be found on the educational website of InstaForex Company – www.instafxeducation.com. This is the largest Forex library in pdf-files.
Added by Olga Vitkovskaya,
InstaForex Clients’ relationship manager