Psychology is a hot-button problem in Forex. Psychological aspects affect the performance of traders. Emotions often affect our ability to look clearly at the market and think calmly. Sometimes even high-ranking, very experienced and skilled traders fail to control their emotions while trading. Nobody is perfect. And we must say that the markets, these wicked capricious animals, tend to punish those who give in or those who overestimate their abilities. So traders need to be able to control their emotions so that they are not punished afterwards.
The market isn’t always the same. You need to understand the market’s condition, in order to choose the best trading strategy. There are two main types of market conditions: a range (price fluctuations in a horizontal channel) and a trend (a sustainable movement to the upside or to the downside).
It’s necessary to apply a strategy that fits the current condition of the market. If you use a trend trading strategy in a ranging market, you will likely lose money and, vice versa, if you use a range trading strategy, then you’ll lose money in trending markets. Identifying the market’s condition is what you always should start your technical analysis with, so that you could then pick an appropriate strategy.
Traders can benefit from large jumps in asset prices in volatile markets, if they can be turned into opportunities. Gaps are areas of the chart where the price of a share (or other financial instrument) moves sharply up or down, with little or no trading between them. As a result, the asset chart shows a difference in the normal pricing model. The enterprising trader can interpret and use these gaps for profit.
There are four main trading styles, namely scalping, day trading, swing trading and position trading. In addition to the main 4 styles, we will mention several other types of trading – trend and carry trading styles. The difference between the styles is based on the length of time the trades take place. Scalping trades are performed in just a few seconds or at most a few minutes. Daily trading trades take place in a few seconds to a few hours. Swing trading deals usually take place over several days. Position trading takes place from a few days to several years.
You don’t need to spend your own money on Forex right away. Most brokers have demo accounts, which will let you test out the Forex market with virtual money using real market data. Using a demo account is a good way to learn how to trade or test your strategy. You can practice by pressing the buttons and grasp everything much faster.
All you need to trade currencies is internet access. Trading platforms for forex trading are called MetaTrader 4 and 5 (MT4 and MT5). They can be easily downloaded from every broker’s site. This will be your workplace, if you want to be a trader. You will use it to view and analyze the charts of financial instruments and make your trades.
The leaders among the Forex trading software are The MetaTrader 4 and MetaTrader 5 platforms from MetaQuotes Software Corporation. The fifth version of the terminal was launched in 2010. Since that time, it has been changed and upgraded several times. MT4 platform appeared in Forex brokers’ accounts in July 2005. Currently, both software products develop independently. So, what are the main differences of the 5th and 4th versions of MetaTrader?
Tip 1: If you want to stay in this business, leave “hope at the door and put a stop loss”.
Tip 2: When you start trading (open a position), start looking for signs that you are wrong. If you see them, then get out before you hit the stop loss.
Tip 3: Trading should be tiring, like working in a factory. If there is a guarantee in trading, it is: “excited traders drain their accounts”.
Tip 4: Don’t jump into the “next hot thing.” Develop your plan and follow it.
Tip 5: You trade other merchants of non-existent goods. You have to take into account (feel) the psychology and emotions behind trading.
In the topics covered so far, we learned how to analyze the market, where the entry and exit points should be, where to place a stop and where the order limit. If we have mastered all these techniques, we can say that we are ready to trade in the markets, but is it really so. If we can correctly predict the direction of the market, will we win?
In the 1930s, Ralph Nelson Elliot discovered a revolutionary theory (The Wave Principle – 1938), which to this day remains one of the most professional methods for forecasting financial markets. Elliott’s theory wins many adherents because it turns out that wave patterns describe the structure of market movements very well. This theory provides much greater opportunities for good forecasting of market movements, including for a longer time ahead. Over the years, followers of the theory have supplemented his work, but virtually all known market models were described in the basic theory by Elliott himself, more than 70 years ago. Robert Pretcher, Glenn Neely, and many others introduced many rules for performing wave analysis.
Proportional analysis refers to the length of price movements and is a mandatory part of the analysis of every analyst and trader. When trading, it is important to find not only the direction of the next movement, but also how far it will last. Otherwise, there is a possibility that we will not achieve the maximum possible profit or that we will have too high expectations and miss the right moment to go out. The techniques for detecting key levels are very different, but we will focus on the most famous ones.