When (Forex) Trading is like Dating…
I love magazines. All sorts of magazines from Wired, Popular Science, Bloomberg Markets, but especially the silly women’s magazines. I subscribe to several of them. Once a month I race to the mailbox to see if today is the day that the mail carrier delivers some good-old stay-up-late reading material. This month’s stash of magazines was focused on dating and it struck me how much foreign exchange trading is like dating… I’m serious. You might be shocked at some of the similarities I discovered in my reading. Below are some tips for trading….and dating too!
- Be prepared. If you really want to succeed in the trading game, decide what you are looking for, do your own research and be ready to commit to trading. Half heartedness won’t work. Also, you need to be prepared for some let downs along the way, but don’t take trading too seriously either.
- Get your act together. Begin a regime of study. Join a trading group, read trading magazines and talk to other traders. Though it will not help you place a trade, you will begin to feel a million times more confident the more you know.
- Go shopping and treat yourself to some new analysis tools. These don’t have to be expensive. In fact, most brokers will give you what you need for free. The most successful traders I have seen tend to keep an eye on both the fundamentals and the technicals. Taking a two pronged approach will give you more information on which to base your trades.
- Start at the beginning and KISS (that means Keep It Simple, Silly). Learn to draw your own trendlines, how to identify support and resistance levels, and study up on your candle patterns. I would also recommend that you understand what your indicators are trying to tell you. Don’t take it on blind faith that the Super Amazing New Indicator you just dropped $299 on is the real deal. Indicators fall into four basic categories; those that measure velocity, volume, trend, and momentum. Volume isn’t really relative in forex trading but the other three are. In order to get a balanced view of the market you should spend some time taking a look at indicators to see which ones from each type work the best with your chosen currency pair.
- Think about your trading goals and timeline. Do you see yourself retired in 10 years? If you do then approach trading accordingly. If you are more laid back and don’t plan on trading aggressively then map out your goals. Are you simply trying to make more than your 401k or Money Market account?
Define your confidence levels in advance. By following the first four tips you will feel better and be more focused. Boost your confidence, avoid negative friends and surround yourself with other traders (online and in real life if you can manage it).
- Determine where and when. There are actually five over-lapping trading sessions that make up the 24 hour trading days between Sunday evening and Friday afternoon. New York trades from 7:30am to 5 pm EST. Sydney, Auckland and Wellington trades from 3pm to 11pm EST. Tokyo trades from 6pm to 11pm, then they stop for an hour lunch break, resuming after that to trade until 4am EST. Hong Kong and Singapore trade from 7pm to 3am EST and Munich, Zurich, Paris, Frankfurt, Brussels, Amsterdam and London trade from 2:30am to 11:30 am EST. Are you a stay-up-and-trade-all-night sort of person? Or are you more likely to trade in the mornings or evenings? Remember that currency pairs may change their personality during different sessions. The EUR/USD may not like the Europe & Asia overlap (from 2am – 4am EST) where it may only range 30 pips or less. However the same EUR/USD pair can range 80 to 90 pips during the European Session. Take a look at each pairs trading range in your chosen time frame. You will have a happier trading experience if you match your personality to the right currency and time frame.
- What is your trading style? Are you a risk taker or are you looking for more of a stable, sure thing? Choose the currency pairs you have a good chance of trading. If you are after a risky date then trade the more volatile pairs. Just like a risky date, the volatile pair will require more vigilance and attention. When the GBP/JPY moves 120-140 pips in a session it can make for heart-stopping trading. If you don’t give those volatile pairs the attention they need they may just take your money. If you are looking for a calmer, more reliable trading record you may wish to trade the pairs that are less volatile but more stable. A pair that moves a mere 20 – 40 pips in a session may be a little more your style. They may not be as attractive initially but you may have longer term success with a calmer currency pair.
