Table of Contents
Chapter 1: What is Forex Trading
Chapter 2: History of Money and Origins of Forex Trading
Chapter 3: Forex Trading Terminology
Chapter 4: Important Aspects of Forex Trading
Chapter 5: Players in The Forex Market
Chapter 6: Factors that Affect the Forex Market
Chapter 7: Risks Involved With Trading Forex
Chapter 8: Why Trade in the Forex Market
Chapter 9: How Forex Trading Works
Chapter 10: How to be a Successful Forex Trader
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Chapter 10: How to be a Successful Forex Trader
– Using Analytical Tools Effectively
– Technical Analysis
– Fundamental Analysis
– Staying Informed
– Focus on One Pair
– Planning
– Discipline
– Perseverance
– Unemotional Trading
– Understand Signals
– Commitment and Hard Work
Chapter 10: How to be a Successful Forex Trader
Trading in forex markets can be a quick way to make a big profit or a big loss depending on how you approach it. Most new investors look at the forex markets as the treasure chest and the trading account as the key which will give them access to the riches inside. Never forget that while forex can give you immense gains, there is also a huge downside potential in this market.
Success can be elusive in this market and very few forex traders have actually made it big. This is a fact that every aspiring forex trader must firmly keep in mind before venturing to trade in currency. Successful traders haven’t made their profits simply by luck. It is the combination of skill, research, perseverance and knowledge that has made them rich.
Using Analytical Tools Effectively
There are some well structured tools that forex traders can use to analyze the market and make accurate predictions. These tools are not simple formulas where you can plug in figures and find out where the price of a currency will be at what time. They are more like a grouping of relevant information and statistics. Investors use many types of data to arrive at their predictions. These include, among many other factors:
- Past performance of currencies
- Geo political factors and their influence on the market
- Historical trends
- Economic indicators
With a study of these factors, investors in the forex market are able to arrive at possible future trends. This is the basis for their trading strategy.
The analysis used by forex traders can be categorized into fundamental and technical analysis. Most investors base their decision on technical analysis. However, it is usually a better idea to use fundamental analysis in conjunction with technical aspects to come up with more accurate price predictions.
Technical analysis uses past prices to determine price trends. Historical data often yields a pattern which can be applied to current prices to show how they will move in future.
Analysts use pricing charts and indicators to map the movement of prices in the forex market. The 24 hour trading which is possible with forex and the huge volume which are traded generate a large amount of statistical data to base conclusions on.
Technical analysis supporters believe that all other factors including fundamentals are already factored into the price of the currency. This is why they fluctuate. It is this price that forms the basis of technical analysis and thus an accurate price prediction can often be made by these methods.
Fundamental analysis takes into consideration other factors that are, in a way, fundamental to the currency value of a country. A varied group of factors may influence prices of a currency. Economic conditions like inflation, deflation, recession, industrial growth etc all have an impact on the economy of a country with respect to others. This comparative standing is reflected in the currency too.
Natural disasters and phenomenon divert the funds of a country into non trade or investment activities thus subduing the commerce. This causes the currency to either remain stagnant at one level or to decline. Factors like the purchasing power of the currency, employment, spending patterns, market sentiments also impact currency values in many ways. Other than these local factors, global issues affecting economies worldwide, like a shortage of oil, can also affect currency values.
Fundamental analysis deals with identifying which of these factors are likely to affect a currency in the near future, and in what way. Once the cause and effect is understood, the investor can analyze prevailing economic conditions to gauge how the prices will move.
An experienced forex investor can predict price trends quickly on hearing news that affect the markets. This ability to react immediately and make correct decisions is the key to success in forex.
Fundamental and technical analysis tools help structure data in a way that conclusions can be drawn from it. But an investor also needs to keep himself updated with the latest happenings worldwide so that he can spot the trigger factors. These trigger factors are then factored into the analysis to see how they will affect prices.
It is critical for a forex trader to keep himself updated with important information. The market is highly volatile and the trader must know exactly when to enter a trade and pull out to make the best of the situation. This is possible only if he is aware of changes in factors which will drive prices.
There is a massive amount of information which needs to be assessed in order to make price movement predictions. Different factors affect various economies in different ways and it is difficult to have a good grasp of how each will react to all factors. It is best for a new trader to concentrate his energies on one or two currency pairs.
This makes it far easier for him to track political and economic changes there and also to assess how other factors will affect the currency pair. There is sufficient volatility in the forex market to give substantial gains even with exposure to a small number of currency pairs.
A clear strategy is essential for a forex trader. The trader should not only set his investment goals beforehand but also determine his risk appetite before entering a trade. This will allow him to set in place the proper entry price and stop-loss limit so that he can make profits while keeping himself protected from huge losses.
Forex markets are highly unpredictable and no amount of analysis can really prepare a trader for the fluctuations he will witness every day. The trader must be willing to stay in a position until he can reach his investment goals or has to execute his exit strategy. Quite often new forex traders give in to temptation and cash in when the prices just begin to rise. They are left with unrealized profits when the currency moves upwards to end at far higher prices.
At times, investors hold back from closing their deal when prices drop hoping for revival in the market. The failure to cut losses at a reasonable level can also lead to huge losses.
A disciplined approach is a vital characteristic of a forex trader. He must be able to follow his strategy single mindedly to gain the best returns from his trade.
It is very difficult for a forex trader to make a lot of money with the first few trades or within the first few months. But perseverance pays off when it comes to forex. A trigger happy investor who changes his strategy within a few weeks because he hasn’t made a profit is unlikely to do well in the market. Every trading strategy needs time to start showing results and this is true in the forex market too.
A trader who panics at the first sign of a price decline will never be able to take advantage of the volatility in the market. Remember, the forex market is a highly speculative one and it is the inherent volatility in the market that makes you money. For a smart investor, it is as easy to make money when prices fall as when prices rise.
An expert forex trader interprets the market signals correctly and avoids jumping the gun at every blip. He knows the difference between a temporary price movement and a long term trend. A trend signals the beginning of a movement which will continue for a while. Every price fluctuation is not necessarily the beginning of a trend in the forex market. It is important to learn to distinguish between the two to make the right decision.
There is no shortcut or magic formula to success in the forex market. Every new forex trader must keep this in mind. Hard work is an essential part of formulating your strategy. A lot of research, information gathering and study go into making forex a tool for massive gains.
It is also important to commit enough time to track markets worldwide and to stay updated on happenings in the country whose currency you trade in. Forex trading is a time and effort intensive task and unless you can make a firm commitment on these, it is impossible to make profits in this market.
Forex is not the right option for all investors. Huge profits can be made in the forex market but only if the trader applies the right combination of information, knowledge of market dynamics and analysis to his investment strategy. This highly liquid and volatile market is a dangerous place for the unwary investor but it can be a fertile ground for profits if you are well informed and take the time to train yourself.