Let’s face facts; it’s easy to see why anyone with even a small amount of disposable income would want to trade forex in the modern age.
After all, an estimated $6.6 trillion is traded globally every single day in this marketplace, while the foreign exchange also boasts a total value of £1.934 quadrillion (which is 2.5-times the size of the world’s cumulative GDP).
However, the forex market is incredibly volatile and complex, while there’s the potential to make disproportionate losses as well as gains. In this post, we’ll look at how forex traders can take their skills to the next level and mitigate the risks associated with currency trading.
Improve Your Money Management
They say that there’s an intrinsic link between investing and gambling, especially from the perspective of pursuing gains and factoring in measurable risks.
Both of these pastimes are also linked by the importance of effective money management, whether this refers to your capital holdings as an investor or gambling bankroll. This is complicated slightly in the world of forex trading due to the availability of leverage, which enables you to open positions that are far larger than your initial deposit.
However, it’s generally advised that you should never risk more than 3% of your available capital on a single trade, as you look to strike the optimal balancing between maximising returns and minimising risk.
This is particularly important when trading currencies, due to the innate volatility of the forex market and its capacity for short-term price movements. Without this type of money management strategy, you’ll incur greater risk as a trader and potentially increase the value of your losses.
Consider Your Trading Mentality
Psychology and mentality play a key role in your success or failure as a forex trader, from your outlook as an investor to your ability to sustain both gains and losses over time.
If you want to achieve long-term success as a forex trader, it’s imperative that you maintain a strong sense of focus and discipline. More specifically, you’ll need to have a specific target pertaining to a maximum percentage return or loss each day (depending on your appetite for risk), while utilising strategies to optimise your chances of success.
When it comes to your overall outlook, there’s also a need for successful traders to accept the random nature of gains and losses. After all, both are fundamental outcomes that arise as a result of individual trades, and neither should be allowed to elicit an emotive trading response.
This also ties into the need for a defined sense of determinism, which can underpin thoughtful trading and help to factor in the underlying laws that govern change in the forex marketplace.
Keep a Trade Journal for Evaluation
If you’ve ever heard of a trade journal, you’ll know that this refers to a document that charts your individual orders and successes (or failures) over time.
This is fast becoming an important part of any beginner or intermediate trader’s journey, with a view to charting their growth over an extended period of time and evaluating performance from the perspective of successes and failures.
More specifically, you can go back in time and evaluate your results in detail, particularly from the perspective of your results and the reactions and emotions that may have impacted on your decision making.
Most importantly, this offers an objective insight into your strengths and weaknesses, highlighting key areas in which you can improve as a trader.