If you have ever opened your trading station, only to witness a big rally on your favorite currency pair that you have missed, then the following tips
If you have ever opened your trading station, only to witness a big rally on your favorite currency pair that you have missed, then the following tips are for you. Beside the missed profit potential, it can also have a long-lasting impact on your confidence. You start to doubt in your trading ability and strategy. We will list four things that will help you in improving your Forex trading, and significantly reducing the number of losing trades.
1 – Stay up-to date
Probably the number one thing you should begin with today is to stay updated with all the events in the Forex market. This is a fast-moving market, and there is an overwhelming amount of information and news that can dilute your attention. You want to find your own reliable source of information and stick to it. Check the economic calendars for important releases at least a week ahead, and read articles published by authority sites and well-known economists. Keep all the notes in an Excel sheet, grouped by currencies (i.e. ECB President Draghi Speaks next Monday – don’t open EUR trades during the speech).
There are many sites offering daily FX analysis. Make a quick Google search and write down a few sites that you will start visiting (and reading) regularly.
2 – Timeframes
A complete trade setup relies on determining the bigger picture. It is a common mistake to rely your analysis on a single time-frame. If your primary trading timeframe is, let’s say, the H4 timeframe, it is a good idea to open at least the next two higher timeframes (the daily and weekly) and make sure that the perfect setup on the lower timeframe looks also attractive on the higher ones. Keep in mind that, for example, a downtrend on a lower timeframe can transform into a correction move of a long-lasting uptrend on higher timeframes – don’t fall into that trap. We will show you how different timeframes can give different signals on the following graphic.
Take a look at the two charts above. The left chart shows EUR/USD on a H1 timeframe, and the right shows the same currency pair on a daily timeframe. If you have based your analysis on just one timeframe, you would have missed the bigger picture. The currency pair makes HH (higher highs) on the daily timeframe, but LL (lower lows) on the H1.
3 – Do long-term Analysis
A good trader should always have his own medium- and long-term forecasts for a currency pair. Keep a record of potential market-movers in the next few months, like elections or possible political turmoil. Using traditional models of currency valuation is also a good idea when making long-term forecasts. Models like the PPP (purchasing power parity), the REER (real effective exchange rate) or BoP model (Balance of Payments) try to predict the equilibrium exchange rate and have a decent track-record in the medium and long run.
4 – Keep a Trade Diary and Practice
Keeping a trade diary can help you in improving your strategy. Write down the currency pair, entry and exit points, the setup, the reason you entered this trade, and the profit/loss. Try to notice a pattern in the diary – What are the trade setups that were profitable? Try to determine the reasons for your loosing trades, and make improvements to your strategy. Practice every day to become better at market analyzing, learn as much as you can about different trading strategies and stick to the one which suits you best. Follow articles at Fundgoat.com and transform into a profitable trader.