What makes a forex trader profitable? Looking at a wide array of real data, four patterns are found. Timing is critical. The best time to trade is not necessarily what you thought it would be, and it certainly depends on the trading style. It also depends on the currency you’re trading with: profitability is higher with certain currencies at certain times of the day, but the same currencies yield losing trades at different times.
Why do many traders fail at forex trading? Very often we find that common trading strategies have limitations that few understand.
There is more to profitability than timing. Here are 4 patterns related to forex profitability. These are all based on hard facts accumulated by FXCM for its US clients.
FXCM is a large US forex broker with significant global operations, so the data here is significant.
- Forex Traders with FXCM were right on their trades more than 50% of the time. Anyone would say that is a great statistic. Does that mean they were profitable on their account? No, traders lose more money on losing trades than they win on winning traders. A simple fix to that is traders should be using stops and limits to enforce a risk/reward ratio of 1:1 or higher.
- Most forex traders are range traders – that means that they don’t wait for a breakout. The more success in range trading was done during Asian trading hours, when movements are are more limited to ranges. It’s important to remember that the opening session of the week is more volatile than all the rest that follow.
- The third most common mistake traders made is trading with too much leverage. Traders should take their account equity and multiple it by the effective leverage target and they will know their maximum account exposure before entering a trade. High volatility + high leverage are usually a recipe for wiping out the account.
- European and North American Trading Hours tend to have the most volatility. We’ve seen that trading on trade breakouts tend to be more successful trades during that time. If you’re stalking on breakouts, then these volatile sessions (and especially the overlap) are the best times for you.
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Editors’ Picks
EUR/USD stays weak near 1.0650 ahead of Eurozone PMI data
EUR/USD remains on the back foot near 1.0650 in European trading on Tuesday. Resurgent US Dollar demand amid a cautious risk tone weighs on the pair. Investors stay wary ahead of the preliminary Eurozone and US business PMI data.
GBP/USD eases below 1.2350, UK PMIs eyed
GBP/USD is dropping below 1.2350 in the European session, as the US Dollar sees fresh buying interest on tepid risk sentiment. The further downside in the pair could remain capped, as traders await the UK PMI reports for fresh trading impetus.
USD/JPY: Japanese Yen bounces off multi-decade low against USD, lacks follow-through
The Japanese Yen draws some support from the possibility of a government intervention. The divergent BoJ-Fed expectations and easing Middle East tensions cap the safe-haven JPY. Traders also seem reluctant ahead of the key US macro data and BoJ meeting later this week.
Editors’ Picks
EUR/USD stays weak near 1.0650 ahead of Eurozone PMI data
EUR/USD remains on the back foot near 1.0650 in European trading on Tuesday. Resurgent US Dollar demand amid a cautious risk tone weighs on the pair. Investors stay wary ahead of the preliminary Eurozone and US business PMI data.
GBP/USD eases below 1.2350, UK PMIs eyed
GBP/USD is dropping below 1.2350 in the European session, as the US Dollar sees fresh buying interest on tepid risk sentiment. The further downside in the pair could remain capped, as traders await the UK PMI reports for fresh trading impetus.
Gold could see a rebound before resuming the correction
Gold price sees a fresh leg down in Asia on Tuesday even as risk flows dissipate. Receding fears over Middle East escalation offset subdued US Dollar and Treasury bond yields. Gold remains heavily oversold on the 4H chart, rebound appears in the offing.
PENDLE price soars 10% after Arthur Hayes’ optimism on Pendle derivative exchange
Pendle is among the top performers in the cryptocurrency market today, posting double-digit gains. Its peers in the altcoin space are not as forthcoming even as the market enjoys bullish sentiment inspired by Bitcoin price.
Focus on April PMIs today
In the euro area, focus today will be on the euro area PMIs for April. The previous months' PMIs have shown a return of the two-speed economy with the service sector in expansionary territory and manufacturing sector stuck in contraction.
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