How many times have you tried to fight with the market just to find out that it is virtually impossible to win unless you join. You always need to be aware of the fact that the Forex market is far more active and fast-paced than the stock market, and new traders always need to be cautious. To be a successful trader in the Forex and CFD market, you need to know the basics of Forex trading and what factors might influence price movements.
In a highly dynamic market, such as Forex, the prevailing supply and demand forces affect the currency rates, but there are plenty of other factors you need to consider when trading the Forex & CFD market. So, don't fight them, join them!
Trend Is Your Friend
To join the fray, you need to realise that trend is your friend. Trends are shaped by big sharks that are at the top of the food chain in the market, and you are a small fish following the shark.
A trend is an overall current direction of the market on a particular time frame (TF), always a series of thrusts and pullbacks. It can exist on every single time frame. In order to successfully follow the trend, you also need to look at a higher time frame than the one you are currently trading. Determine the trend. When the higher TF and your trading TF match, look for a retracement and enter.
When losses happen during intraday trading, they tend to happen during the transition period, i.e., when the trend is changing. In order to limit losing trades in times of transition, try to watch out for a price to hit a major area of support & resistance on a higher time frame. When this happens, I look for a potential reversal trade and a trend change. If it doesn't reverse, I look for a retracement to the POC zone and expect a bounce and continuation. If we can't identify a trend or a pullback, we should move to another pair that clearly shows the trend.
History Repeats Itself
When it comes to the Forex market, historical buyers and sellers are usually very aligned with now-moment buyers and sellers. If the price bounced off a strong level in history, the chance is that it will also bounce up in the now moment. Join the shark! Be a smart trader and follow smart money. At the end of the day, protect your profits.
Follow The Logic of the Market Shapers
I will use the example of the USD/CAD and Oil. It is important to note that based on its historical relationship, when oil prices rise, the USD/CAD falls, and vice versa – when the oil price goes down, the USD/CAD rises.
The Canadian economy is highly dependent on its exports, and around 80% of its exports go to the United States (source). For this reason, the USD/CAD can be greatly affected by how American consumers react to changes in oil prices.
When the U.S. demands increases, the price of oil rises and the price of the USD/CAD goes down. Conversely, when the U.S. demand falls, the oil price decreases and the USD/CAD price rises.
There is a good reason for trading USD/CAD correlation instead of buying crude oil directly – interest rates. The Canadian Dollar against the US Dollar carries a positive overnight rate (swap). That means that if you go long on the Canadian Dollar, you might be able to earn an additional interest rate.
On the other hand, if you trade crude oil directly, you will have to pay an overnight rate (negative swap value). When you stay in the market for longer periods, this interest-rate difference can prove significant. Going long on CAD/JPY and short on USD/CAD might be better than buying crude oil directly as your profit potential might grow exponentially due to CAD exposure.
Don't try to chase the market. The market is like a shadow – if you run after it, you will never catch it. However, if you stand still, it will come to you.
Don't go into this business with unrealistic expectations. You cannot make 50k a month on a 1k trading account. It's not going to happen. Try to increase the account size through organic gains, not by making more deposits. Be humble and accept the losses. Keep them small and keep track of them. At the end of the day, it's not how much you are willing to make, but rather how much you are willing to risk.
I am a trend follower. One of the reasons why my analyses, trading ideas, and setups have been successful is that I always follow the big shark carefully. I want to always be able to see the whole wood, not just a tree.
Cheers and safe trading,