If you want to ensure that you are performing on the foreign exchange market you need to evaluate your trading periodically. This is particularly important if you are looking at active trading on the foreign exchange market. To understand your performance you need to know what active trading is, the risks you could be facing and how you are actively trading on the foreign exchange market.
What is Active Trading?
There are two type of trading on the foreign exchange market. The first type of trading is the traditional buy and hold trading. Active trading is the second type of trading that you can look at. Buy and hold trading is a long-term strategy where you make profits over a number of days and week. Active trading is short-term with a trade lasting minutes to hours and in some cases days.
Active trading is more likely to take advantage of the short-term movements within a long-term trend. These movements offer a number of short trends and reversals that a trader can use to make a profit.
The Risks of Active Trading on the Foreign Exchange Market
Before you look at using any trading strategy you have to consider what the risks are. There are a number of risks associated with active trading. The short timeframe that is common with active trading is the first place to look for risks. The short timeframe you are going to work in creates risks because of the pace at which you need to trade. If you are unable to analyse the market quickly enough you are not going to be able to trade correctly.
Another risk that you face with active trading is the leverage that is used. Most active trades will use large amounts of leverage to ensure that the profits they make are worthwhile. Any use of leverage is risky and you need to consider how this can be limited. You should only use reasonable leverage that does not increase your risks above what you have set out in your risk management plan.
How to Actively Trade
When you look at active trading you need to consider the strategy you are going to use and the analysis. Most active traders will use technical analysis for their trading. The short-term nature of active trading makes it hard to use most fundamental information. When you use technical analysis you need to consider the indicators you will use. There are some common indicators that a lot of active traders will use such as the moving average and the relative strength index.
The technical indicators that you use should work with the trading strategy that you are employing. Some strategies need to use certain indicators in order to get the entry and exit signals for their trades. Most active traders will look for trend indicators and strategies because this will offer them the highest profits.
The Use of Leverage
Leverage is considered to be one of the risks that you face when using active trading. This is due to the amount of leverage that active traders use. To limit the risks of leverage you should consider the capital that you have and the risk per trade percentage that you are using. The more capital you have the lower the risks of leverage.