Basic Skills You’ll Need for Forex Trading
Investing in the foreign exchange market can be a good way to make a little extra money, especially during the recession. In fact, some people are so successful with forex trading that they already quit their day job and made a career out of this investment. Of course, that is not always an advisable move to make, unless you are confident in your knowledge, skill, and experience when it comes to trading in the forex market. If you are looking to make some trades in the forex market, you should first know what it takes to succeed as a forex investor. This article will go over some of the skills that will let you take full advantage of what forex trading has to offer.
Chart reading skills
Before you start trading, it is first important to monitor and analyze the market. Your success in the forex market will depend largely on your ability to understand how the market works, what makes currency values change, and how to project future movements based on market history. At first, it may seem a bit overwhelming having to understand so many aspects of forex trading, but there are many tools to help you monitor and analyze the forex market. Perhaps the most useful tools for monitoring and analyzing the market are forex charts. Forex charts are basically sheets of information that are based on various aspects of the forex market. Some of the information you are likely to find in forex charts include time frames, currency pairs, currency pair prices, trend lines, and trade volumes.
When you first look at the charts, it would be a good idea to get a broad perspective of the market, by choosing a large time frame. Most charts offer time frames that go up to one or two weeks long, providing hourly readings of market movements. Looking at charts with detailed market history will give you insight on how the prices move over a long period of time. Once you have a good idea of this, you can start focusing on shorter time frames that will help you make timely trades. Aside from the hourly charts that provide weeks of information, the charts with shorter time frames include 15-minute charts., which span a few days, and 5-minute charts, which span 24 hours. Most chart programs allow you to open multiple charts so you can compare and analyze the data from different perspectives and time lengths.
Also indicated on the charts are the prices and values of the currencies being monitored. All of the currencies come in pairs, such as the EURUSD (for Euros and US dollars) or the USDCHF (for US dollars and Swiss francs). The first currency in the pair is referred to as the base currency, while the second currency in the pair is the terms currency. If the EURUSD, for example, is valued at 1.1400, that means that 1 euro is equivalent to 1.1400 US dollars. The forex charts will track how these values change over the time frame that you are observing. If you are taking a long position (or buying) for the currency pair, then you will want the chart to reflect an upward movement in the value of the currency pair, indicating that base currency is strengthening against the terms currency. On the other hand, if you are taking a short position (or selling) for the currency pair, then you want the chart to reflect a downward trend, indicating that the terms currency is strengthening against the base currency.
Now that you know the basics of how to read a forex chart, it’s time to go over some basic trading skills. Forex trading can be quite difficult at first, but you will find it easy once you get the hang of how the system works. Your trading skills will rely mainly on your ability to interpret the charts and make the right trades at the right time. In the “chart reading skills” section, you learned about how currencies move and how to choose the proper position depending on the chart information. Chart interpretation is something that takes time to learn, so try not to get frustrated and, instead, focus on how you can improve your chart analysis, evaluation, and interpretation. It is unlikely that you will be able to make accurate predictions each and every time you trade, but having a good idea and feel on how the market moves is a good start.
Another important trading skill is to implement stop loss strategies. Stop loss strategies are based on forex transactions that will help you cut your losses. For example, if you buy a currency pair that increases in value throughout the next two days, then slowly starts to decrease, you may want to make sure that you sell at a specific point to cut your losses and perhaps make off with a little profit. Stop loss strategies can get quite complex, so you should study how you can use such and implement them into your investment moves.
Trading skills are not all about analyzing charts and making trades, sometimes your level of trading skill also depends on your level of emotional discipline. It is easy to get upset or frustrated if you lose some money in forex trading, but it’s important to try and control your emotions. The moment your emotions get out of line, you can easily make bad decisions that will only lead to more losses. Try to keep a level head and, if you feel as though you are getting too emotionally attached, you may want to take a break from trading and come back to your computer another time.
The most important factor for success in forex trading is to come up with your own investment strategy. Each person has a unique financial situation that is affected by various factors, such as career life, family life, and personal lifestyle. This means that no single strategy will work for absolutely everyone. Learn the ins and outs of the forex market, make your own analysis, and try to come up with your own trading strategy that fits your lifestyle and financial situation. It’s only when you are able to find your own comfortable trading strategy that you will really be able to succeed in forex trading.