What You Think You Know About the Foreign Exchange Sydney
There are a lot of people who assume that they understand certain aspects of the foreign exchange Sydney market. However, many of these people do not actually know what they think they know. Some of these people have traded in stocks and feel that this gives them the edge. The foreign exchange Sydney market is so different to every other market that you cannot assume that you know anything. The skills and knowledge do not necessarily transfer across.
Foreign Exchange Sydney Diversification
When you trade on other financial markets, or make investments, you are told to diversify. Many people feel that if you do not diversify when you trade you are not going to do well. This may be true on other financial markets, but it is not true on the foreign exchange Sydney.
When you diversify with forex you are going to be trading more currency pairs. This increases the amount of time you are going to spend on analysis and decrease the time you spend actually trading. This can lead to lost opportunities on a currency pair because you are busy with another. Diversification can actually lead to losses when you do this on the forex market. There are many profitable and highly successful forex traders who only use a single currency pair. SOme traders will diversify by taking trades over different timeframes. They may scalp and also take long term trades.
Market Changes and Cycles
When you go through forex training you assume that you now understand how the market moves and the changes it goes through. While you may know that the market trends and ranges you have to be able to identify which condition the market is in. This can be hard if you have no experience on the market.
Most new traders assume that it is easy to differentiate a range market from a trend market. While there are times when the market is moving in a single clear direction there are other times when it is not. There are trends where the market goes through a number of trends and reversals, but continues to move in a single direction. These trends make it hard for traders to determine trending and ranging markets.
Compounding and Averaging Down
A strategy that many traders come across is averaging, down also known as compounding. This strategy is fairly simple because you are simply increasing the amount you have on a losing trade. You do this to ensure that when the trade turns you are getting your money back. The simplicity of the strategy makes many traders believe that they fully understand what they are doing.
What a lot of traders do not realise is that when you average down the trend has to reverse and become much stronger for you to make your money back. Most traders who use this strategy are actually adding to their losses and will never be able to get that money back. This strategy should be avoided by most traders because there is no way of knowing that you are going to make back the amount you have added.
The Impact of Spreads
All traders are told what spreads are and the two ways that they are charged. This causes most traders to assume that they understand the impact of the spread. The fact is that a lot of traders do not actually know how the spreads affect their profits and the trading strategies that they can use. Make sure you do!