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How risky is forex trading?
Forex trading is known to be the most risky business venture compared to any other kind of investment.This is because it is a probability base venture where you have equal chances of losing and profiting. The nature of forex makes it risky compared to other business. this is because, It involves psychological emotions such as greed and fear since you have to directly deal with money yourself.
Although forex trading is risky, it does not mean you can profit from it. Every business has its own risks. What matters is how you manage or avoid the risks. This means forex trading risks can be managed and controlled. Once you learn to manage your risks you will be able to increase more odds/chances to your side and surely profit from it.
Hello Ravenskte,
When we talk about a failing trade or a failed trade, we mean to say a trade that has gone against your predicted direction despite of it having been a good setup before you taking it and shows no signs of going your direction.
According to your trading plan, you are supposed to journal your trades which includes all trades taken whether successful or not.
Having snap shots of all trades in your records helps you to further study your failed trades and you are able to identify price behaviour during that time and take note of that.
When this happens on several occasions when holding a trade, then you can try to avoid it the next time you are holding a new trade. Instead of watching a trade take off your stop loss, you close it early hence reducing on loss (commonly known as cutting loss).
Let me give a scenario.
If i am holding a buy position, and the trade goes against my direction a few pips, then starts to form long pin bars or forms a bearish engulfing, it is a sign that price is being rejected from going higher and the engulfing signifies a strong down move ahead, so it pulls my attention to monitor that trade. In case it gives a confirmation with a next strong bearish candlestick, i close that trade and wait for another setup to appear.
The fact that forex trading is done 24/5 days a week with trillion participants, trust me there are many setups that will always show up in the market. You don’t have to cling on just one losing trade waiting for it to come back, you never know when. Or it may actually come back when you no longer have the capacity to take it.
Take records and always review your records. This helps you to make a good follow up and track your mistakes and errors. Know when to cut your losses in a trade by following your trading plan.
I hope this has been of help to you.
A trading plan contains a set of rules, list of steps to be followed when . With your plan you should be able to answer questions like how, when, where, who and what.
For example
How do you take a trade(trading strategy)?
How much time do you spend holding a winning trade compared to a losing trade?
How long can you hold a trade?
How many trades do you take on each trading day?
How do you identify a losing trade?When do you enter a trade?
When do you cut your losses?
Where should you set stop loss?
Where do you take profit?
Who makes a decision to take a position?
What is your risk to reward ratio?
What do you do when a trade turns out to be a wrong trade?
What size should you use on my trade?
What makes the setup more valid with higher chances of success?
What do you consider to make a decision before taking a trade, during and after taking a trade?
What kind of emotions do you get before, during and after closing a trade.
You should be able to answer the above questions correctly every time you make a step to open a position in the market or trade.
This helps you to trade and profit consistently and at the same time it keeps your feelings an emotions intact.
Observing your rules helps you to protect your account from big losses and makes you a discipline trader.
Having a trading plan and following your trading rules doesn’t mean you won’t lose on a trade. Losing in forex trading can’t be avoided. But this helps you to minimise your losses and still stay in profits.
How do i know it is the right time for me to take position in the market? is there a procedure one should follow before entering a trade, pliz help?
Ok, different traders have got different strategies they use to trade and so as setups.For instance according to my strategy, i only take position when an engulfing forms at the level 38.2 of the Fibonacci retracement level and closes below for a sell or above the level for a buy. So what does this mean?
Take position when your trading setup confirmation has all the qualities for your strategy according to your trading plan. Of course there are qualities/characteristics you always consider for a valid setup. Follow your rules and enter a trade only when those qualities show up to give you a confirmation.
I hope this has been helpful.
A spread in forex trading is simply the difference between the ask price and the bid price.The spread covers your transaction costs, brokerage costs and it is calculated using pips.
For example,if you buy EUR/GBP at 0.87473/0.87492, the difference between 0.87473 and 0.87492 is 1.9 pips which is the spread. learn more about spreadsIs Forex trading profitable?
This is a commonly asked question by most new traders. You actually did a very good thing to ask this question. To some other fellows who are still wondering whether you can profit from trading forex, here is the answer for you.
Yes.
Forex market has been in existence for many years and the fact that traders make around $5 trillion trades daily in volume in the forex market, this means that most of the traders are profiting from it.
Of course, like any other type of investment, Forex trading has its own inherent risks and potential for profitability or loss. Knowing how to control these risks is one way to increase your chances of profiting from your trades than make losses. It is unfortunate that some traders come up with very high expectations to make quick big profits and they just throw up their money without first understanding how the market works and how to profit consistently while trading. To profit from forex trading you need to consistently practice, discipline and to first learn the rules of the game.How do forex traders make money?
You make money from forex by buying or selling currencies. these currencies are traded in pairs so you look at the current value of the currency in the pair in the market in relation to the state of its economy and decide whether to buy or sell the currency.If the base currency of the pair, let’s say EUR/USD pair, here the base is the EUR, is stable or is expected to rise in value, you buy the pair at that current price. If price rises, you will see the pair rising in an upward direction on the market chart above where you bought from. The difference between the entry price and the closing price of a trade is your profit. However if the trade goes to the opposite direction, you make a loss.
On the other hand, if you expect the currency’s economy to be doing bad, this means the currency value will fall. Therefore you will sell the base currency at its current price as the pair falls to the down side. Your profit will be the difference between the entry price and the price at which you close your trade. To learn more about forex trading, read more on forex trading
