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When it comes to investment vehicles, it’s hard to ignore the foreign exchange market. The sheer size of it alone puts other markets to shame. With over $1 trillion worth of transactions occurring per day, the market is definitely worth considering if you are trying to construct a diversified and liquid portfolio. But blindly jumping into forex as a career or business can turn into a financial catastrophe. If you wish to belong to the less than 10 percent of professional traders who successfully cash out profits from their trading account, you’ll need to learn and master the technical strategies and profound habits they implement on a regular basis.
Day Trading
Most traders fall under this category. Day traders are people who open and close their positions within the span of the day. Doing so alleviates their account of price volatility that occurs overnight. Depending on the pairs they trade, they can also avoid the rollover fees charged for holding negative-rate currency pairs like a short NZD/USD or short USD/JPY position. Forex day traders use either a 1-hour or 4-hour chart for identifying the best possible entries and exits. A Daily chart may be used to view long-term price direction.
Scalping
Scalpers are those who prefer a fast-paced environment and extract small profits multiple times throughout the day. In Forex, if you are closing positions that are less than 10 pips or holding positions only for 1-minute or 5-minute windows in your chosen trading platform like AlfaTrade, you are considered a scalper. Ironically, novices who should be avoiding this high-level technique are the ones who frequently use it. The internal pleasure of snagging nominal amounts without any difficulty appeals to such demographic. All too often, however, scalps start to generate huge capital losses that either offset their initial profits or dry up their trading account.
Swing Trading
Swing trades tend to be more profitable over the long run. Swings or price movements that range back and forth loose price levels actually have a higher probability rate than scalps. This is because swing traders look at longer time frames like 4-hour, 8-hour, and Daily charts to build trade ideas. Since swings don’t really have an exact date and time when they’ll reverse to the other direction, swing-based trades may be left open for as short as a day to as long as a month. Technical indicators like Stochastics and Relative Strength Index are commonly used with a swing trading technique since these indicators give an idea of whether or not current price is overbought or oversold and if there is an impending reversal.
Investing
Long-term trades that last for months to years are considered an investment rather than a trade. Now, there are pros and cons to forex as a long-term investment. One pro is that you get to maximize profit from your trade and even amplify it by incrementally adding to your initial position size. In effect, you also cap potential losses from short-term price volatility, not to mention the daily headaches and pains of watching your account fluctuate to lower levels. A possible downside, though, is that growth potential is also capped since price won’t be heading straight up or down.
Risk Management
While it’s not large and multi-layered enough to be considered a technique, risk management is an important branch to expand your knowledge to. It helps you acknowledge the fact that loss is inevitable in trading, and that the only thing you can do is manage it effectively. Effective risk management involves habits that are hard-coded into the trader’s mind. This includes setting hard stop losses and profit targets overnight and over the weekend, looking at high-impact economic reports and adjusting positions accordingly, and even choosing to stay on the sidelines when there are no tradable setups.
Candlestick Technique
Candlestick patterns can be used for all the aforementioned trading styles. Candlesticks offer more data than bars and lines due to their relatively larger and more visual elements. Traders who are well-versed in trading with candlesticks often ditch other technical and fundamental parameters that commonly guide most of the trading community. Instead, they trade with a naked or clean chart. Using candlesticks and their respective shapes and lengths, a trader can identify which side is winning – bears or bulls. It’s important not to take candlestick formations, albeit, as an absolute signal for trading in a certain direction. Instead, try to place it in context with what the market is doing as a whole.
Final Notes
Becoming a professional trader takes a great deal of time and laser-sharp focus. In some cases, you’ll also need to fund your account multiple times so that it doesn’t get margin called. The important thing, however, is to absorb all your mistakes and learn from them. Soon enough, you’ll find yourself becoming more comfortable in trading the chaotic and unforgiving forex market.