- Meet the friends and family. Find the pairs that have correlating or diverging prices. There are pairs that will follow each other (or do the exact opposite of each other). These pairs are interesting to watch side by side. Sometimes you can see a trend emerge on one pair before the move starts on the other. It is also very worthwhile investigating what influences your pair. Does the price of crude or gold influence your chosen pair? Does it react strongly to fundamental news announcements or is it rarely phased by those market movers? Knowing how outside factors influence your chosen pair will help you gauge the reaction to any given event. This way you will know if you should be extra vigilant when Ben Bernanke or Jean-Claude Trichet are speaking or whether you can flip over to Sport Center for a while.
- Be familiar with your environment. What is the range your pair likes to trade within? Can you look at a price and instantly see if it is high or low for that pair? Understanding your environment can make it easier to predict their behavior.
- Don’t trade too many pairs at once. The danger here is that you will mix up the details. It is easier to have an understanding of one or two chosen pairs. If you spread yourself too thin you run the risk of making basic mix ups and causing yourself nothing but heartache.
- Work out in advance what trading scenarios will appeal to you and place pending orders with profit targets and stop losses. By carefully analyzing the playing field you are giving yourself an advantage in the markets and not just picking up a trade because it seems like a good idea at the time.
- Come into the trade with a bit of money in your back pocket because testing and learning in the trading game can be a little expensive. Most brokers will offer micro lots (.01 of your margin), which will help, but you don’t want to open a position and then face a margin call because you have committed every dime to a trade. Leave yourself a little maneuvering room. It could just pay off.
- Take time off from trading occasionally if it is not going well or you are suffering from trading fatigue. Trading is a marathon -- not a sprint -- so recharging the batteries and keeping confidence and optimism levels high is an absolute must! So trade in phases if necessary.
- Know when to get out of a trade. Set your stop losses accordingly and know when to regroup and try again. Just like in dating, if the relationship is not a fit, it is best to cut your losses and try again.
- Sometimes high maintenance isn’t a bad thing. A little extra time and attention for chart analysis may just be the key to revealing some reciprocal payouts during your next trading session. However, if your trading is automated, meaning it can live and work happily without your undivided attention until tomorrow, you’ve discovered a healthy trading relationship.
- Trade in a group. Go to a trading user group and find out what works for others. It’s best when you can discuss your theories with others and learn from their experiences.
- Be creative. Creative trading and analysis can lead to success in the foreign trading industry. As in dating, the best are the creative ones.
- Set realistic goals regarding your trading experience. Not everyone will win big in the first few trades. However, don’t be afraid to aim high. The sky is the limit in online foreign exchange trading.
- Everybody’s gone on a desperation date because there’s a lonely Saturday night on the horizon. Don’t make a trade just because it’s been a long time since you bought or sold something. Wait until Mr. or Ms. Right Trade comes along, and then make your move.
- Don’t blow your budget on the prom. Sometimes what looks like a giant profit opportunity is just sitting there, and you begin to think if you drop your entire margin and next week’s grocery budget on it, you’ll have the time of your life. Resist that temptation. There are thousands of smart people watching the same chart as you and if there is ridiculously easy money to be made, they’re already in. Spread your trades out in smaller pieces and you’ll be a successful trader for a lot longer.
- Don’t just blow off the losers. We all want to remember our winning trades and forget our losing trades. That’s a mistake. Analyze those losing trades and understand what went wrong. Sometimes, it’s just the market, but other times, you overlooked a key indicator or let your emotions run away with you. If you can reduce the number of your losing trades by just 5 percent, you’re well on the way to being a successful trader.
- Foreign exchange trading should be fun and not stressful. The greatest success comes when you develop a trading style and philosophy that you feel comfortable with and enjoy what you are doing. Be relaxed and have fun.
I think the bottom line is to enjoy trading for what it is, trading. It is taking a risk, placing a trade and watching to see if your analysis was correct. The fact is, trading is interesting, and while you might not get into the market to learn about economics and world events, you may just walk away with a world class education. (For those of you who didn’t get enough dating advice from this column, read it again and this time replace the words trade, pair or trading with the words date.)