What is Forex like and can one make money there?

What is Forex like and can one make money there?

In this article you will find out, who can succeed in trading, popular trading methods and ways of the market analysis, as well as, about the danger of trading success. This information will be also useful for everyone, who is interested in automated Forex trading

“Is it possible to succeed in Forex?”, this question is asked by everyone, interested in the exchange market. Of course, it is possible! If it wasn’t, there would be no stories about traders getting rich. “Isn’t it a fake?”, beginners continue. The market with the a turnover of $5 trillion can’t be a fake. However, not all comers can succeed in trading.

Who wins in the exchange?

It was noticed long ago, that people apt to self-reflection and psychology usually succeed in the art of speculative trading. Some traders claim to be philosophers. The myth, that mathematicians are good at trading is also popular. It is not true. Some chess players, checkers players or poker players found themselves in trading. An interesting thing was noticed in the West: religious workers succeed in the exchange. The matter is, of course, not in the prayers for trend direction. Clergy are rather good philosophers and can find an approach to the market.

What is Forex like?

Forex is most like the commodity market or the stock market. But this means nothing to beginners. The exchange market is compared to sport, war, the chaos of nature, sea waves. But no comparison can be accurate. Forex lives its own unique life. That trader will be rich, who will manage to understand at least a part of its nature.

Martingale or averaging?

I have read in many books on trading: don’t be averaged, don’t use martingale. I believe, that averaging is sometimes justified. Martingale is a more dangerous strategy, which can have one of the two results: either quickly stop a series of failures or wipe out the deposit. It is better not to use Martingale, but if you chose it, you should go all the way. You can well succeed. Using averaging, you should wait until there is a positive result as well. If you apply averaging rarely, the chances of your success are relatively high.

“One to two” and “One to three” strategies

In other words, losing 50 dollars, you gain 100! This trading strategy is often described on a training course in different dealing centers. I failed with such an approach. However, if you catch the trend, you are likely to make profits, trading based on the principle “one-to-two” or “one-to-three”.

Pyramiding

It is far more sensible to apply Pyramiding. This is strategy where a trader buys, then, provided there is a profit, adds more positions, and protects the previous ones setting them at the breakeven. However, it is much harder to build a safe pyramid in the exchange market than in the stock market. “Pyramid building” is an art that should be studied for a long time. One can succeed in such trading, only having trained and practiced a lot.

Use of locks

Traders’ opinions about use of locks differ. Some speculators think that locks can be used, others strongly oppose. Locks supporters argue that they set a lock and exit it when they are sure in the position profitability. For example, when a popular graphic pattern appears.

Automated trading: pros and cons

In the 21st century, a lot of operations are performed by robots. Stock trading is no exception. Advisors (trading programs) work without failures and have made many traders rich. But you shouldn’t forget that more than 99% of advisors on the Internet are pure “junk information”. Traders had better develop their own trading strategy in the form of a computer software and use it from time.

Software has its advantages and drawbacks. A robot doesn’t need sleep, rest, lunch breaks and so on. It works day and night without getting tired. It is not emotional. However, the drawbacks are significant either. It doesn’t matter for software, whether you gain or lose. It will carry out its work every day, but it is unlikely to learn to think for you soon.

Trading currency cross-rates, popular and unpopular currencies

The less an operation attracts attention, the better. Popular currencies are very speculative in their essence. And it’s harder to make profits on them. Trading cross-rates is more likely to succeed. I was very successful, trading currency pairs, which are not popular. For example, when the Mexican peso or the South African rand rose against U.S. dollar, I bet on the devaluation of “exotic” currencies. As a rule, I made large profits.

Discipline and trading plan

Is discipline needed in trading? It is necessary! It is possible to trade in the exchange without a trading plan or discipline but for a short time. The market will kick you out at the first sharp turn. Good traders, as a rule, are phlegmatic and gravely perform their work day by day. Even experienced traders are not immune to a nervous breakdown or trading with large lot size. That becomes the beginning of their end.

An advantage over the market

Do you have an advantage over the market? You think that there can’t be an answer to the question? Then you don’t have any advantages, and the market will always win from you. What can be an advantage over the market? For example, infinitely large capitalization and trading using martingale. Of course, it is impossible in practice, but this example shows an obvious advantage over the market.

