What to Consider Before Picking Trading Strategies
Forex is increasingly popular in South Africa. Through licensed brokers, traders connect to the global marketplace, where they buy or sell currencies for profit. But what strategies bring the highest gains?
Any aspiring trader should begin with the fundamentals. Take time to explore the functions of your trading terminal. Pay close attention to the following:
- the connection between Ask and Bid for your chosen pair,
- terms and conditions offered by the broker,
- how positions are opened and closed;
- risk hedging tools like Stop Loss/Take Profit.
Why Use a Demo Account
Every neophyte should first explore their trading terminal in the demo mode. This training environment is perfect for learning, as all the features may be tested with zero monetary risks. Until you deposit real money, play around with trading features to get familiar with the procedures. Transition to live trading only when you feel confident and know what strategy to pursue. Here is an overview of the most popular FXTM Forex trading strategies.
Manage Your Funds
Any trader has to evaluate their resources, risks and opportunities before getting in the game. Remember that any form of investment, including currency trades, has an inherent degree of risk. What can you afford? How much leverage are you planning to use? Planning will prevent you from unjustified losses.
How much you can put at stake should be clear before the start of the trading day. Humans are most rational before they open a trade, and most irrational once it is open. Do not let emotions guide your decision.
Manage Your Time
If you treat Forex seriously (like you should), online trading can be your full-time occupation. Day traders do not just turn on their computer and wait for the market to open. They spend a few hours preparing for each new day: applying fundamental and technical analysis, evaluating their own performance, etc.
If you want your success to be consistent, prepare thoughtfully. A couple of hours of preparation and a couple of hours of trading may result in a steady 10% return on your capital every month. You could keep your current job and trade in your spare time.
Spectacular profits, however, require you to put in hours — at least, if you want to make them consistently. Forex is not a gamble — it is a money-making tool that helps you monetize knowledge.
Be Willing to Learn
Today, there is an abundance of Forex tutorials, articles, and other educational material. To foresee the movement of currency rates, one must understand the primary drivers of the market. These belong to both micro- and macroeconomic categories. From interest rates to international conflicts, the sheer range of factors is impressive.
Traders need to check finance news daily. Make it your habit. For instance, if the price for benchmark crude collapses, currencies of many oil-exporting nations depreciate.
Know When to Trade
Once the market opens, it experiences initial volatility. These dramatic swings may prompt beginners to open trades immediately. However, this is not the best approach. Experts from FXTM recommend that you bide your time, and wait at least 15 minutes.
Any solid strategy is based on three essentials: volume, liquidity and volatility. Every potential trade must be evaluated based on these key criteria. Here is what each component implies.
The volume shows how often an instrument changes hands over a certain period. In the day trading scenario, this is referred to as ‘average daily trading volume.’ High volume reflects a high interest in the asset. If you notice the volume climb up, the price is also likely to grow.
High liquidity means you can enter and exit trades quickly at favourable prices. For example, exotic currencies are the least liquid, as they are tied to emerging and unstable economies. Finally, volatility equals changeability and defines the range of potential profits. The most volatile assets include cryptocurrencies.
Example: Breakout Strategy
This method requires knowledge of support and resistance. A trader waits for the price to break out of its range. Once it falls below support, a short position is opened. If it rises above resistance, a long position is taken instead. The underlying logic is that prices usually maintain the same direction after the breakout.
The Bottom Line
Today, the range of proven Forex strategies is wide. To make profits consistently, you need to make rational decisions and develop your knowledge of the market. Open positions thoughtfully, and keep track of all vital parameters for each trade. After you master currency exchange, consider adding more instruments to your portfolio.