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A right approach to Forex trading
2020-04-17 • Updated
Information is not investment advice
A grain of salt
The problem with the Forex trading is that the market is so unimaginably huge (more than $5 trillion traded day). At the same time, there is very little research done to reflect the activities of individual traders and provide comprehensive statistics on that.
One of the reasons should be that the combined part of the individuals in the daily Forex turnover is so little that it may be neglected. Hence, from the global point of view, it makes little sense to research how traders behave. Moreover, an individual trader, as an end-user of the Forex brokerage service, is the weakest link of the transactions chain. The market as a totality is huge, the banks and institutional players are huge, strategic investors are also huge. The brokers are as well. And the traders? The majority of them leave the market after several months of trying to make a lot out of a $100 investment. Hence, even if there is a billion traders active right at this moment, their combined money value may be shrugged off by the market without a notable effect. These are just different orders of magnitude.
Almost any new Forex trader wants to go straight to business. In the meantime, the problem of traders’ motivation is the main reason why most of them leave the market without satisfying results. And by “most traders” we mean 97%. The exact percentage may fluctuate (in any case, these figures are just a rough estimation for the reasons explained above), but the gist is the following: out of 100 new traders, only several will be able to stay in the market long enough to see their funds finally growing.
Here is an interesting observation. Imagine yourself preparing for a parachute jump. Your instructor tells you: “there is only a 3% chance that your parachute will open”. Would you go ahead? Probably, not. Probably, scared by the horrific statistic, you would try to investigate the reasons for such a devastating failure rate. But in the Forex market, maybe because it doesn’t feel like jumping from an airplane, people suddenly think the opposite way. They think “ok, well, I don’t know what those 97% do, but I will definitely be within the successful 3%”. Eventually, they leave in desperation blaming brokers for conspiracies and the market for indifference. While in reality, it has been a problem of a trader’s attitude from the very beginning (which does not deny that there are a lot of scams in the Forex ecosystem, but it is another topic).
The little research that is done to understand the motivation of Forex traders shows that in most cases, traders come to the Forex market planning to make a lot of money out of very little money. In other words, an average trader wants to invest $1 in Forex, having studied very little about how things work, and hopes that the 1:1000 leverage will make it $1000 almost automatically.
If they say “the leverage 1:1000 makes it possible to invest $1, convert it into $1000, and earn $300 on one trade”, is it a possibility? Yes, both technically and methodologically. But there are pre-requisites for that, and there is a risk attached. A big leverage enables you to enter the market with higher orders of money value, but the market will strike back at you with the same force. If you can make $1000 from $1, then the market can reverse your gain in a matter of seconds, if you don’t follow certain rules of risk management.
The lesson: see both sides of the coin, don’t neglect the risks attached to big opportunities.
Some good rules
First, you do not come to Forex to solve your financial problems. If your life situation led you to bankruptcy and debts, Forex is not the best option to get out of this. In fact, it can make things worse, so better you solve this situation first and then you come to Forex to maximize your success and diversify your assets.
Second, you do not come to Forex to make it your primary source of income. If your personal earning allows you to redirect a part of your profit to Forex, then it’s a good decision. You do not take that money away from your essential needs. You take the money away from what is unnecessary, from what you do not really need. Therefore, it comes down to scrutinizing your lifestyle in a very honest way, so that you estimate where you can redirect the money from. Leave it for the essentials, take it from the extras. In this case, you will be satisfied that instead of spending your money on something you don’t need, you put it to work for you in Forex.
Third, you follow the risk-aversion strategy. You choose consistency over taking chances, controllability over wishful thinking. You can look at Forex trading the same way a good student sees a regular exam preparation: there is no space for chances, only learning and practicing. That is applicable to your Forex-to-the-rest-of-my-money ratio. It would be safe to put a reasonably limited part of personal income to Forex trading. That would not risk your good night’s sleep while making the investment significant enough to produce substantial gains.
Fourth, you remove the pride. The “I’m the smartest” attitude. You remove the tendency to believe those who post happy photos with chrome-covered cars holding packs of banknotes in each hand. There is only the path of studying, trials and errors. That’s why you keep the door to be wrong always open. You need this feedback to remove what’s not efficient and keep what has a higher probability of success.
Preparation and time
So, you don’t fall for a sweet hope that you can win Forex from Day 1. Winning needs preparation and preparation needs time. On the other hand, you don’t get desperate soon not seeing the desired millions and ending up with phrases “all that Forex is one big scam”. Things will work out well for you if you put enough effort into it, in the right direction. Be patient and don’t judge yourself too harshly.
There is one important concept to understand: you don’t need to beat the market. In fact, the only way to gain profit is to find the best way to interpret and understand the market, so that you can follow it and make money from it. That’s why they say that the central rule of any Forex trader is “a trend is your friend”. That means, you just need to predict the market moves correctly in the majority of your trades.
At the end of the day, FBS is here it help you. please see the guidebook and tips for traders we have – these will help you with the technicalities you need to trade on the Forex market. News will keep you updated, analytics will give you some ideas to use, and webinars will give you a broader perspective on the trade activity.
Experienced investors always go by the rule that says “Don’t put all your eggs in one basket”.
Although the market is flat 70% of the time, most of the trading strategies are for trend trading. Thus, most traders use only 30% of the trading potential! If you want to be more productive, pay attention to this strategy.