The Key To Trading Flexibly In The Forex Market

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forex trading

Trading in any financial market can be a challenging task for a beginner. Sometimes, trading can be harder in markets with fixed timing and centralised exchanges. The rigidity and complex nature can be a turnoff for many traders as they seek flexibility and a wide range of opportunities without being confined by the limitations of time or geographical boundaries. In that case, the forex market can be a perfect place for you to find profitable trading opportunities along with enough options to choose based on your requirements. In this article, I will be sharing some powerful tips that can help you adapt to the volatile currency market and trade flexibly.  

Strategies for forex trading

Before we speak about strategies for forex trading, it is important to state the fact that each and every trader is free to choose their own strategy after selecting the most suitable trading techniques for themselves. The best trading methodology in the forex market is subjective as there is no one-size-fits-all strategy for trading success. There are many strategies like trend trading, range trading and breakout trading. Each of these strategies is suitable for specific market situations and may not work for everyone. In fact, combining different strategies would be the best approach for attaining long-term success in the dynamic forex market.

It is important to consider your trading goals and trading style while devising your strategy. The platform that you choose for executing your trading plan is also important for implementing your strategy with perfection. Modern trading platforms like MT5 appeal to the new age traders who are keen to employ advanced strategies while the popular predecessor MT4 is preferred for its simplicity and is popular among beginners and single asset traders.

However, there are some tips that all types of traders can follow to remain flexible in the fast-paced forex market.  

Learn about the market

The first tip that I want to share here is to learn about the market which is quite basic but important to understand how things work in the forex market. As you may already know, there are a lot of international currency pairs that you can trade within the forex market and each of these pairs are different from one another in many aspects. Some of these pairs are even correlated to one another which makes them move in the same or opposite direction based on the type of correlation.

The amount of liquidity you get while trading with a pair and the volatility in terms of price movements along with the economic factors affecting each pair will be different. Hence, you need to understand these differences in order to find the most suitable trading instruments for yourself and your strategy needs to be framed based on the characteristics of the chosen currency pairs.

Because the trading opportunities you get with each pair will be different and even trading them at the right time is important. Because even though the forex market is lively 24/5, some trading sessions and session overlaps are more favourable for trading specific pairs and you need to take advantage of these to get the best prices for trade entry and exits.

One thing you can do to learn about the market without being exposed to the risks is to open a demo account. On a demo account, you will be able to get real-time price quotes and trade with virtual funds eliminating the risk. Demo accounts are a perfect tool to learn about the market and its trends at your own pace.

Assess your risk tolerance

The 2nd tip for trading flexibly in the forex market is assessing your risk tolerance. The volatile nature of forex currency pairs can result in risk which applies to all trades that you enter. You can never avoid the risk in the trading process but can keep it in limit based on how much amount you can afford to lose. This is what we refer to as risk tolerance or risk appetite. Your trading strategy should be devised while taking the risks into account.

Risk management is the backbone of a trading system as any strategy will fail to perform well in the absence of a risk management plan. The first thing to do for managing your risk is to set an optimal risk/reward ratio and stick to it for each and every trade that you open. It tells you the amount of risk you will be taking for earning a certain amount of profits. In other words, it tells you the potential losses that you may encounter while trading for profits.

You should also pay attention to position sizing to limit the risk per trade. It would be ideal to risk only 2% of your account balance for a single trade. When you risk less for a trade, losing one or two trades won’t lead to huge losses. You should also use trading calculators to quickly calculate the possible results of a trade before punching one. Moreover, it allows you to place stop loss and take profit at the best levels.

Trading without a stop loss is a grave mistake and proper placement of stop loss can cut down your losses to a great extent. Your stop loss should not be too tight or too close to the entry price as that can lead to early exits even before the trade starts running. Risking too little can limit your profit potential and hence you need to decide the level of risk that you are comfortable with and make calculated moves based on that.

Try different strategies

Most beginners start trading with one strategy and they are often advised to focus on trading just one pair, preferably a major pair like EUR/USD. This approach is good to avoid being overwhelmed and confused in the initial phase. But as you gather more knowledge and experience, you need to try different strategies and combine distinct trading techniques to optimise your profit potential. Because one strategy cannot work forever and it may not yield the desired results in some market situations.

Hence, you should always have a plan B in case your first plan fails. However, this does not mean that one should switch or change their strategies without any reason. If your current strategy is bringing expected results, then it would be better to stick with that while also being open to new strategies if the present one stops working. But being stuck with a poorly performing strategy stops you from reaching your true potential as a trader.

For instance, you cannot follow trend trading strategies when the market is consolidating or when there is choppiness in your chosen currency pair. A different approach will have to be followed to make profits in a range-bound market and this is why professional traders combine different strategies for navigating the constantly fluctuating forex market while staying flexible.

Reviewing and revising your strategies

The last tip that I want to give here is to take time to review and revise your strategies periodically. Some traders solely focus on the trading process and results while forgetting to evaluate the performance and viability of their trading system. Assessing your trading performance is essential to spot any mistakes or shortcomings in time and take corrective action. If you detect any deviation in your performance, it is a sign that you need to modify your strategy or try a new one.

But make sure that you always prioritise risk management and the revised strategy needs to be well-aligned with your trading goals and trading style. Your knowledge and skill level should also be considered while trying new strategies as some traders tend to end up complicating their strategies which has a negative impact on their trading performance later on. You can surely come up with advanced strategies but keeping it simple is essential to make sound trading decisions with ease. 

Future of Forex trading

The forex market has come a long way from its primary form with increased accessibility and higher profit potential. The advancement in technology has been a breakthrough in the world of trading. The usage of automated trading systems, Artificial Intelligence and machine learning has allowed us to explore many untapped opportunities within the dynamic currency market.

The market will continue to expand and grow in the future and traders should be ready to move forward and adapt to the changes. Many experienced traders prefer to stay traditional and they are very hesitant to try innovative trading solutions. But this resistance to change will keep us trapped and there is a possibility of being left behind.

Hence, we need to incorporate flexibility into our trading approach and embrace modern techniques for a bright future. To sum it up, being flexible surely gives you an edge as a forex trader and having this edge is essential to becoming consistently profitable. So, never stop learning and explore different options.