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5 Tips for Success in Forex Trading

Feb 25, 2021   •   by   •   Source: Proshare   •   eye-icon 909 views

Thursday, February 25, 2021 / 04:00PM /  Alex Scott /HeaderImage Credit: Market Realist



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Forextrading comprises the largest and most active investment market in the world.Countless traders conduct transactions each minute, moving trillions (in USdollars) each day. Naturally, all these traders are hoping to profit by buyingand selling currencies against one another's values. But how can you expect tosucceed in such a vast and competitive market?



First andforemost, you should recognize that success is not guaranteed. Forex is activeand expansive, but difficult as well. Amateur traders without the propereducation and experience are likely to take losses, barring significant luck.However, a careful approach based on sound strategy increases the likelihood ofsuccess. With that in mind, here are some tips for success in the market.


1. Useleverage

Leverage is definedby The Balance as "the ability to use something small tocontrol something big." That is somewhat simplistic, but it is also a good wayto boil down the concept. In forex trading, it essentially means that you caninvest a relatively small sum, and trade with a multiple of that sum, to makeyour transactions go further. It's important to note that leverage can enhanceboth gains and losses. However, because forex trades are often made tocapitalize on shifts in value that amount to fractions of a given unit ofcurrency, leverage is almost necessary for those hoping to generate meaningfulprofits.



2.Determine Optimal Hours

One of the main points thatis often brought up as a benefit to forex trading is that the market is open 24hours a day, five days a week (whereas, say, stock exchanges have opening andclosing hours). This is certainly convenient, and a nice perk for those who aremaintaining forex accounts in odd hours. However, it's still best to determinethe optimal hours for your own trading strategy, and for the currencies youtrade most frequently. Even if the market is open 24 hours a day, you'll findthat different currency pairs are traded more actively during some hours thanothers. These periods of time make for greater potential to profit.



3. Learn CurrencyRelationships

The entire forex marketis comprised of relationships between world currencies, which push and pull ateach other in a constant, complex frenzy of activity. To make the most of yourforex trading activity though, it's important to learn which currencies mostdirectly impact one another, and how the relationships tend to work. As anexample, a report on Reuters last month cited the recovery of the dollaras a factor that had directly "hurt" the British pound. Thus, while anycurrency in the forex market can be bought and sold against both the dollar andthe pound, it is implied that the dollar and pound are particularly closelyrelated. Identifying and observing these currency relationships is necessary togaining an understanding of the market.


4. Learnto Read Heat Maps

Learning currencyrelationships is one thing. But it is also a good idea to learn to recognizehow a given currency is performing relative to the market at large. This canprovide a better picture of the true strength of a given asset relative toother world currencies and economies. And the best way to get a quick sense ofwhich currencies are strongest or weakest in this regard is via heat map. FXCM demonstrateshow exactly this sort of tool works, in that it essentially showcases graphsdepicting currency pairs' gains or losses (clearly marking them by blue and redbars, respectively). An elongated blue bar with a high percentage gain showsstrong performance and can clearly be visualized alongside all other currencypairs of note to provide a broader market snapshot. This gives you a bettersense of which assets are performing best and worst overall in forex.



5.Consider Using a Bot

You should also givesome thought to using a bot, or automated trading program. In our pieceon 'What No One Told You About How to Make a Million DollarsTrading Forex' we pointed out a number of the difficulties associatedwith this market. One of those difficulties is that often enough you're tradingagainst high-tech bots that analyze and act on the market more quickly than anyhuman trader. This is unfortunately a reality not just of forex but of tradingmarkets in general these days. However, there are also bots and automatedprograms available to ordinary traders and using one can allow you to staycompetitive. Generally, you can direct these programs to trade within yourchosen parameters but allow them to do the minute-to-minute work of managing aforex account.


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Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.

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