It’s too hard to isolate the truthful data. Only an experienced trader who has spent thousands of hours on Forex can tell the truth from the lies. Beginners will have to find an experienced mentor who will help them figure it out.
Today I will try to tell you some currency trading secrets that most prefer not to talk about. This will give you a broader understanding of Forex.
Why You Need This
Few people like to delve into certain topics. Most traders believe that there is no need to delve into the very essence of the foreign exchange market. The main thing for them is having a trading strategy that brings money. This majority becomes those 90% of traders who fail to succeed in Forex.
A successful trader is distinguished by an inquiring mind. He doesn’t take every word for granted, tries to thoroughly study each topic, and double-checks any data. Having stumbled upon some “ingenious trading system that brings hundreds of dollars a month”, the average trader will immediately begin to use it in real trading and that will surely lead him to collapse. A person with an inquiring mind will go the other way:
- Find and read all available information about this strategy.
- Visit forums to chat with experienced traders who have tried this system.
- Spend the necessary time on a demo account to test how the strategy works and whether it suits him.
- Only then move on to real trading while constantly analyzing the system to make the necessary changes.
As you can see, to achieve success it is important to thoroughly understand everything. That is why I want to tell you what you may encounter at Forex. You don’t have to accept my words on faith. You can search for information about each topic that I will cover to be 100% sure.
Transaction Costs Matter
Many traders don’t pay deserved attention to spread, commission, and swaps. Why, if there are only a couple of points per trade, right? Let's calculate. A day trader can open up to 5 trades a day. Let's say his trade is 0.5 lot. This means that on EURUSD the spread will eat up to $25 per day because the cost of 1 pip, in this case, will be $5.
Scalpers open even more trades. And even with a small lot size, the transaction costs themselves will be significant. Scalpers need to open several profitable trades a day just to break even.
That is why, before choosing a trading style, currency pair, and account type, you should study all the additional commissions, swaps, and spreads that you have to pay. To swing and position traders, as a rule, transaction costs are the least expensive since they open the smallest number of trades.
Day Trading Is Not #1 Choice For Most Pros
The vast majority of Forex participants are day traders. Because of this, it seems that this is the formula for success. But it seems to me that we’ve watched too many movies where currency traders spend all day, and sometimes night, in front of charts, whatever the market decides. That is, a successful Forex trader is a kind of Wall Street shark.
But this contradicts many of the main advantages of Forex - to earn money and live for your own pleasure. When to enjoy life if you can’t abandon your screen for a minute?
The constant search for successful trades and making thousands of dollars on these opportunities is a myth. It may seem paradoxical but the more time you spend in front of the charts the lower your Forex results.
Want to know how professionals trade? As a rule, swing and positional traders are the most successful in Forex. Their transactions can last days or weeks and bring significant profits with minimal risk. Such traders open charts just a couple of times a day for a few minutes to take a quick glance at the market and find clearly successful trading setups. Such trading opportunities are called “low-hanging fruit”. These trades are immediately visible and the percentage of their success is higher than usual.
If you have to search for a trade for a long time then its success will be far-fetched. The chance of winning is void. As a result, you will harm yourself. The longer you look, the more you lose.
What is it all about? If you want to become a professional consider trying swing or positional trading. These styles have several advantages over day trading:
- On charts with a higher timeframe, there is much less market noise, so you will open fewer trades based on false signals.
- On 4-hour and daily charts, the price fluctuates less and that reduces the chance of closing your trades by Stop Loss.
- The risk-to-reward ratio will often play in your favor on higher timeframes due to lower volatility.
- Trading signals are more accurate on daily charts than on hourly charts, for example.
- You open fewer trades and as a result, your transaction costs will be lower, as mentioned above.
- The longer the position, the more time you have to analyze it and forecast its outcome. Thus you can close a clearly losing position and protect your capital.
- A longer trade means more control, thus, it allows you to better manage your emotions.
- Since swing and position traders get only a few good trading setups per month, they reduce the chance of overtrading.
- The return on each swing or position trade is much higher than for a day or scalping trading.
- Swing and positional trading take much less time than other styles.
These are just a couple of points from those that I plan to tell you in a series of articles about currency trading. Stay tuned to learn even more secrets.