This article looks at actively trading on the foreign exchange trading market.
One method of ensuring effective performance on the foreign exchange trading market is through consistent performance evaluation. This means that you will periodically check your trading behaviour via a trading journal. Constant monitoring is especially important if you are trading actively on the forex market.
Active foreign exchange trading
While there are many strategies on the foreign exchange market, there are two broad categories that these strategies fall into – buy and hold trading, and active trading. Buy and hold trading refers to the longer-term strategies where you purchase positions and hold them over a prolonged period. Active trading refers to the short-term strategies where you purchase a position and trade them on the spot. The longest period one would hold a position in active trading is one or two days.
Risks of active foreign exchange trading
All trading on the foreign exchange market comes with a degree of risk, thus it is important to consider this risk when developing a trading system. The risks associated with active trading are the same as those associated with short-term strategies. As you are working within short timeframes you will be required to make quick judgements when trading. If you are unable to analyse the data and make accurate decisions quickly, then you are more likely to experience losses.
The majority of active traders will utilise leverage. This is done to ensure that the trades they are executing will be worth their effort. This use of leverage is particularly evident among new traders, and a risk/reward ratio must always be conducted before use. While leverage can increase profits greatly, it can also increase the amount of loss should the trade turn bad. It is recommended that you limit the amount of leverage used when trading.
Active trading on the forex market
When considering an active trading style, you must examine both the strategy and type of analysis you will be using. As this is a short-term style, the majority of traders will opt for technical analysis. Technical analysis utilises various trading tools and indicators to decipher previous patterns in the foreign exchange market, and thus will predict future movements.
Generally, a trader will use forex charts and forex signals to determine which trends will appear and which positions should be traded. The forex signals are the most important to active traders as they provide entry and exit points for a trade. This will offer them the most appropriate trading options with the highest amount of profit if traded correctly.
Using leverage when actively trading on the forex market
As is mentioned above, leverage is one of the most prominent risks on the foreign exchange trading market. It can be highly damaging to an active trader, which is why one must regulate the amount of leverage used. The rule of thumb is to never trade more than 2% of your current trading capital, and to never trade with capital you cannot afford to lose. Always adjust your leverage level so that it cannot negatively affect your trading.