The forex market has become a favourite place of traders on a global level and has surpassed every other financial market when it comes to trading volume and liquidity. Not to forget the round-the-clock nature and decentralised structure of the forex market which makes it easily accessible to everyone irrespective of their location. Forex trading platforms like MT4 and MT5 are quite easy to use, especially MT4, a platform with an intuitive interface that makes the trading process seamless for everybody, even if they are new to the world of trading. Even though the entrance to the forex market is easy for a beginner, not everyone is able to make profits as they are unable to find the perfect trading style and strategy for themselves.
If you are also confused about what approach would be ideal for forex trading or just want to clear your doubts before moving forward in your trading journey,
- Finding a Trading Style
The first thing to do when you decide to become a forex trader is to find a trading style that can fully align with your trading goals and requirements. For this, you need to have a good amount of knowledge about the trading concepts and trading styles. Just understanding the theory won’t be enough as you will have to put these theories into practice and that is why you need to be sure about what path you should take for making profits in the dynamic forex market.
- Define Your Personal Trading Goals and Preferences
Finding the ideal trading style that can take you closer to success will be easier when you are sure about your personal trading goals and preferences. You will have to set clear and attainable goals based on what type of person you are, how much time you can devote to trading and how much money you are willing to risk for the trading process. All of these aspects will play a key role in determining the most suitable trading style for someone.
The goals you set should be time-bound and you can even break these big goals into smaller ones and think of them as milestones in your trading journey. Each trader will have a preference for certain currency pairs and they may want to trade during specific sessions or use specific techniques for finding trade setups. All of these need to be decided in advance as your trading style should complement your personality.
- Different Trading Styles
The next thing to do here is study different trading styles as you need to find the one that matches your approach towards trading. Those who are ready to trade throughout the day can try scalping or day trading to make quick profits regularly. The time frame and duration of trades will not be more than a few minutes but you will have to constantly monitor the charts for spotting trading opportunities.
Those who want to keep their trades open for a longer duration can consider swing trading which is perfect for those who are willing to wait until there is a significant price swing taking place. Position trading can be an apt trading style for those who have a lot of patience and are willing to hold onto a trade for several weeks, months or even years to make profits from a long-term trend.
I will suggest you try different trading styles on a demo account first as that way you can learn to trade using different timeframes and figure out what works for you before deciding on your trading style.
- Choosing a Sound Trading Strategy
Once you are clear about the trading style, you can move forward and start working on your trading strategy. There are a lot of popular forex strategies that can be picked based on your trading goals, trading style and risk tolerance. Your strategy should be viable and it is important to remain flexible to make it work in any market situation. For instance, you cannot follow a trend trading strategy when the market is stuck in a tight range. Thus, you need to modify your strategy to suit the market situation and adapt to it.
- Method of Analysis
While building your strategy, you need to make it as detailed as possible, covering all the relevant aspects including the method of analysis, entry points, exit points and more. Many traders completely depend on technical analysis for making their trading decisions as watching the price action on the charts gives a clear overview of the market situation. But fundamental analysis is also important when the market fluctuations are sudden and caused by an economic or geo-political event. Hence, it would be better to follow a combined approach to not miss out on any information.
- Risk Management
When you are choosing your strategy or devising a trading plan, the amount of risk should be assessed beforehand and you must have a plan for dealing with it. You need to calculate the risk before you expect any reward. Follow the rules that you have set for yourself and limit the position size to 2% or less of your account balance. Never trade without a stop loss and don’t go overboard with leverage. The essence of risk management is about being disciplined and rational in any situation.
- Developing Trading Skills
Skill development is closely connected with knowledge as you cannot become a skilled trader unless you possess some knowledge about the forex market and trading techniques.
- Gathering Knowledge
Access to information was limited in the earlier days but in this internet age, everyone enjoys the privilege of getting all the data we need within a split second. Hence, we can find various websites and sources that provide free education about trading. Besides online learning, you can also turn towards books that are written about the forex market and trading in a comprehensive manner.
- Demo Trading
I already talked about using a demo account for trying different trading styles as you get to experiment and explore without any risk. The real-time market conditions that you get on a demo account are perfect for practical learning and this is where you can apply the knowledge you have gathered and develop your skills. The things you learn with demo trading can prepare you for live trading with real funds.
- Benefits of Demo Trading
There are many advantages that you get by trading on a demo account. First of all, you can familiarise yourself with the trading environment and platform before opening a live account with a broker. You can try different techniques and master them, boosting your confidence before live trading. You will get to learn in a stress-free yet realistic setting as there is no real risk involved.
- Tips to Make Best Use of Demo Accounts
In order to get the benefits of demo trading, you will have to follow a serious and professional approach just like how you would do if it was a real account. You will be using virtual funds for demo trading, but you should not be careless while placing trades on a demo account. You should try to incorporate risk management from demo trading itself and refrain from overtrading. Use the demo account to refine your strategy and polish your skills by learning from your mistakes. Because you won’t feel at ease while making any mistake on a real account.
- Keep a Trading Journal
Another thing that you should do for skill development is keep track of your trades with a trading journal. A trading journal is like a professional diary and report for a trader with all the details about their activities and progress.
- Benefits of using a Trading Journal
The habit of journaling is helpful to reduce your stress as you will be able to move on from your wins and losses after writing about them. You can use this journal as a tool for evaluating your performance and spotting any mistakes that you make during the trading process. You can use your trading journal as a reference in future as it helps you to optimise your trading system based on the results you get.
- Things to Include in a Trading Journal
In order to get the benefits of journaling, you need to include all the relevant details about the trades that you place and the reasoning or logic behind your trading decisions. You can note down the expected results and actual results to detect any deviation from your strategy. You should also describe your mental state at the time of trading to see if your emotions are under control while trading. Always state the date, time and price levels for future reference.
Conclusion
With that, we have covered all the important factors that should be considered while choosing a trading style and strategy. Risk management is the most important aspect of long-term success. In the end, enhancing your knowledge and upgrading your trading skills are essential for making profits with any strategy.
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