When investing in foreign currency, the most important things are to choose a good currency broker, a good strategy, and to execute your strategy exactly how it was intended. This article will outline 5 tips to improve your investments with Forex.
Choosing the right broker
You can’t execute your investment strategy accurately if your broker isn’t suited to it. If you’re looking for high frequency trades, then choosing a provider with slow transactions is not ideal, likewise, if you’re a technical trader, then opting for a trading platform with great charting is essential. The best forex brokers can easily be compared and assessed.
A good broker should offer cheap withdrawals and deposits, along with the opportunity to use demo money and has sufficient information – both charting, prices, and fundamental analysis. If you can’t decide between two brokers, opt for the one that has a sign up promotion running.
Understand the markets
If you’re already trading currency, hopefully you already understand the basic market fundamentals. However, keeping up to date with the latest news that is affecting prices is also important. Not just the prices themselves, but surrounding markets, like oil, gold, and the economy in general.
It doesn’t hurt, however, to continue your education. Even if you have been trading for a year now, to continue reading and studying will never harm. Be careful of paid webinars and such, as there are lots of people taking lots of money for information that can be found for free, or in a reasonably priced book.
Sticking to your plan
Whatever your plan is, it’s important to stick to it. Even if it doesn’t seem to be working, don’t prematurely alter it. It’s important to set out rules, and to follow them without emotional interference. Of course, changing your plan if it isn’t working is necessary at some point, but it’s better to pre-establish that timeframe before starting.
It’s worth writing down your methodology in a concise way, so you can reflect back on it in the right moments. The more you deviate from the methodology, the more you’re gambling from a gut feeling.
Entry and Exit points
Within this plan, perhaps the most important rules to use are the entry and exit points. A common mistake is to conflate a daily chart with a weekly one, and confuse the entry and exit points because they’re not synchronized. It can be wise to wait until a buy signal is showing on both time frames.
Setting stop losses and such are automated ways of exiting a position, and should always be set up in order to avoid significant losses on one position.
Backtesting
It’s important to always be trying out new techniques. Practice is important, hence why playing with demo money can save you losing real cash. But, a technique called backtesting can actually out your trading algorithm to the test using historical prices, to see if it would have turned a profit.
Choosing the right bankroll
A common issue is that traders will be investing with more money than they can afford. The issue here is that it means they cannot fully play out their plan, because the first few losses have taken too much from their pot. On top of this, if you’re easily affected by confidence, starting small is even more important. You don’t want to be affected by a bigger loss than you can accept, because you may end up altering your plan to chase the loss.
Weekend analysis
Many beginner traders will take the weekend off, seeing as the markets are shut. This is a good opportunity to get some weekend analysis in though, by studying some charts and patterns ready for monday. On top of this, plenty of news comes out on the weekends, which can directly affect the Monday morning opening position.
Newspapers are a good place to start, such as the Financial Times, but even more broadly political ones could help. For example, understanding US politics is somewhat important to understanding the US Dollar. If you were purely following prices when trading the GBP, you would be somewhat confused, given that relentless breaking news regarding a Brexit deal has been dictating their currency for a couple of years.
Final Word
Forex trading is an art form that takes many years to master. The more information you have, the better – and this refers to both your trading information, and your trading methodology.
Being able to demo and backtest your new trading ideas is super important, because you can simply try countless variations of your own methodology, with slight tweaks, to no risk of losing real money. However, never pick one for real until you have thoroughly tested it and are 100% happy, because you’re going to have to stick with it for a significant amount of time.
