5 Essential Tips to Improve Your Forex Trading

Forex trading (forex or FX) is the process of trading one currency for another. It also represents the price or how much it costs to buy the currency of one country using the currency of another country. Today, the forex exchange market is one of the most active markets in the world with over $6.6 trillion dollars’ worth of trades made each day.

Foreign exchange transactions mostly take place on the foreign exchange market, also known as the forex market. Every day, millions of traders worldwide speculate on currency pairs to profit on one gaining or losing value against another. There are four main types of forex trading strategies: scalping, day trading, swing trading, and position trading.

The primary difference between the trading types is the amount of time taken to buy and sell an asset. The duration of the trading ranges from a single day to several years, depending on the timeframe and length of the period the trade is open for.

Day trading is the shortest of the three. It involves making dozens of trades in a single day, while swing trading involves holding positions over a period of days or weeks. For example, scalping is on the short-term end of the spectrum and involves positions opening and closing quickly with the aim being to make lots of small profits.

Unlike day trading, swing trading is a speculative strategy where investors buy and hold assets to profit from expected price moves. Swing traders leverage technical analysis to determine entry (buy) and exit (sell) points.

There is also position trading, which involves holding positions for the longest term. Trades can be held for months or even years with the aim being to make a large profit in the future. While position trading is more like a “buy-and-hold” strategy where traders sometimes hold positions for years, swing trading involves a timeframe of a few days.

Foreign exchange is impacted by a country’s economy and having a diverse revenue base can boost forex earnings. For example on the African continent, Nigeria has the largest forex market, and with the largest economy in Africa, the Nigerian trading market is expected to experience a boom through the next decade.

As such, learning how to participate successfully in forex trading is a long process that requires a lot of dedication, however, with the right knowledge and strategy, the potential rewards are significant.

Here are five tips to help you to improve your forex game and become a more profitable trader:

1. Develop a trading style and define your goals early on

Many people start out forex trading without having a specific goal in mind, however, this ‘give it a go’ approach can lead to you quickly losing focus when things get more complex than you anticipated. Having a well-defined goal will benefit you not only in terms of motivation but will help to inform your trading strategy.

It enables you to choose between short-term and long-term trades and helps you decide what level of risk you are willing and able to take. You might consider day trading if you want to see smaller, more regular profit or opt for position trades if you are playing the long game.

2. Have a consistent methodology

While you might amend your strategy as you become a more experienced forex trader, it is important to be consistent in how you make decisions on which trades you execute. Decide what information you will consider before each trade and have set criteria, for example, you might use specific economic markers, or you could rely on technical analysis.

3. Calculate your expectancy

Expectancy is a formula that a trader can use to determine the reliability of their chosen system. You can look back at your last 10 trades and chart where you would have entered and exited a trade, determine how many were winners and how many made a loss.

From there, add up all of your profitable trades and divide the answer by the number of winning trades you made. The formula is: E=[1+( L /W )]×P−1

The percentage represents how much you will return (or lose) for each dollar traded over the long term.

4. Choose the right broker and trading platform

When you start out with forex it is imperative that you choose the right broker and trading platform. There are a variety of different platforms with different features and offerings that you need to weigh up.

Each platform will have different chart time frame offerings. Lower time frames are often favored by newer traders as they allow you to make lots of trades in a short space of time and build up experience quickly, these can result in smaller but more regular profits.

On the other hand, some platforms prioritize higher time frames. These are generally the platforms aimed at more experienced users and these charts are used to get higher profits in the long term.

Different platforms are built of different programming languages, with the most established and popular being MQL4 and MQL5. Familiarize yourself with the common programming languages and find the platforms that have your preferred style.

Some platforms come in the form of downloadable software for your computer while others are cloud-based and accessed via your web browser on any device. It’s a good idea to think about when and where you will be trading and how important convenience is to you when you sign up for a new platform.

5. Manage your risk with small losses

When you set out as a forex trader you need to think clearly about how much capital you have available to you and how much you can dedicate to trading without putting yourself in any kind of financial difficulty. You are not guaranteed to make profits and you might even make significant losses and so you cannot think of trading as a reliable form of income.

Only risk money that you have spare and that isn’t needed to pay bills or fund your lifestyle needs. By trading somewhat cautiously and accepting small losses you may find that you are more successful in the long term.

Being a successful forex trader takes time and a significant amount of patience. Many new traders lose sight of their goals early on and do not take the time to develop their experience and strategy as a result.

Taking these steps will help you to improve your forex trading and enable you to make more winning trades in the future.