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2-1 – Investing, trading or gambling

  • Investing = longer-term
  • Trading = shorter-term
  • Gambling = emotion-driven, random outcomes
  • Speculation = trades that go wrong

2-2 – What you need to succeed in trading

  • Discipline
  • Risk tolerance
  • Facility with numbers
  • Knowledge

2-3   Determining your trading strategy

  • Define your goal for trading FX
  • What kind of returns are you aiming for?
  • How much time do you want to devote to trading?
  • How money can you afford to risk?
  • How much leverage do you want to use?
  • What currency pairs are you going to trade?
  • How many trades do you want to have on at any time?•    What is your time horizon?
  • Technical or fundamental trading?

There are a number of points you have to consider when deciding which trading style is best for you. First, you have to define your goal for trading FX, including what kind of returns you are aiming for. You need to consider how much time you want to devote to trading and how much money you can afford to risk. That will affect how much leverage you want to use. Different trading styles will allow you to trade different currency pairs, or looked at the other way, some currency pairs require a certain trading style. The more trades you want to have on at any time, the more time you’ll have to devote to the market. Your time horizon will affect your trading style. Finally, do you want to follow technical or fundamental trading?

2-4 Trading style: technical or fundamental?

  • Are you a short-term trader or a long-term trader?
  • What is technical analysis?
  • What is fundamental analysis?
  • One, the other or both?
  • A third way: social trading

Technical analysis is the study of price movements in the past to predict trends in the future. It’s best suited to trading shorter time frames. Fundamental analysis is the study of the economic, political and other factors that cause investors to buy or sell a currency. It’s best suited to longer-term trading.

2-5 - Social trading

  • What is social trading?
  • Managed FX fund
  • Personal Multi-Account Manager account
  • Trade mirroring services

Social trading offers an opportunity for investors to add FX to their investment portfolio without having to learn trading themselves. Several options exist depending on how involved you want to be, ranging from managed funds, which are totally hands-off for the investor, to trade mirroring services, where you follow one or more traders and can choose to mirror each trade individually if you want to. These services are also good for people who are just learning to trade and want to watch how more experienced traders do it and learn from them.

2-6 – Scalping

  • Scalping = extremely short-term trading
  • A pip here, a pip there
  • Trade the most liquid pairs with short-term charts
  • Need to pay close attention to the market
  • Scalping needs discipline

Scalping refers to extremely short-term trading. The trader trades in and out of the market frequently in an attempt to make a few pips on each trade. Usually, scalpers trade the most liquid pairs using short-term technical charts. This technique requires a lot of concentration and attention. Unfortunately it tends to attract people who are looking for thrills, but in fact it requires considerable discipline.

2-7 – Carry trades

  • What is a carry trade?
  • What is carry?
  • Carry trades in the FX market
  • Carry trades are for longer-term investors
  • Swap rates
  • Carry trades shouldn’t work in theory
  • Carry trades aren’t fool proof
  • The infamous Russian bond carry trade unwind of 1998

 A carry trade is the purchase of a high-yielding currency financed by selling a low-yielding currency. Carry trades are widely used in the FX markets, but they can be risky, because the small gains the trade makes every day can be wiped out by a sharp move in either of the currencies involved.

2-8 Developing your trading plan

  •  What is a trading plan?
  • Why make a trading plan?
  • A trading plan is the key to consistently profitable trading
  • Keep a trading journal

Trading is a marathon, not a sprint. You’re trying to stay in the game long enough to rack up more wins than losses. By reducing the number of losing trades and increasing the number of winning trades, you can win more consistently. That’s the key to long-term success in trading. A trading plan gives you discipline; discipline brings about consistency; and consistency brings about profitability.

2-9 – Your trading set-up

  • Computer & internet connections, plus backups
  • Analytical software
  • Independent price feed
  • Economic calendar and news source
  • Your environment

 Before you start trading, you should make sure you have the necessary tools. They won’t ensure your success, but not having them will make it more likely that you fail. You need an appropriate computer set-up, preferably with two screens, and a back-up in case of failure. You need an independent price feed and you might want to get an independent charting package. A good signal provider is of course a plus too! You need to be prepared for the day’s events with an economic calendar and news source. Finally, it will help if you have some peace and quiet to think in.

2-10 – Demo trading

  • You have to walk before you can run
  • Demo trading is nothing like real trading

You need to start with a demo account, but just because you make a million dollars trading in your demo account, don’t think it’s going to be that easy when you start trading with real money. The prices you get may be different than those on the demo account, and more importantly, your response to the market will be totally different when you feel the risk of having your own money on the line.

2-11 A note about men vs women traders

  • Most traders are men, but that doesn’t mean they’re better traders
  • Women react to cortisol differently than men do
  • Women tend to make better decisions as they get more stressed; men don’t
  • People aren’t aware of how stress changes their decision-making
  •  Testosterone makes men more confident and therefore take more risk
  • But: firms that need long-term performance rely much more on women

Trading FX is easy when the currency you’ve bought is going up, or when you have a lot of money to play with. It’s when your currency is going down or your capital is shrinking that you have problems! And that’s when, apparently, women do better than men.

The secret of trading

If you want to know the secret of trading, you have to watch the video.

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