Forex Trading is the process of simultaneously buying a specific currency while selling another, mainly for speculation purposes. Foreign Exchange, popularly known as ‘FX’ or ‘Forex’ is the exchange of one currency for another at an agreeable exchange price in the OTC market. It is the world’s most traded market with a daily turnover of more than US $5.3 trillion approximately.
Working of Forex Trade
Forex Trading is originally carried out through a broker or market maker. A forex trader can start the operations by choosing a currency pair whose value is expected to increase and place a trade accordingly.
One of the bonuses that traders get is that the orders can be placed with just a few clicks and the broker then pass on this order to a partner in the Interbank Market for filling the trader’s position. When the trader stops the trade, the broker closes the position in the market and credits the trader’s account with the loss or profit.
Becoming a Successful Trader
Retail traders just entering the Forex market are totally unaware of its uncertain environment.
- Choosing Right Trading Market
For avoiding the huge losses from hastily diving into forex trading, it is necessary to make a framework for the medium-term forex trading system. This framework will help the traders in making a right start, saving money, and ultimately becoming successful forex traders.
- Setting up the Indicators
Technical Indicators are necessary to set up while trading in the forex market, as they help in filtering the trade-related activities.
- Minute-by-minute candlestick chart
- Hourly candlestick chart
- Daily candlestick chart
- Finding Entry Points
Finding the right entry and exit points in the Forex Market is very important to safeguard your interests and yield profits in the uncertainty. Entry points can be easily identified by looking for the time when all the indicators point in a similar direction.
Following are some instances to be focused upon:
- Bearish/ Bullish Candlestick engulfing or any other formation
- Trend-line breakout upwards or downwards
- Moving average crossovers
- Positive/Negative divergences in RSI, MACD, and stochastic.
- Finding Exit Points
On the other hand, Forex Traders should place the exit points, both Stop Losses and Book Profits, prior to order placement. Exit points must be placed at key levels and modified in the case of a change in premises.
Exit points can be placed at the following key areas:
- Just before resistance areas
- At retracements, arcs or fans
- Just inside of key channels
- Risk Management
Money management is very important for achieving success in a volatile market like Forex. Several fundamental factors swing the currency rates from one direction to another within a few minutes. It is advisable to limit your risk by utilizing stop-loss points and trading in a stable environment.
Some ways to limit risk:
- Increasing indicators
- Stop-Loss at close resistance levels
- Utilizing trailing stop losses to book profits
By following a well-defined strategy and being patient, and choosing the right broker any trader can earn huge profits in the Forex market. Liteforex has shown tremendous performance since the last decade in FX trading. A careful medium-term strategy will safeguard you from possible casualties.