Demo account

A demonstration account is a training one. Trading on it is not for real money, but for “virtual”. Everything else is real. It is useful for beginners to trade on a demo account. Demo account can and should be used to test different advisors, different trading strategies. But there is no point in trading for virtual money for years. It is like the gym, one can punch a boxing bag for a long time, but a fight with a real boxer is something different. The same is with trading. When traders start trading for real money without getting used to, they can be set back facing a real opponent.

Danger of diversification

A moderate diversification can be useful for trading, but an excessive one is dangerous. When I worked with 2 or 3 instruments at the same time instead of one, I got instead of one problem, 2 or 3. Sometimes, I failed to succeed in a difficult situation exactly because of excessive diversification.

Trading in difficult life situations

If you have problems at home, somebody is ill, you have a mid-life crisis and so on, it is better to take a break from trading. Charts will go nowhere from you. You need clear mind and positive mood to win in the market. Of course, it’s not about foolish optimism, but still. You should know how to win over the market. Otherwise, the market will win over you. It’s extremely dangerous to take alcohol or drugs to relax. Under stress (it is common in trading), one can easily get alcohol addicted. Then, any trading will be impossible.

Main delusions of beginners

Novice traders like legends and fairy-tales about the market, which fill the Internet. For example, there is a popular myth, that the trends a re moved by some secret society of billionaires. It is a complete nonsense, as the market with the capitalization of several trillions dollars can’t be moved by any group of traders, even the richest ones. Beginners can be deluded by the opinions, that it is impossible to become rich on the exchange or, oppositely, it is very easy. Both statements are myths. It is possible to become rich in the market, but the way to success is not so easy. Unfortunately, most speculators go bankrupt there. However, just like in any other business.

Trading without experience

It is said, that beginners are lucky. In fact, thing are a little different. Beginners aren’t afraid of losses and can do things, the professionals won’t do in the exchange. For example, to risk a large capital and double it for a day or two. But it is not the right way to trade. Such trading is bound to fail. I started trading in 2005, then euro was rapidly devaluing. My account of 200 dollars increased up to 1050 dollars, and I thought myself to be a genius. A few weeks after, I understood that it wasn’t so. But I didn’t give the business up and in some years I began to understand the things. In the long run, beginners go bankrupt. Long-term success is possible only if traders have rich experience in trading and necessary knowledge.

Is there a need in stop order or take-profits?

Should one set stop orders? Should. Won’t you ride a bike without a brake? Trading is the same: you need a brake. Otherwise, at some point you’ll lose control, and your money will disappear. Take-profit will be useful as well, however it is not as important as stop order.

Pending orders are popular among beginners. Professionals, as a rule, make market orders. But it is no point in giving up pending orders. Sometimes use of pending order is rather profitable.

Contrary opinion strategy

Trading on the contrary is rather popular in Forex. Supporters of this theory argue that, if most traders lose on the exchange, so, you will have a chance to gain, doing on the contrary. But this trading strategy shouldn’t be always used, only at specific times.

Scalping, intraday and positional trading

Traders are divided into two three large categories: scalpers, intraday traders and positional ones. I could reach consistent results neither in scalping nor in intraday trading. Trend catchers are usually the most successful category of speculators. The open a position and wait for the result for quite a long time.

Trading on the news

Nobody is usually interested in the news that was already published. Trends respond immediately to the news release, and it is hardly possible to identify their direction. However, the use of news background can be effective. For example, the news, that things are bad in Turkey, can help traders to make profits from Turkish lira depreciation.

Graphical analysis

Graphical analysis proves to be more effective than fundamental one. But it is often recommended to combine both kinds of analysis. A doctors shouldn’t only listen to patients or only look at their lab results. They should both things. Trading is alike. On the exchange there are such popular patterns as “triangle”, “cup with a handle”, “head and shoulders”, etc. All of them increase trader's chances for success, but don’t guarantee it.

False outbreaks in Forex

Falls outbreaks in the exchange have become so popular, that are thought to be normal. If we analyze the charts of 50 years ago, we will see that false outbreaks were far less numerous at that time. How should a trader behave, when there is a false outbreak? I recommend closing losing trades and waiting for a new right moment to enter the market. One can just reduce the trading volume and make a point, as well. False outbreaks seem to grow in number in future. The markets are “mutating”, but their nature remains unchanged.

