In the Part I of How to Survive in the Forex Business, I discussed the importance of Money Management and why forex traders should adhere to it. In case you didn’t get the chance to read earlier you can by clicking HERE.
In this part II, I will also outline other points which are essential if you want to trade like a pro and survive in this stormy market called FOREX TRADING. I believe we all know Forex trading is the exchanging of various countries’ currencies as such they are fluctuation in price which happens every minute, this might happen due to political or economic events on either side of the country.
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On the trader’s side there is this tendency that they (forex trader) will want to sit around their computer all day to trade this little fluctuations in the market, though there is no big deal in doing such as every minute money is either lost or made but we can never be certain or confident enough if the market will move in our pre-defined direction, that’s why I always tell forex traders to look at the higher time frame to see a more clearer and bigger picture of how the market has been moving and where it will probably move to.
If we look at the 1 minute chart, we cannot be certain on the direction of the trend because there might be news that will disrupt the current direction and cause confusion to those trading in that time frame but this might not be noticeable to those on the 1 or 4 hour time frame or higher.
The same logic applies if we look at a 1 hour chart, we all know that 60 minutes make an hour and technically 24 candle stick of an hourly chart make a single daily candle stick in the forex chart. Intra-day traders who use the hourly chart do not get the precise structure of the market compare to those who use the 4 hour chart and other higher time frame.
The higher the time frame of the chart, the more accurate your analysis will be because you will be able to filter the Noise in the market. This noise is caused by the psychology of traders reacting to the impact of news and their sense of fear, feelings and greed (emotions). One of the reasons why people barely survive is because they want to ride all the available trend in the market that they all fail to understand that a major tend on the 5 minute chart will not be noticeable in a 1 hour chart, it is series of trend formations on the lower time frame that causes a noticeable trend on the higher time frame.
Below is a picture of a 15 minute time frame chart, you can see how confusing it is, there are no key support or resistance because they are broken soon than later.
I barely see a scalper who has survived the ranging storm in the forex market by trading a lower time frame this is because at some time in his forex trading career he comes to realize his mistake and the benefits of trading the higher time frame.
Another mistake we tend to make is being a forex gambler; I can comfortably say a large amount of forex traders’ trade like they are gambling against the market. This might be due to how they perceive forex trading to be; despite we may bet against a certain country economy to do better than the other that doesn’t necessary mean we gamble.
Most traders, when they start to trade they have this delusion that there are two things one has to do to be profitable in trading either to buy or to sell, with this type of mind-set there are possibilities that they won’t last more than a year or two before calling forex trading some nasty names.
The application of mathematics, logic and reasoning along with virtues like patience and self-control is needed to make a winning and to survive the taste of time in the forex market. Before one should start to trade, he need to examine his edge against the market, are they trading a break out strategy, support and resistance pattern or a pure price action approach? Having an edge gives the trader a little percentage of winning and the edge is totally useless without a trading plan. This trading plan are like rules or rather constitutions which governs or limits a trader’s actions in the forex market when a trader agrees to apply the above, then forex become more of a business than a hobby or a game.
In summary, survival in the forex market is about being the fittest in the market. The forex market is like waves in a stormy sea, a ship without guidance will easily be sunk, same goes to the account of so many trader that lack guidance .
Having a good money management, trading on a higher time frame with readiness are the basic quality one needs in other to stay long on this ever fluctuating market, but we should not neglect emotions. Every trader should detach himself emotionally from every trade he place, there can be only two outcome on a trade either it’s a winner or a loser but with the right preparation the ratio of winning to losing will be greater.