Forex trading is the most exciting and lucrative investment vehicle in the world today. Almost every other method of investment has a time frame that’s too long for an acceptable amount of reward for the risk involved. While money is currently being made in stocks, bonds, real estate, and even metals, the volatility in each of these markets could wipe out years of gains in one bad afternoon, and the returns haven’t been good enough to justify the risk in continuing any kind of buy and hold strategy.
Volatility Is Your Friend In Forex Trading
In forex trading, volatility is your friend. A lot of news that would terrify an institutional investor would look like a great opportunity for a smart forex trader. The kinds of uncertainties that are causing entire countries to lose their credit ratings, and even threatening the solvency of trans-national political and monetary organizations, are warning signals for regular investors. In order to take advantage of them, forex traders should stick to trading nothing but reversals. It’s the smart move when markets are not behaving in predictable ways.
There are just too many forex signals to keep track of all of them with any kind of success. Even if you’re paying for a forex signals provider to do all the statistical analysis for you, it’s smarter to restrict your attention to fewer currencies, and use only two main forms of forex analysis. First, try charting support and resistance lines. Then, use a candlestick forex analysis to determine ranges. With an easy to interpret picture of price action with support and resistance lines included, you can easily determine when to act and when to stay on the sidelines. Look for reversals forming by observing how close the fundamentals are to your support and resistance numbers. Once a reversal is evident, enter the trade.
Understand Sunk Costs
Next, it’s important to determine trade strategy and where your stops will be. Too many investors place their stops too many pips away from their entry point because they don’t understand the concept of sunk costs very well. It’s never wise to hang in there with a poor investment because you want to make up for money you’ve already lost. That leads to swinging for the fences — and striking out. If you set your targets for about double the pips you set for your losses, you’ll be sure to get out when the getting is good on the high side, and never chase a losing trade into the cellar.
The beauty of forex trading is you can lose one day, shake it off, and come back the next day, or even the next hour, and make a winning trade. That requires profit taking quickly and stopping losses immediately for the strategy to work over the long run.