Fear, greed and hope

Emotions rule the market. Experienced traders say, that the market is usually wrong, as it is driven not by common sense but by emotions. Fear, greed and hope are bad advisors. You shouldn’t be always influenced by fear. If you are scared, just reduce trading volume by half. If it didn’t help, then reduce two times more. Traders should be absolutely calm and cool. They should respond to the trend moves like this: “How interesting! What is happening!”. And then just smile. If they can’t do so, it means, they trade too large volume. Greed and avarice also do much harm to trading. A certain success should be expected in the exchange, but not improbably high incomes. If traders want to get more than 100% per year, they are extremely likely to fail.

Danger of success

To follow your trading success up, you shouldn’t let your luck confuse you. The feeling of success is also rather dangerous. I know some of my colleagues’ stories about how they lost all their money due to one wrong trade. That happened because they were overconfident in themselves. I also lost large amounts of money after having reached great success. I had a feeling, that the earned money is not my own and can be risked. I was taking great risks and losing enormously big amounts of money.

In search of emotions

Don’t be surprised. Not everybody comes to the market for profits. Many market speculators are very talented, but they are gamble addicted. They don’t need money, only gamble. Such people begin trading with 1000 dollars, draw the score up to 10,000 or 20, 000 dollars and then lose everything. They are sympathized and felt sorry for. Talking with friends, they like to show off their past achievements. They need nothing else. In the market, everyone gets what they are searching for.

How to spend money earned

The question seems to be irrelevant. “As long as there is money...”, that is how most beginners think. But the matter is not so simple as it may seem. The market gives an opportunity to make profits only to those, who know what they need money for. If a speculator aims at paying the utility bill, his trading is bound to fail. The objective should be positive. For example, a family holiday trip to Thailand is a perfect aim. If you need 5000 dollars to fulfill your dream and have only 2500, then you can succeed. One out of a hundred manages to raise from 100 dollars to 5000.

Live through losing times

If you hit a losing streak, you should significantly reduce your working lot size. Over time, you will return confidence and things will get much better. There is nothing worse than trying to break a losing streak with the help of a huge lot size. Some people are trying to escape from a minefield running and with their eyes closed, and few manage to. But this method can’t always work. Law of probability says, such person will get in trouble soon.

How much to be risked per trade?

Most traders are sure, that not more than 1% of the capital should be risked at one trade trade. There are successful traders, who let the risk of 2-3% of their capital per trade. There are not so many traders, who are making money for a long time, losing more than 4-5% of their deposit at one trade. The larger is the amount you are ready to risk per trade, the more diverse will be the results. Traders should act as test-pilots. They need their own code of rules, that must be followed. What to do if this or that happens? Exchange market players always know the answer. They will act like a computer.

Currencies’ character

Can one say that every currency has its own character? Yes. You shouldn’t expect one or another currency pair to always behave exactly the same way. We know unpopular currencies to often depreciate against the U.S. dollar and other popular currencies. If there are problems in the EU countries, euro is likely to go down against yen and the American dollar. But there is no point in overestimating one currency and look down on another one. Even the Zimbabwean dollar strengthens sometimes against the U.S. dollar.

Copy trading service

Many traders have become rich with its help. They started trading for their tiny amounts of money and then were trusted large investments. But they had to prove good performance of their work. Many used martingale while trading. However, experienced investors easily identify this simple and dangerous trading strategy by capital curves. Not all investors like this strategy.

What profits are to be expected

Traders can be roughly divided into three big categories. The first category is those who double their deposit from year to year. Such traders are few. It is not supernatural to double the capital. However, such speculators never cut their account down by more than 10% of capital amount.

The second group is traders, who increase their deposit by 50%-60% a year and lose not more than 5%-6%. And the third category is those who increase their capital by 30%-40% and their losses don’t exceed 3%-4%. The figures are very rough. Such traders are real professionals and very popular among investors.

Who won’t succeed on the exchange?

There is a kind of people, who won’t manage trading in the exchange market. First of all, those traders who came to the exchange from a casino or a slot hall. They would better attend “Gamblers Anonymous” and not waste their efforts on trading. Low-intelligent people are also unable to trade. Fidgety traders won’t reach sustained success too.

Common mistakes in trading

Except for trading large volumes, there is a number of traders’ great mistakes. Trading without a plan is very common. Beginners often start trading on a hunch. Of course, it is impossible to succeed without a plan. It is irrelevant to count on intraday trading.

Over-reliance on indicators and oscillators can also lead to a failure. They only make profits more likely, but in some timeframes they can even do harm.

Black-Sholes formula

This is the only formula that really works on the exchange. According to it, the price can move the equal distance both upwards and downwards. Too simple? Yes, the formula is simple, but nothing more complicated has been invented yet.

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