From my experience, the key to longevity as a Forex trader is to understandthe challenges that abound in the unpredictable world of currency trading.
By knowing your market and having a deep appreciation of the main variables at play, an experienced trader can equip him or herself with the necessary arsenal of tools to ensure consistent results over a profitable trading career.
In my mind, there are 4 key aspects to this:
- UNDERSTANDING MARKET BEHAVIOR
As a seasoned trader, having a solid understanding of what motivates market behavior will help you master your craft as a currency trader and protect your investments.
Keep abreast of market activity by paying close attention not just to the financial news, but also by reading the OTCBB (Over the Counter Bulletin Boards) and Pink Sheets of companies whose stocks are being touted.
But it doesn’t end there. Understand that within a market boom, there may be companies being marketed as lucrative prospects that don’t really have the particulars to back this up. Nevertheless, attractive and well publicized prospects will feature heavily on your Forex news tickers, seeing a demand for shares spike, along with the price.
You must read between the lines and do your research in order to decipher whether or not this prospect will yield a sound investment long-term or represent a “boom and bust” similar to the end of the 1990s. I recommend you peruse historical figures, analyze earnings reports and utilize the Price/Earnings ratio and any other parameters to fully inform your trading decisions.
- BEING SENSITIVE TO SHARE PRICE MOVEMENTS
As the market waxes and wanes the price movements of financial instruments fluctuate, sometimes running contra to the expected projection of the stocks. Extremely irrational market movements indicate a crash, which is a warning to the smart Forex trader to exercise caution.
A boom in trading can be a tell-tale sign that the market has been flooded with novice traders lapping advertising puff andcausing an aggressive peak in demand for stocks, leading to artificially induced capital gains that cannot be sustained over the long term.
As a savvy trader, you need to use all of this and read the sign so you liquidate your holdings BEFORE the market inevitably crashes. By doing this, you will be able to short sell to offset the stocks you hold and minimize loss. So, pay attention and know when to get out, before you lose out.
- CONTROLLING YOUR RISK EXPOSURE
I like to call these “The Three Kings of Risk Control.” Tweaking and setting these factors gives you a greater spectrum of control, allowing you to optimize your trades.
i) Position Sizing: Vary your trade size according to the current trend.
ii) Capital Allocation: Get this right; it should be neither too high nor too low.
iii) Stop Placement: Incorporate indicators into your stop loss placement for increased safeguarding.
- HAVING A CONFIDENT STRATEGY COMBINATION
Finally, over-adherence to technical analysis alone does not yield good long-term profit. Technical signals alone have only a 1:2 success rate, which, if amplified long-term over high yield trades, translate to sizeable losses that can take a high-rolling trader all the way back down into serious negative equity.
Your trading strategy should combine technical know-how and market analysis with a tried and tested system, such binary-option, Price Action Trading or an algorithm such as Fibonacci sequencing to name but a few.