Learning the basics of forex trading is one thing, beating it and actually turning a profit is another. The foreign exchange market is unique in the sense that, with the adequate amount of knowledge and research and a certain degree of business savviness, it is much easier to succeed than in the stock market.
If you have already covered the basics – risk management, leverage, the Big Eight, calculating the odds – it is high time to turn your investments into money. Without further ado, here are four simple ways to beat the forex market.
Trade Only with Disposable Income
Forex was a gold mine for a select number of people, like George Soros and Andrew Krieger but that does not mean it will be the same for you. Like in every venture, if you do decide to get in and think you have what it takes to make it, remember you are competing with hundreds or even thousands of people that are probably better at it than you. For every Krieger, there is a Smith who made one, big, uninspired decision and quit. Therefore, only trade with money you can afford to lose. Don’t put a second mortgage on your house or use your kids’ college funds in the hopes of striking gold.
Not only is it unwise and wrong, it is also counterproductive. Psychologically speaking, as a trader, you will feel most comfortable taking risks or making bold moves with disposable income that you and your family’s future doesn’t depend on. Investing $100 from time to time is fine, but if you want to do this full time, make sure to put some savings aside and develop a good business plan.
Work on Your Mentality
Speaking about human psychology, if you intend to beat the forex market, you have to work on your mentality. In most cases, many traders fail because they focus obsessively on perfecting every detail of their trading strategy, in the hopes of getting good results right from the get-go.
While developing an effective strategy is very important, you have to keep in mind that forex is a decentralized market that could fluctuate constantly. It is a business where quick decision making, adaptability and a keen knowledge of patterns are essential for success. As a result, your strategy should be built around more on how to react to certain unpredictable situations than fixed, predictable trading scenarios. And you can only get that type of experience through trial and error.
Another thing worth mentioning is how you feel towards loses, or things that did not go as expected. If you are on a losing streak, instead of blaming it on various external factors, try too see what went wrong and correct it. Treat loses as valuable lessons, not as failures.
Keep Yourself Informed
One key similarity that the forex and stock market share is that they are both information wars. And one of the best places to get that type of relevant information, according to academics, is the Twitter feed.
Developing your buying and selling strategy around predictions made by ‘’informed agents’’, as they are called, will in some cases give you the necessary edge over other traders. They are called like that because many of them work as financial commentators, analysts and brokers. The data collected from 27,557 tweets suggests that most of the predictions about the Euro rising, falling or staying at the same rate were correct.
Of course, Twitter should not be your only source of information. As was mentioned above, slight fluctuations in the market could have the potential of making all of your plans obsolete overnight. There are many other relevant sources that explain how does forex work in terms of market fluctuations, so make sure to check them out as well.
Choose A Few Trading Strategies that Suit You
You might think that this entry directly contradicts the second one, but it is not the case here. Learning a few trading strategies that are efficient on the long run is one thing, stubbornly sticking to one in spite of the dire situation is another.
A trading strategy that you should learn is price action trading. This particular method is very popular because it is designed to be immune to shifts in the dynamics of the market. It is a technical analysis strategy that involves focusing on high-probability price patterns that repeat themselves. If you are new to this market and do not know on which trading strategy to focus on, this is a good starting point for all beginners.
An important thing to keep in mind is that there is no such thing as a ‘’perfect strategy’’. Again, adaptability to sudden changes and flexibility are key for surviving in this business. Like in life, applying one method to solve all problems does not work. But in the meantime, if you are a rookie who has just started, picking one easy method and learning it is better than overflooding your mind with others.
Beating the forex market is no cakewalk, but there are a few ways to do it. Working on your mentality, keeping yourself informed, being adaptable and trading with money you can afford to lose are a number of good habits that you have to develop if you want to eventually turn a profit. Once you get the hang of them, then you can start thinking about beating the market.