Foreign exchange (Forex) trading is a diverse and potentially complex world. There are many ways to succeed and when done right the market can offer high returns, which is why it is alluring for many.
However, it is also easy to lose money, especially for those who have little experience. The Tokenist estimates that there are over 10 million forex traders in the world with 72% of those having no prior experience in trading.
Getting into forex is easy; sometimes, almost too easy. There are people who try it out without much thought. But for forex, a great strategy would be your key to success. Having prior knowledge and helpful tips can also help you make better decisions.
We previously discussed ‘Everything You Need to Know About Investing in US Stocks’. A closer look into stock trading will show you that it’s not too different from forex.
In fact, there may be key Forex trading insights that can be applied to both. Read more on this below:
Analyze Weekly Charts
One of the most valuable forex trading insights is that studying helps inform better decisions. In this case, it is best to study the weekly charts to look for possible news or patterns that can affect your trade.
Doing this on the weekend, when the markets are closed, can give you a lot of time to plan for the week ahead.
Analyzing the charts can tell you if your trades are good, if there is a market reversal, or if there are possible trades you can do in the following days. This will also help you make a strategy that will put you in the best position to trade.
Look at Trader Sentiments
FXCM defines trader sentiment as something that can be drawn from the speculative sentiment index (SSI). It is a proprietary contrarian indicator that is specially made to help you trade trending markets.
This index ratio can tell you whether the positions held by other traders are long or short. A positive ratio will indicate if there are more long positions than short positions while a negative one indicates the opposite.
With this contrarian indicator, you may want to trade the opposite way. If the index is positive, this might mean that the market is over-saturated and that there is pressure to sell. It is an inverse indicator that can help guide you in knowing the best time to enter a trade.
Implement a Trading Strategy
In forex, a trading strategy is what traders use to determine when or where to buy and sell a currency pair. They can be based on technical analysis or fundamental analysis.
Troy Segal defines technical analysis as techniques used to forecast price movements based on past patterns. On the other hand, the fundamental analysis uses current events, social, and economic factors to determine the future value of a currency. These strategies could be made by each trader or those that are widely available on the internet.
A solid strategy can guide you when you need to enter and exit trades. Having one mitigates the risks and helps you make better trading decisions. Moreover, this will outline your financial goals and short-term and long-term plans and will help you focus on your trades.
