Reading Time: 6 minutes
‘Energy and persistence conquer all things.
– Benjamin Franklin.
The foreign exchange represents a system designed to facilitate the exchange of foreign currencies.
Commanding an immense presence, the foreign exchange operates through an over-the-counter structure: a global network of banks, dealers, and brokers that permits a 24/5 trading environment.
The foreign exchange market, or the Forex market, determines exchange rates for currencies through currency pairs (Forex pairs). It is the price movement derived from currency pairs that interest traders.
The question then arises, how difficult is Forex trading?
What is Forex Trading?
The Forex market is a place in which individuals, banks, and businesses exchange one currency for another.
Retail traders, those operating with Forex brokers such as FP Markets, generally fall under the umbrella of what’s known as directional Forex traders: those who devise strategies to forecast the future direction of a specific currency.
A trading strategy is often the first port of call for traders. Without dedicated entry and exit measures, recognising trading opportunities is difficult.
The majority of traders believe a trading methodology is all that’s needed to generate a return, overlooking the significance of aspects like risk and money management, in addition to psychological challenges.
Irrespective of trading account size or trading style, approaching trading as a business and not a hobby is recommended.
A trading plan streamlines the trading process, a blueprint designed to navigate from idea generation to trade completion. Neglecting this process is not only going to make trading problematic, account ruin is inevitable.
Below is a list of some of the aspects included within a trading plan:
- The trading methodologies employed: technical analysis or fundamental analysis, or both.
- Risk and money management strategies.
- Trading journal—a record of trading activity for future reference.
- Markets of focus. Identify the market environment you wish to trade. As an example, will you focus on the market movements of major currency pairs (think EUR/USD, GBP/USD, and AUD/USD), or include minor and exotic currency pairs?
- Trading goals.
Backtesting is a process involving the examination of previous price data to optimise a trading approach and assemble statistics to validate the strategy’s efficiency. Absent of test data can make things particularly difficult in a live trading environment (real trading).
Having historical data arms you with information, such as gross profit and loss, win percentage, payoff ratio, maximum drawdown, and the Sharpe ratio.
When a trader transitions to a live account, statistics derived from backtesting provides a framework to fall back on. For example, three consecutive losses are disturbing for most traders. But, the trader who spent time backtesting the strategy will recognise if three successive losing trades fall under normal trading conditions: if this scenario occurred in the past, it could be simply a standard function of that strategy.
The underlying point is if you attempt to trade deprived of an in-depth backtest, trading will be an unknown and uncomfortable activity.
Trading Psychology—A Trader’s Mindset
Unlike humans, the financial markets are unemotional. Discipline, patience, and mental toughness are key ingredients successful traders possess.
- It is critical traders view the Forex market, or any tradeable market for that matter, from an objective standpoint.
- Accepting losses is imperative to recognise.
- Understanding that trading is a business based on probabilities helps cement an efficient trading mindset. A losing trade is one It means little in the grand scheme of things if trading with a proven method and a risk management approach.
Successful currency trading is possible through hard work, passion, and determination. As the late Dr. Robert Schuller once said. ‘problems do not stop signs; they are guidelines. Having the strength of mind to overcome the many obstacles that’ll be thrown your way, and an unyielding passion for success in this business tends to separate the winners from the losers.
By taking time to study how the foreign exchange market operates and who the main players are, you’re able to begin formulating a tailored trading approach. Consider browsing FP Markets’ dedicated Trader’s Hub, offering informative articles, eBooks, and interactive webinars.
Positioned as an award-winning brokerage, FP Markets deliver a wide-ranging trading experience, facilitating access to real-time demo accounts (demo trading). This enables beginner traders and experienced traders to familiarise themselves with trading platforms and trading tools, as well as the option of testing trading strategies using simulated funds. In addition, FP Markets unlocks the door to global markets, such as Forex, and CFDs on indices, individual equities, and commodities.