The top seven trading tips from FX analysts

Author: Forex Live | Category: Education

Some tips on how you can improve your trading

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This article will give you some helpful tips from a professional analyst and full-time trader's perspective. If you are just starting out on your trading journey, or even if you are some way down the track, read below for seven top tips in FX trading.

Tip #1: Don't ignore trading psychology

It is easy to see why trading psychology is an area that is often overlooked by traders, especially when they are starting out.

However, seasoned traders, who have spent years in the markets, understand that the traders who are going to keep going for the long haul are those who have mastered their trading psychology.

Trading is an incredibly emotional experience. The cold reality is that either you are going to control your emotions or they are going to control you. How you react and respond to those emotions will determine your long-term market success.

So, tip #1 is to take time now to research and invest in your trading psychology if you have not already done so.

Tip #2: Don't ignore fundamental analysis

Technical analysis is intuitive and relatively easy to each. However, fundamental analysis is a slightly more involved skill and can seem impenetrable at first. Fundamental analysis is simply the ability to understand why the market is moving in a certain direction.

For some, who see fundamental analysis as irrelevant, it is worth reflecting why nearly every single institutional trading firm invests large sums of money to get economic releases and analysis delivered to their trading desks within seconds.

The Bloomberg terminal, for example, costs around $2000 per month. If technical analysis alone was sufficient for profitable trading then these serious trading firms would not invest so heavily in tools that were useless.

Some simple ways to fast track your fundamental analysis skills are to invest in a news squawk, read analysts regularly, and get some 1:1 coaching. It will be an investment that will pay dividends in the long run and avoid costly early mistakes.

Tip #3: Don't over-leverage

One of the most important aspects of trading to grasp is the proper, and professional use of leverage. The use of leverage is arguably the most important aspect of risk management and proper risk management is the top priority for all professional traders.

Managing risk is going to be the single most important factor in your success or otherwise as a forex trader.

You must pay attention to this lesson, as this may be the one factor that is hindering your progress in the markets, as the improper use of leverage will make long term success almost impossible to achieve in the forex market.

You can't trade if you have no capital left. In contrast, the proper use of leverage will prevent you from destroying your account, preserve your capital as a trader, and make you an attractive trader for high net worth individuals to invest in once you are successful.

Tip #4: Don't ignore recent market sentiment

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Sentiment analysis is simply understanding the current mood of the market. The market, like a person, is subject to different moods. Correctly reading the market's mood is crucial in making profit.

Now, if you misread a person's mood you may end up accidentally feeling the effect of a person's bad mood.  In a similar way, if you are unaware of the market's mood or sentiment, then you may end up with a losing trade.

The market is an emotional melting pot, prone to wild mood swings which can be overly optimistic or very pessimistic. So how do you correctly read sentiment and keep in step with the market's present mood?

You simply read up on the last two market wraps to see what the market is focused on. Did a central bank cut interest rates unexpectedly?

Was there some really good or bad data out? Try to trade in step with the market by looking at what the market is focused on. This is a skill that needs to be practiced and you will get better at over time.

Tip #5: Don't look at technical analysis as the holy grail of trading

When traders begin their trading journey they will often have a fascination with technical analysis. Almost all traders have taken part on the quest to find the holy grail of trading systems. The thinking goes, 'If I could just find the right system I will have cracked it'. 

Hours are then spent back testing through the charts, switching between systems week to week, all in search of the ultimate technical system. All too often is to little avail because that perfect technical setup fails and you are left wondering why.

Eventually, those traders who persevere, will realize that the market is a fluid movement of price that reflects the economies across the world. Fundamental and sentiment analysis are the guiding lights on price.

Technical analysis is simply the means by which successful traders define and limit their risk in a sensible way once the fundamentals are in place. In short, technical analysis is a great servant, but a terrible master.

Tip #6: Don't ignore your trading environment

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It is also important to consider your trading environment. What is the layout of your trading area? If you are working on a trading floor you have a number of advantages. You have the squawk talking and the news terminals are constantly there for you.

Your colleagues will be discussing events and the team will be given a session brief. The environment is conducive for the purpose of trading. Do you have enough screens to trade properly?

Trading from one screen can be very difficult, especially trying to stay on top of multiple news stories, open the charts, and conduct research at the same time. So, having a minimum of three screens would be really helpful in your trading environment. The layout would look something like this:

• One screen for your news feeds and squawk
• One screen for your trading platform
• One screen for your research screen

By being able to react quickly and keeping well informed you will find that mistakes will be less likely to occur. A multi-monitor setup will help you achieve this.  Also, the location of your trading desk is important.

Are you trading in the middle of a room with two dogs, four children and a wife all competing for your attention? Do you have a dedicated space? Is your chair comfortable?

Now, you may not be able to achieve a complete solution straight away, but you should move towards it. Pay attention to your physical environment because it will impact your trading performance.

Tip #7: Always be aware of when high impact events are coming out

You see a great news story and price is in a great technical place. You buy your instrument and then, 20 minutes later you see that you were stopped out on a large spike. You forgot to check the news and some top-tier scheduled data was released.

A school boy and preventable error. You either write the timing of the data down or just know when the news relevant to your instrument is going to be released. Get into the habit of looking forward into the events calendar before placing a trade

By following these seven tips you will save yourself time, money, and wasted energy pursuing the wrong avenues in your trading ventures.


This article was submitted by InstaForex.
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