Forex retail traders
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Another perk that the investment trader has that a retail trader does not is the ability to take a loss. Say a trader has a sizable position in the currency market and something unforeseen takes place, such as a military coup or a natural disaster like the earthquake and tsunami in Japan in A bank trader would not be fired because of losing money under these circumstances. In contrast, an event like this could wipe out a retail trader.
Prior to that, anyone trading currencies for his own account had many things working against him, from not having an independent price data source, to being ripped off by the early brokers, and to not having access to the same kind of information that bank traders have. This was the precursor to the current Reuters dealing system. In the years that followed, electronic trading blossomed, not just at the big banks but also in the retail arena. Suddenly, every trader, big or small had access to the same narrow prices and, as the electric trading platforms began to include financial news feeds, they received breaking news at the same time.
This took away some of the trading advantages of the investment bankers, although not the proprietary deal flow information. In the modern world, the retail trader starts the day the same way as an investment bank trader. Both traders get up, look at current FX levels, interest rates, and commodity prices, read the economic and political news from overnight, and see how global stocks did, and then make decisions about where currency prices are likely to head in the upcoming session.
As a practical matter, both trader types need to set the stop-loss and take-profit orders for the day and stiffen their spine to be disciplined in letting those orders be executed. Thus, forex trading remains predominantly a game between the institutions who often act both as a buyer or seller and an intermediary. Over the decades, the differences in the approach among traders resulted in the following categorizations.
Yet, day trading can vary a lot because it offers several time frames to conduct the analysis. Day traders who prefer quick trades and small wins are known as scalpers. Other day traders try to capture more significant moves in fewer trades, but still within a single day. The main advantage of day trading is reduced risk trades are closed in one session and lower costs as there is no rollover commission cost to carry the trade overnight.
Swing trader Swing traders hold positions between 2 days and up to a few weeks. They generally prefer to use technical analysis, although they have to follow the calendar due to possible volatility spikes on a news event.
Typical swing trading strategies use indicators like Bollinger bands, moving averages, Fibonacci retracement and others. Yet, this comes at a higher cost because of rollover commissions and higher risk due to prolonged exposure to the markets.
Position trader The most strategic of all the trading approaches, position trading is reserved for those who have time, knowledge and energy to conduct research. Position traders focus on long-term price movement, combining fundamental and technical factors. Yet, the focus is on fundamental research, while chart technicals are a tool to pinpoint the best entry and exit points — to minimize the costs and maximize the profits. Position traders work on large time frames, usually daily or weekly charts.
Their goal is to figure out where the market is going and then wait until the rest of the world catches up. This approach requires patience, knowledge and often a reasonably large account to make it worthwhile. Forex Trader Subcategories Besides the 3 main types, there are less known but important participants on the market.
Scalpers Scalpers are day traders who trade in a small time frame. Their strategies usually revolve around 1-minute and 5-minute charts with very short trade duration. This approach is dynamic and suitable for adrenaline-seeking individuals. Scalpers prefer a large number of small wins over a few big ones.
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This is why using too much leverage is dangerous. Always remember, leverage is a two-edged sword that amplifies gains as well as losses. The alarming statistics of forex traders losing money has caused regulators in some parts of the world to intervene by limiting the leverage available to retail traders. See some intervention measures below: Leverage Restrictions in Australia The Australian regulator the ASIC has reduced leverage available to traders from a whopping to These include: Leverage limits of for major currency pairs, for non-major currency pairs, CFDs on gold and major indices, for CFDs on commodities other than gold, for CFDs on individual equities.
They are also carried away by promises of huge leverage and high return on investments. It is only after they have been duped that they report to the regulating authority. If your broker guarantees you risk free return on investment from trading, it is probably a scam. To help you spot a scam broker let us make some put them in categories. Category One - Brokers who operate without a license Any forex broker who operates without a license is doing so illegally.
Forex traders should also avoid referrals. This is when a forex broker refers you to another website in a region with lean regulations. Many forex brokers follow the practice of registering their clients under Offshore regulations to offer high leverage. Category Two - Brokers who operate with a license but are undercapitalized A forex broker may be licensed but may not have sufficient capital to meet the trading obligations.
This has caused the regulators to order that a financial disclosure statement is mandatory for brokers. Category Three — Fake Brokers operating with cloned licenses A scam broker could also use the name and registration number of a licensed broker to clone a website or to impersonate the licensed broker. Forex traders are advised to check on the regulators website for the phone number associated with the forex brokers name and call that number to confirm if the broker is legitimate.
