Learning how to trade forex without a lot of risk is not that hard to do. It’s a little bit like driving a car down a road that has some holes in it. As long as you assume that more holes are around the next corner, you should be fine. One of the biggest holes around in trade forex is the issue of using high leverage ratios (i. e., 100:1 or higher) for anything except “day trading”. Almost everyone learns, usually the hard way, that you just can’t hold a position that is this highly leveraged – for hours on end – without getting toasted in the process. Another pothole lying in the path of your success in trade forex is not understanding regional market differences. For instance, when Sydney is open, the AUD/USD is king of the hill. But, what about when North America is the only open? Not a chance.
To further reduce your risk levels, trade only in the middle of the week. Pick only mellow pairs (e. g., EUR/AUD or EUR/CHF) to trade.
Know The Risks Before You Decide To Trade Forex
There are 3 kinds of risk that can appear when you’re trading forex. First, there’s the risk that you structure your trade incorrectly. For instance, you use a leverage ratio of 100:1 on a long-term trade involving a highly volatile currency pair (e. g., GBP/AUD) on a Friday afternoon. Second, there’s what’s called “market risk”. For instance, at the end of every month, the European Union pays the UK a refund that tends to deflate the euro and increase the price of the British pound. Running a long EUR/GBP position, at that time, would not be a good idea. Finally, you have “non-systematic risk” – the risk of an unknown (“black swan”) event, such as a major political leader suddenly dying.
Reducing The Big Risks When You Trade Forex
There are several ways that you can reduce risk. First of all, you can decide not to trade – just standing aside, for a while. Secondly, you can decide to only trade on Tuesdays, Wednesdays and Thursdays, when trading volumes are the highest and spreads tend to be the tightest. Third, you can reduce your leverage to almost zero (i. e., use a ratio of 10:1, instead of the usual 100:1 or more). Fourth, you can only trade relatively mellow currency pairs (such as the EUR/AUD, EUR/CHF or CHF/JPY). Use an “Average True Range” indicator, on a daily chart, to figure out comparative volatility. Finally, you can tighten up the amount of time you are in the market (e. g., mornings only).
Increasing Your Chance Of A Return When You Trade Forex
Specialising in 1 or 2 currency pairs will increase your chances of a higher level of profitability. This is because your attention will not be diverted into researching or analyzing other currency pairs that you may or may not trade. In addition, there’s the problem that not all currency pairs are alike and if you trade 2 very different pairs (e. g., AUD/JPY and EUR/GBP), you may forget (or not know about) intrinsic trading characteristics that are critical to trading a pair profitably. For instance, at the end of every March, Japanese corporations repatriate profits to pay their taxes. This usually puts the USD/JPY under pressure. As a result, going long the USD/JPY, in late March, is never a good idea.
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