What is certain is that day/retail trading can be a really quick and seemingly easy way to earn an extra income on the side from the comfort of home. More and more people are shifting towards trading online as their side gig of choice.
Studying markets and keeping up to date with current global events is a form of research we can also read into from home. Yes, there are other ways to make money online but when we think of buying and selling, handling lots of bulky packages and going to the post office to ship packages can have its challenges and frankly, be a bit of a pain.
Trading online is a clean way to make a nice side earner without the added lifting, packing, delivering and stamp licking that comes with eBay selling. Not an ideal situation for those of us who struggle to wrap Christmas presents.
This article will walk you through the various components needed to trade successfully. There is a range of ingredients that go into the overall recipe of trading success and this predominantly falls on the strategy traders choose to adopt.
There are many strategies when it comes to trading Forex with varying degrees of complexity. Some strategies are better suited to beginners and some more suited to the more astute traders. This piece of writing aims to give traders an understanding of what strategies and methods of research contribute to trading effectively.
Fundamentals to follow
There are a few fundamental rules to follow if your strategy of choice is to be a successful one. This mainly lies with traders' decision making, discipline, and overall psychology. After all, 95% of trading is psychological.
The standout rule would be discipline!
It is critical to remain disciplined when entering markets. Traders are their own worst enemies when it comes to closing a position. There can be a fear element that comes into play and traders can be prone to closing a position too early and don't get enough profit as they could if they were to let the position play out a little longer.
With fear considered there can also be greed which can seep into our trading decisions. Greed as in keeping a position open longer than previously planned. Then typically, the market moves in the opposite direction and traders end up with nothing. So discipline is paramount.
Before opening a position, whether that be long or short, have 2 figures in mind.
1. Target profit
2. Acceptable loss
Have a target profit/loss and stick to it! This will help you manage discipline effectively and keep the wolves of greed and fear at a safe distance.
Keeping emotions in check is a must!
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Traders should consider a range of analysis before entering markets to be as well informed and prepared as they can. A successful trader stands out from the crowd by using a blend of analysis available to them.
There are 3 core areas of analysis.
This focuses on data and the supply and demand of an asset. In terms of Forex, this can have a massive impact on the exchange rate of certain currencies. Traders can look at a country's GDP, employment rates and current political stability within a country and decide whether to long or short based on this information. For example, Great Britain leaving the EU resulted in GBP losing 10% of value in a single trading day.
2. Technical Analysis
This is the study of historical price movements on any particular currency pair. Technical analysis looks at current price action in the market to determine which way the market will move. Traders make use of charts as an indication of whether markets will stabilize, upturn or downturn by using historical data.
Technical analysis is subjective and depends on which charts are being used and indeed, who is reading the charts and analyzing the data.
Market sentiment is the overall feeling of how a market is behaving and how it will perform based on how many people are entering a market position at a certain time.
Some brokers offer analysis tools within their sites to aid traders with their analytics.
Eagle FX offers users a ‘Daily Market Analysis’ feature page which gives detailed market movements on certain currency pairs that are updated daily. Details include support and resistance as well as daily forecasts of bearish and bullish trends and outlines consumer confidence. The analysis is backed up by charts with indicators that can be modified by the user to help in your overall entry decision.
As well as daily market analysis, traders can make use of economic calendars which gives an overview of the latest big global information releases which will, in turn, affect global markets. Depending on which Forex pairs you choose to trade on. For instance GDP announcements, Consumer Confidence releases, Import/Export Price releases, Unemployment Rates, and Interest Rate releases.
Many indicators can be applied to trading platforms such as MetaTrader4/MT5 etc. What is important is to find an indicator that is aesthetically pleasing to you and not to use too many within one chart window as not to cloud judgment. With too many indicators, traders can run the risk of ‘analysis paralysis’.
Bollinger bands are a tool to measure market volatility. They are one of the few indicators based on probability theory and mathematical statistics. The indicators are a simple moving average with bands depicted above and below candlestick movements.
The distance between the boundary of the moving average is not fixed and is a good way of estimating which way a market will move, especially in volatile markets.
In a nutshell, the indicator which was developed by John Bolinger is designed to let traders know how noisy the market is. When the market is going through a quiet period of low volatility, the bands will contract. When there are big candlestick movements in a volatile period, the bands expand.
RSI - Relative Strength Index
RSI is an extremely popular indicator adopted by many traders to help investors evaluate the overall strength of a market. RSI helps identify market conditions and see if market conditions have been overbought or oversold which may weaken or strengthen the price of a currency pair.
RSI is scaled from 0 - 100.
Readings of 30 or less typically suggest a market being oversold whilst readings 70 or above usually demonstrate overbought conditions.
Although this is open to interpretation, an oversold market suggests a good time to buy or ‘go long’. The same way in that overbought markets allows a good opportunity to open a ‘sell’ position.
Scalping is ideal for traders who wish to enter and leave markets quickly with the aim to make a quick profit. This is commonplace when trading with high leverage as profits can be quickly magnified although be advised, trading with leverage can also magnify losses.
What is also important to consider when scalping is the commission a broker will charge. Scalpers will open and close more positions than the average trader and brokers traditionally charge a commission per closed trade so consider this when calculating value for money from a broker.
This is a great tool to use when managing your account balance. Again, we can draw on discipline here. Having an idea of how much you are willing to lose and set a target profit helps deter greed.
What this tool also allows traders to do is walk away from their trading account and rest assured that the tool will take a set profit or close a trade out when it goes into the stop-loss zone set by the trader.
In theory, a trader can have 2 stop losses. The one within the platform and a mental one. So if you are monitoring the market, traders can close out earlier to manage losses.
When choosing a broker to sign up with, ensure that the broker offers the right conditions to suit the strategy you wish to adopt.
MT4 is an award-winning platform that has a range of indicators and features to make you the best trader you can be. Whether you make use of Bolinger bands or stop loss/take profit, there is much more to this platform to get you started on the path to success.
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Risk Warning: CFD and Spot Forex trading both come with a high degree of risk. You must be prepared to sustain a total loss of any funds deposited with us, as well as any additional losses, charges, or other costs we incur in recovering any payment from you. Given the possibility of losing more than your entire investment, speculation in certain investments should only be conducted with risk capital funds that if lost will not significantly affect your personal or institution’s financial well-being. Before deciding to trade the products offered by us, you should carefully consider your objectives, financial situation, needs and level of experience. You should also be aware of all the risks associated with trading on margin.