FIVE TIPS FOR BECOMING A SAVVY TRADER
SENIOR TRADER, GLOBAL REACH
THERE are lots of opportunities to become a foreign exchange (FX) trader, especially with the increased use of trading portals and spread betting. Whether it’s as a private trader using your own funds or working for a trading house, the rules for success and promotion are the same. The key to a successful career in trading is to be disciplined and methodical, and to follow certain rules.
1. UNDERSTAND WHAT TYPE OF TRADER YOU ARE
The first thing you must do is identify what type of trader you are; this can be affected by the nature of the market, your resources and your psychology. You must be able to recognise if you are somebody that can be part of the short term/day trade or if your personal characteristics are more suited to medium to long term trading. If you’re a short term trader you’ve got to be able to handle the day to day torment and pressure of watching the market. If you’re a medium to long term trader you have to be patient and able to handle the potential financial cost of being wrong.
2. APPETITE FOR RISK AND MONEY MANAGEMENT
Money management is key for longevity in the trading career. As a rule of thumb you should never risk more than 10 percent of your trading account. Also the placement of stop losses (a level that automatically cuts your losing position) is important in both money and risk management.
3. UNDERSTANDING BOTH FUNDAMENTAL AND TECHNICAL ANALYSIS
As a technical trader, I learned that the price encompasses all the current information available. While some technical traders ignore fundamental data, I believe that one of the key aspects of being successful is to understand both forms of analysis. There’s no use identifying key levels or entry points on your charts if they coincide with key data releases such as central bank meetings or nonfarm payrolls. If you ignore these you may find your trade stopped out very quickly.
When using technical analysis, don’t just use one method for identifying trends, entry points and stop losses. Use different forms of analysis, time frames and confirmation tools to add weight to your decisions. If your analysis shows contradicting views, be patient, step aside and wait for a further signal.
4. DON’T JUST FOCUS ON THE FX MARKETS
The FX market is the most liquid market in the world and doesn’t have strict opening and closing times. As a result of this, it correlates with other markets such as the risk trade. You can sometimes get an early handle on how the market will trade by examining the price action of other markets overnight.
5. ADMIT WHEN YOU’RE WRONG
Einstein once said “Anyone who has never made a mistake has never tried anything new”. There is nothing wrong with making a mistake as long as you learn from it. Sometimes in trading you have just got to cut your losses and admit that you’re wrong. Reflect on why you made that decision. Were there mixed signals at your point of entry, did you consider the economic calendar, did you take your eye off the ball? Possibly you were too greedy when the trade was in profit or maybe you were just unlucky? Don’t chase the market; if you get stopped out, you’re wrong for a reason, this is no time to be macho and make the same mistake twice.
Jamie is a senior trader at Global Reach Partners.. Jamie has a degree in economics and is also an MSTA qualified technical analyst. He has over four years experience within the FX markets.