A study shows that investors engage in more traders after profitable periods because of overconfidence, resulting in getting burned. And this is one of the reasons why traders must govern themselves accordingly and take the market seriously.
With that, these short-term forex trading tips below will help in having reliable tools to become not just a trader, but a successful and profitable one.
Correlations are a powerful tool to confirm trades. Also, it could possibly double profits. Traders must use currency correlations to their advantage and evaluate the risks and profitability of traders.
Also, statistical correlation is about the relationship between two assets – it could be positive, negative, or both. And this indicates if its positive, on asset tends to mimic the other, for instance: the euro and the Swiss franc. Meanwhile, in a negative correlation, one security goes the opposite of another.
Examples of positively correlated pairs are EUR/USD, GBP/USD, and AUD/USD. On the other hand, negatively correlated pairs are EUR/USD against USD/CHF or USD/JPY.
In other words, traders would buy gold and also sell DXY if the greenback is trading down. For instance, when going for long EUR/USD, it is natural to go short on USD/CHF.
Have a Trading Plan
Trading plans are the roadmap to follow when beginning a position. It must have entry and exit points, stop loss, profit-taking, and risk or reward ratio.
Having a plan will keep the information about how much a trader is buying or selling, the potential profits, the levels to watch, and it provides an exit point if something goes wrong.
A trading plan is one of the top items for forex trading as it keeps a trader in line with the objectives. But a trader should always stick to the plan.
Managing Risk for Protection
Protection not only for the trader but also for the money is one of the cornerstones in trading life. Keep in mind that the market will open tomorrow, and a trader must ready the portfolio.
Also, it is essential to calculate the risk linked with every trade and determine the right time to wait and when to start trading. There’s no need to rush as the market opens opportunities every day.
In addition to that, know that it is better to stop trading if there’s a streak of losing days and take a few days off. This would help traders to clear their minds and come back to the market with a sharp brain. Then, never trade without stop losses and limit the risks.
Put Emotions Aside
This one sounds easy, but it is actually not. Traders must trade with what they see instead of what they hope to see. It’s better to wait for the perfect time and not be swayed by emotions.
Two useful tips are to keep a clear trading plan and have a detailed trading journal.
Don’t Stop Learning
The forex market is a challenging enterprise worldwide. However, it could also be one of the most rewarding.
What makes forex difficult is the fact that it changes every day at every second. What works today might not work tomorrow. Thus, it is imperative to continue studying and testing the market with new strategies, research, and technical and fundamental topics.
Also, watch out for new technologies and use them as an advantage. Traders could try back-testing software, automated trading, and technical indicators to improve trading and research.