Factor 3 - Inadequate Knowledge Many retail traders jump into the market without the right preparation. An aspiring forex trader should have the meaning of forex trading terms like spreads, pips, lot, Bid and ask price etc. A forex trader also has to have a basic understanding of math.
At this time, there is a lot of market participation, liquidity is highest and spreads are lowest. Without understanding everything about that instrument, the risk of losing is even higher. Most traders jump into the market because they have heard stories of other people making money but enter without adequate knowledge.
Factor 4 — Revenge Trading This is usually linked to a trader's emotions. It is also known as averaging into a position. For example, become an expert at identifying key levels. Then expand your skill set by learning how to determine trend strength. After that, set your focus on learning about pin bars. Those three things are all you need to witness a rise in your profit curve. Continue to expand your skill set in this manner and soon you will have a trading edge of your own.
The key is to only tackle one or two factors at most at a time. Using a slow and steady approach will get you on the road to becoming a successful Forex trader in no time. Not quite. This might apply to other ventures in life, but Forex is the exception. This is different from studying hard. As a new trader to Forex, studying the market is highly recommended. The harder you try to learn those particular topics, the better. However, trying to make a trading strategy work will only lead to destructive behavior, such as emotional trading.
Similarly, trying too hard to find trading opportunities is a good way to lose money on subpar setups. In fact, I wrote a post that features several of his books. When I first started trading Forex, I remember spending countless hours studying setups over the weekend. I would often come back to my trading desk multiple times on Saturdays and Sundays.
Then on Monday, more often than not I would end up taking a completely different trade setup only to watch the original trade idea move in the intended direction without me. Does that sound familiar? It happened because I was trying too hard. As soon as I stopped over-analyzing trade setups and trying to make them work, my profit curve started to rise. Now I spend maybe 20 to 30 minutes per day looking at my charts—the exception being the charts I post on this website , of course.
As counterintuitive as it may seem, learning to not try so hard was one of the things that completely changed my trading career for the better. Successful Forex traders have taken note of this, which is why they let the market do the heavy lifting for them.
The concept of thinking in terms of money risked, as it applies to Forex trading, is no exception. Think about your last trade for a moment. Did you define the exact dollar amount at risk before putting on the trade? Or were you more focused on the number of pips and the percentage of your account at risk? The convenience of Forex position size calculators has made it so that we never have to consider the dollar amount being risked.
This convenience has caused a huge oversight. Yes and no. In it, I talk about the need to think in terms of money risked vs. This is because pips and percentages carry no emotional value. So when you define your risk on a trade as a percentage only, it triggers the logical side of your brain and leaves the emotional side searching for more.
The best Forex traders know this. In other words, trading Forex to gain a certain amount of money within a specific time period. Such a statement would contradict my own experience. What I am saying is that no successful Forex trader needs a win today to pay the electric bill tomorrow. No trader can sustain that kind of pressure and become consistently profitable.
That type of environment will only foster destructive emotions such as fear and greed. Embrace the challenge and focus on the journey to becoming a successful Forex trader and the money will follow. Let money be the byproduct of good trading. All successful Forex traders know when to walk away and take a break. Those who are truly passionate about trading Forex know how hard it can be sometimes to walk away from the market.
Walking away can be especially difficult following a trade. This is because our emotions are running high and often get the best of us. It feels like things are finally starting to click. Walking away at this time can be tough. The natural tendency after a winning trade is to continue trading.
Taking a break after a win will allow your emotions to settle. But as you may well know, pride and excitement can get you in a heap of trouble, and fast. So the next time you have a winning trade, pat yourself on the back and then walk away. After a losing trade What do you do immediately following a loss? I would immediately start going through all my charts looking for a new setup with the intent of recovering what I just lost.
Instead of seeing a loss as a reason to hop back in the market, take it as a signal to look at what you could have done differently. Top Forex traders know this and have learned how to control these emotions. The very first step in controlling your emotions involves walking away for a bit. Not all brokers offer New York close charts, but you can go here to get access to the same style charts I use.
This is when I do the bulk of my analysis anyway since I trade the daily time frame, so it makes sense to take a breather until then. Why is that? Is it because a high win rate is needed to become a successful Forex trader? Not even close! They do it because it sells. Successful Forex traders know this. The only way you can fail at becoming a successful Forex trader is if you give up.
This sounds obvious, but it amazes me how often I see perseverance and grit left off the list of reasons why a certain trader became successful. That brings us back to the first section of this post where I mentioned passion. You must have a burning desire to want to succeed as a trader. Not because you want more money, but because you love trading. Of all the ways to make money in this world, trading is arguably the worst choice.
Sure, there are various tips that can help you, but those who have achieved consistent profits are not untouchable.
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