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The Different Aspects of Foreign Exchange Trading

This article talks about the different aspects of foreign exchange trading that you must be aware of in order to have a greater chance of success.

Aspects of Foreign Exchange Trading

Successful trading on the foreign exchange market is comprised of various aspects – technical, fundamental and psychological.  Experts will agree that the trading psychology aspect comprises the majority of trading success.  This is based on two basic findings.

First, humans are programmed to behave according to internal biases.  This generally results in them making trading mistakes.  The second finding focuses on a trader’s mental state.  It notes that the more stressed or anxious a trader is, the greater the chance of emotional trading and consequential losses.  This article will look at the components to overcoming this negative psychological state and trading well.

The areas to be addressed

The areas to be addressed when working towards successful trading include:

1. The process of foreign exchange trading

This includes the different tasks you complete when trading on a daily basis, such as positioning of trades.

2. The wealth process

The wealth process refers the relationship you have with your trading capital.  It also looks at the reason as to why you do or do not have enough capital to trade with.  For example, many traders feel that they profit by trading multiple accounts with high trades.  This can be successful, but it also carries high risk and can lead to detrimental losses.  Many new traders have found themselves without enough capital to trade or trading capital they cannot afford to lose.

3. The process of developing a trading system

Many new traders enter the market with the belief of a ‘magic system.’  They believe that this system will lead to continuous profitable trades and a growing trading account balance.  However, the forex live market is unpredictable and many traders experience more losses than profits.  To be a successful trader you must conduct effective analysis with efficient trading tools.  Sound entry and exit points to a trade are the key to profitable trades.

4. The process of developing and adhering to a trading plan

Foreign exchange trading should be viewed as a business venture.  Successful business ventures begin with a sound business plan, and forex trading is no different.  To become an effective trader you must conduct analysis and create a plan suited to your personal strategy.  This will act as a guide during your forex trading and help you when making decisions.  This requires a great deal of discipline and commitment, however adhering to this plan reduces the amount of losses and chance of emotional trading.

5. Deciding on position sizes

The process of position sizing is key to meeting your target objectives.  The size of lots and the number of accounts is dependent on you as a trader and your level of experience.  New traders are advised to keep their position sizes small as larger sizes may be difficult to manage.

Final words on successful trading in the foreign exchange market

Each of the areas mentioned above look at a different aspect of foreign exchange trading.  It is important to examine these different aspects and ensure you are trading effectively in each area.  By rating yourself honestly you will be able to gain an idea of your abilities which will lead to successful trading.



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