TRADING foreign exchange (FX) can either be daunting or exhilarating. Which kind of experience you have largely depends on your approach. A disciplined attitude is likely to be more effective than a casual one for the simple reason that uncertainty and anxiety tend to disappear when a trader has set himself clear conditions regarding decision making.
Obviously, market events matter, but trading is first and foremost a psychological tussle between your own hopes and fears. It is best to think of financial markets is as external events that cannot be controlled or predicted with certainty. You should concentrate on your own performance.
A trader with extensive market knowledge but no trading discipline is less likely to succeed then one with limited market knowledge who maintains trading discipline at all times.
For this reason, you should spend time deciding your trading strategy before placing your first trade, as this will make it easier to concentrate on market events. It is absolutely crucial that, for example, you observe market price action and try to identify trading patterns before risking your capital, making sure your observations help you formulate a trading plan.
Your trading strategy should take the following into account:
• Which currency pairs you will use
• Trade frequency
• Time horizon for each trade
• Technical indicators you plan to use
• Buy/Sell signals you plan to use
• Estimated risk and reward for each trade as well as your overall exposure
Maintaining consistency with your trading system and following up with good analysis of your own processes will help to gauge where you are going wrong. Using a simulated demonstration account that carries zero risk to your capital is a good way of achieving this.
In trading, the simplest things can sometimes be the most rewarding – it has been proved that following a daily routine in terms of which indicators you look at and at which times can help improve your trading performance.
Another powerful technique is visualising possible scenarios and your response to them: those who are prepared for bad situations are better at avoiding panic because their response has been laid out in their minds beforehand.
All those expecting the rewards and glamour that are associated with trading should readjust their expectations and be prepared to work hard and stay disciplined. Forex trading is an exciting experience, but also a very challenging one.