Forex trading is an art where the few who understand its secrets succeed. Whether forex is a hobby or a full-time job, the ultimate goal is, all the same, to earn profits. However, in a market of millions of participants all bend on making profits while doing the same thing, profit-making is difficult.
Expert traders know that the forex market is about many things, but sentiment reigns supreme. The sentiment is the general feeling in the market. Notably, market sentiment changes direction frequently according to changes in certain factors. For instance, a global phenomenon like the coronavirus epidemic affects the value of risky currencies. It is because traders speculate by shorting the risky currencies (i.e., the AUD) and going long on haven currencies (i.e., the CHF). Also, the rates may fluctuate because financial institutions protect themselves from risk by buying up more haven currency at the expense of the risky ones.
There are many moving parts in the forex market. For this reason, more than half of forex traders lose their capital. Besides, this should be the most convincing reason for you to learn trade secrets because the other half of traders that make profits know the secrets. In this article, we will discuss some secrets that traders can employ to succeed in forex.
Trade currency pairs that include the US dollar
The US dollar is the king of currencies. Around 60% of the total global currency reserves are in US dollars. Comparatively, only 28% of the Euro (EUR), 4.2% of the Japanese Yen (JPY), and 3% of the British Pound (GBP) are used currency reserves. Usually, a reserve currency is used by sovereign states (through their central banks) to conduct forex transactions on behalf of the domestic currency.Besides, sovereign countries use reserve currencies to purchase crucial commodities like crude oil. That is why commodities like oil are valued in terms of US dollars.
From the foregoing, the USD is authoritative in the forex market. Notably, more than 85% of the trading volume in the forex market involves currency pairs that include the USD. Accordingly, this volume can produce price fluctuations that are sufficient to earn traders in massive profits. Important to note, forex trading, whether it is automated trading or not, relies on price fluctuations. However, a high trading volume has the necessary liquidity to enable traders to enter and exit positions fast.
Use backtesting to find the ideal currency pair for trading
Backtesting is an essential technique that traders use to test the reliability of forex expert advisors. Backtesting is critical for expert advisors bought off the market. Usually, the vendors exaggerate the profitability of their EAs with the hope that you buy. They may even present falsified test data to persuade the buyer. To avoid such a scheme, backtesting uses historical data to see how the forex robot would have performed.
Interestingly, backtesting could be an excellent strategy to pick the best currency pair for trading. Say you just designed an automated forex trading system. Then, you use historical data of a given currency pair or a group of currency pairs to see how the system would perform. While at it, observe the pip movement of each currency pair. The currency pair that registers the highest pip movement during backtesting should be your ideal forex product.
Do not overtrade
There is a good reason why the majority of expert traders prefer algorithmic FX trading. Naturally, the traders are avoiding the psychological aspect of forex trading. Humans are emotional and, occasionally, they will make decisions based on subjective factors rather than concrete facts. For instance, a trader might exit a profitable position because of the fear that the market might move against him. On the contrary, a look at facts (fundamental and technical analysis) might show that the market is just getting started on the way to historic highs/lows.
Further, automated FX trading helps with another problem called overtrading. Overtrading simply entails spending the whole day staring at charts and wondering whether you made the right decision or not. Unfortunately, some forex brokers encourage overtrading because it earns them more money through commissions. However, using a forex robot or any other automated trading system helps to avoid this problem. All you need is a few productive hours to read charts and to configure your EAs accordingly.
Take a deep breath, and keep everything simple!
Successful traders are a surprising lot. They all began their trading journey like any other beginner, pouring over hundreds of articles on how to leverage fancy indicators for a winning strategy and whatnot. With time, however, it becomes clear that the artistic trader adores simplicity. It is not all about the best forex indicators in the market, though their usefulness is significant.Instead, all you need is to have goals and work on them.
In terms of market analysis, stick to simple but effective trend lines. Here, all you need to know is the resistance and support in the market. Also, the moving averages should help you to determine the ideal entry and exit points.