The wonders of the internet have introduced to us an era where trading foreign exchange (forex) isn’t just for full-time traders or brokers. Nowadays anybody can take advantage of forex trading to compliment their 9-5 job — all from the comfort of their own home.
However, like many things, forex trading isn’t easy. There’s a reason why it takes years before professionals rake in thousands of pounds in one day and sometimes, even more. With Yahoo Finance reporting that the economy may slowly be on the mend, now is a great time to learn a thing or two about forex trading (and perhaps even try your hand at it). Thus, we’ve outlined a few tips to help you get the best out of your part-time trading sideline:
Study the market
Studying the market can take time and dedication. In fact, The Balance says it takes most traders six months of practice before seeing any profit. So, take time out of your day to observe the market and practice trading on a demo account when you can.
Without doing the proper research, you will have problems not only on how to trade well, but also what factors to look at in the first place. It’s best to study what different terminologies mean and which time frames are optimal for trading certain currencies. To get a better grasp of all these, study how currencies move, read up on chart reviews, and when you’re ready, conduct back tests. This is a method that involves applying different trading strategies to historical data to see how things would turn out theoretically.
Take advantage of technology
Technology advancements have definitely made trading easier; in fact, most trades today are conducted through some sort of online trading platform. Not to mention, these platforms are equipped with various tools to help make to make trading easier. Case in point, FXCM’s MetaTrader 4 allows users to trade on-the-go with its easy to use app and advanced market analytics. It lets users take advantage of numerous unique order options, tools for technical analysis, custom indicators and trade automation.
According to Investopedia’s guide to choosing the right trading platform, it’s important to strike a balance between manageable fees and useful features. Reputable trading platforms should also have accessible customer service lines (such as chat boxes, e-mail addresses, and phone numbers) to address potential concerns — this is especially crucial for beginner traders. It’s also worth looking at a platform’s withdrawal policies, as some may charge huge fees for closing an account.
Hold fewer positions
When it comes to stocks, you’ll often hear that it’s better to diversify your investment strategy rather than put all your eggs in one basket. This isn’t necessarily the case with forex trading, as it’s better to play it conservative with a few currency pairs and monitor them over a longer period of time. A conservative trading strategy is your best bet especially right now, as currencies all across the globe may take a while to recover. As mentioned in our previous article on 4 Tips for Successful Trading Online, starting slow with forex trading can also help you generate more profit in the long run.
In terms of utilising technology, stop-loss orders are a good way to supplement a conservative trading strategy. Setting your own parameters helps minimise any potential losses if the market should slump even further.
Keep a trading journal
We all know that one of the best ways to learn is by observing your mistakes — and in forex trading, inevitably, you will make some. The best way to get past this is to have a trading journal, which will record your daily trades for future reference.
Trading journals are extremely effective tools for performance management, as they’ll help you understand your trading movements, and see mistakes you’ve made in the past. Along with your prior research, this will teach you what to avoid, and which moves work best for you. Although it may seem like a meticulous task to keep a journal, it will undoubtedly serve as a better foundation for successful trading.
Overall, entering the world of forex exchange and becoming a part-time trader is a daunting yet exciting responsibility. Not only does it present you with exciting opportunities to make extra income, but it also allows you to understand how the global market works all around us.