7 Things You Didn’t Know About Forex

Forex trading is not a computer game, it is not simple and it is definitely not 100% get-rich-quick scheme. Before your clench to yet another mouthwatering promise of unlimited profits and absolutely no loss, go over our list of things you should know.  

1.Forex Is Now (Sort Of) Using The Blockchain

If you have much awareness of the blockchain, you probably know that it’s the engine that drives cryptocurrency. Well, despite the fact that cryptocurrency is not included in the trading in the forex markets, the blockchain sort of is. It isn’t exactly the norm yet, but more and more forex brokers and financial institutions are starting to experiment with running transactions through the blockchain. This shouldn’t make a huge functional difference to most traders, though it may marginally improve security and efficiency. Still, it’s worth knowing that blockchain tech may be involved so that you’re not surprised by it.

It’s a different kind of market, but one you can actually get the hang of pretty quickly. And for entrepreneurs, it’s one more avenue through which some side income might be generated.

2. There is No Holy Grail

There is no million dollars within couple of weeks, no super automated software that will do all the trading for you while you shop for another hammer H3, no magic indicator to lead you to the right answer every time you trade,  no money without hard work, planning and learning!  Sorry to disappoint, but there is no Holy Grail. Stay away from fraud statements such as:

·         “Guaranteed 100% profits, no losses with Automated Trading!”

·         “Make your fist million within a month forex trading.”

·         “Make $5000 every week!”

·         “Don’t have time to learn how to trade? Try this software!”

·         “Never lose again in forex”

3. Who are Bulls?

The term Bull refers to a trader who expects price to rise while a Bear is a trader who believes price will fall. These nicknames supposedly come from the way each of these animals strike: a bull charges with its horns, using an upwards motion and a bear slashes with its claws, moving downwards. There is another type of trader, although this one is less known: the Pig. I’ll be honest, I don’t really know where the nickname of the Pig comes from but it describes a trader who is not very sure about what he’s gonna do next and the consensus among traders is that “Bulls make money, Bears make money and Pigs get slaughtered.”

Forex is traded in pairs, such that you’re always buying or selling one currency against another. So, for example, many will trade the EUR/USD pair, buying or selling the Euro at its value against the U.S. dollar. One thing you’ll quickly learn if you start to explore the forex market is that some of these pairs are traded more than others. And one bizarre feature of forex is that the pairs unofficially designated as “major” — the most heavily-traded pairs on the market — universally feature the U.S. dollar. This may not be surprising when you think about it, given that the USD is still viewed as the world’s reserve currency. But it can be a bit strange to jump into a global market of currencies and see USD seemingly everywhere.

4. Reviewing your Trading Plan is a Must

You have to work out the details of your trading plan. Don’t be surprised if your trading plan will grow along with time. The more experience you get, the more detailed your plan becomes. Here are some of the things you have to consider:

·         Entry Price

·         Target Price

·         Plan B – how to get out of a bad trade

·         Maximum amount you can lose

·         Stop/Loss

·         Time Frames

·         Size of the Position

·         Self-penalty for not following the plan!

·         Trading style

·         Factors that support a decision of entering a trade

Trading plan should be written down and updated weekly. It is always a work in progress – your plan will be influenced not only by your experience, but also by seasons, market conditions, economic news etc., each of which requires different strategy.

5. Politics do matter

Most people worry only about news and political events that affect them. However, every election, every separation, every merger, and any referendum does affect you. Economic and political stability shapes the health of any currency.

Nothing can be as helpful as your own trading journal. You should write down your daily experience, compare it to the trading plan, and examine the emotional factors. Whether it was a good or a bad trade, every aspect around the decision and the trade itself should be closely analyzed.

Most people worry only about news and political events that affect them. However, every election, every separation, every merger, and any referendum does affect you. Economic and political stability shapes the health of any currency.

Look at the GBP performance after the Brexit referendum; shortly after the surprise results that led to David Cameron quitting his job as Prime Minister, the market started getting more and more volatile (higher volatility, higher price swings). That is because the British market was filled with unknowns about the future of the nation. 64 million people will, potentially, lose access to a 500 million people market in 2 years if nothing is agreed.

A lot of British citizens didn’t mind that fact, but the market did care. The interest rates that your bank account pays, the goods you buy, the petrol you put in the car, even the cost of your services all depends on the strength of the British pound. Let’s break it down in simple terms, so you see it.

The value of the pound fell to a low not seen in over three decades after the referendum. The pound fell 20% against the US dollar and since then it has regained most of the losses with prices now at almost pre-Brexit levels. This shows the size of swings the market can make and of course, this creates trading opportunities. ”That means that anything the nation imports (like warm weather vegetables) will be roughly 13% more expensive. So, that increases inflation and lowers your disposable income.

And your bank account? A large part of the interest rate banks pay on savings accounts come from said banks trading in the forex market. Consequently, just the fact of having a bank account means you are a forex holder since you benefit from the profits the bank made from trading currency.

So next time you read the news, keep an eye on the economic indicators, they influence your life more than what you think they do.

6. Discipline

Before jumping into a trade, make sure you know why you have decided to make a trade in the first place, what kind of profits do you expect from this particular trade and what are the maximum possible losses resulting from this decision. Can you handle it? Are you influenced by emotions from the previous trade (revenge, anger, greed)?  

If you aren’t clear about something – don’t trade. Expect the unexpected and, as the professional traders say, keep in mind that “No trade is better than a bad trade”.

7. Learn to Loose

Loosing is part of the game. Learn to accept it with grace, even if we are talking thousands of dollars. Count your profits in the long run and not on the daily basis. Today may be a loser day, a week after you might not only win your losses back, but makes a distinct profit. Your profits are relative to time.

It is important to admit your mistakes. The best exercise is to say it out loud to your spouse or another fellow trader (of course, taking under account that those people do support your current profession).

Don’t fight it – this only leads to even more unnecessary losses. No, there will be no sudden opportunity to get the money back. And no, you shouldn’t sit in front of your computer now searching for profitable movements. Accept the losses and take time out. Close your computer, take a shower, go out to meet friends. Tomorrow is another day.

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