Many investors dream of being able to live from trading in currency pairs and thus being independent of employers or fixed working hours. Even the place of work no longer matters, because trading with an online broker only requires a computer with a stable internet connection. Trading is even possible via the app. However, there is no guarantee of profits when trading. The course of the course can be analyzed in detail using various parameters, but many unpredictable factors also play an important role. In the following article we show how trading can be learned and which risks should not be neglected.
- Forex trading is possible from Monday to Friday.
- Due to the variance even professional traders sometimes accept high losses.
- Good risk management is essential for long-term trading.
- Trading takes place outside the stock exchange via an online broker.
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Don't be blinded by the wrong ideas
It sounds tempting: Simply track the trading prices and analyze them correctly, place trades at the right time and therefore a lot without much effort Earn money. But even if some dubious articles on the Internet promise exactly that: It's not that simple. Successful traders invest a lot of time and work in trading and have extensive specialist knowledge, which they have acquired with great commitment.
And despite the good conditions, even the most successful traders have to accept setbacks again and again, because whoever making good trading decisions does not result in a guaranteed profit. The price trends are subject to various influences, most of which are unpredictable. Therefore, for successful trading, it is necessary that traders are not dependent on profits, but have enough money to finance their livelihood without successful trading.
In order to really live from trading, there should therefore be larger reserves that can be accessed at any time. The trade itself only serves to increase these reserves if profits should be made with the trading capital. The losses that also occur do not threaten existence, but can be accepted by the investor.
Because of the circumstances described, it does not make sense to quit your job today in order to become a trader. Only the money should be used in trading, which can be easily dispensed with and is not required for other expenses.
Right decisions are more important than short-term profits
Inexperienced After a win, investors often think they have done everything right, while attributing a loss to a wrong decision. Professional FX traders, on the other hand, do not question the result of their trades, but rather whether they have made the right decision.
The difference is not always apparent to beginners, but is understandable if you follow the principle behind Trading understands.
- Even the most successful FX trader cannot make a profit on every trade. A not insignificant part of the trading decisions lead to a negative result due to the variance.
- The aim of a professional trader is therefore not to close all positions with a profit, but to make more profits than losses in the long term.
- For this, it is not the actual result that counts for the individual trade, but the expected value of the decision. From a purely statistical point of view, it was a sensible investment, so the decision was also the right one if a loss was ultimately made.
Mathematically, according to the "law of large numbers", the actual one is nourished Trading result more and more the statistical expected value, the more individual trades are made. Therefore, the division of total capital into many small individual trades is also an essential part of risk management. On the other hand, whoever invests too much of the total in a single position is highly dependent on luck, which in the long term usually leads to the loss of the entire balance.
Good traders never learned
Many brokers, including FXTM, offer an area of education in which beginners can learn the basics of FX trading. Educational material is often offered for advanced traders. Webinars, which are usually led by successful traders and financial experts, are particularly popular. Different areas of knowledge are dealt with here and current topics are also dealt with frequently.
Good traders know that they never know everything about FX trading, even after reading a number of books, taking part in webinars and attending seminars. New trading strategies are constantly being developed and the technical requirements are constantly changing.
Therefore, professional traders do not assume that they know everything about trading, but regularly plan time for further training in their daily routine. In this way they stay up to date and can react accordingly if changed conditions make new demands on investors.
Dealing with the current market situation and the political situation is also helpful in order to be able to make good trading decisions. Although the technical analysis assumes that all information is already included in the course of the price, knowing the current overall situation provides traders with additional information that can be included in the trading decisions. This is why most traders first invest time in reading current news and analyzing leading experts before actually trading. In our broker comparison, we found that many brokers support their customers in this process by providing them with the latest business news via live stream.
Risk management: the most important rules for traders
As already mentioned, even the best trader cannot book a profit with every position. It is therefore important that losses are factored in from the outset and do not have a major impact on total capital. This is achieved by investing only a small part of the trading credit in the individual position. With a stop loss, the trader can normally ensure that the position is automatically closed in the event of a loss of a certain amount. In extreme cases, however, the stop loss may not take hold, since the position can only be closed at a significantly worse price with a certain delay. A so-called "guaranteed stop loss" can provide security here. Another option is to manage only that part of the total capital in the trading account that may be lost without any major effects. Care must be taken to ensure that an obligation to make additional payments is excluded in the general terms and conditions of the broker, as the losses could otherwise exceed the account balance.
- Some brokers also offer various risk management functions, some of which the credit can also be securely protected.
- Good risk management also means that only money that is not otherwise needed is always considered trading capital. Expenses are always paid to private wealth and are independent of trading capital.
- What exactly a good risk management plan looks like depends on the individual situation of the trader. In general, however, it can be said: The lower the individual investment compared to the total balance, the lower the risk.
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Trading psychology: emotional stability is important
The psychological aspects are not to be neglected in Forex trading, because after all it is sometimes a lot of money and losses are the order of the day. Successful traders therefore need a stable personality structure and should be aware of certain psychological processes in order to recognize them in good time and, if necessary, to take countermeasures. It is not for nothing that the following points are discussed again and again in trading literature and in live events:
- Profits are not always based on correct decisions, just as losses are not always based on wrong decisions. The expected value is more important than the actual individual result.
- Risk management should be followed consistently. After a period of loss, this may mean that investments must be reduced per position.
- Trading decisions should be made rationally based on the information available. If emotions come into play, a trading pause should be taken and only continued if they no longer influence decision making.
- Only money should be invested, the loss of which can be easily coped with. This prevents the constant variance from creating an emotional burden.
- In good phases, it should always be borne in mind that these can also be based on variance. Many beginners tend to trust themselves too much during such a phase and thus take unnecessarily high risks.
If a trader deals intensively with trading psychology before starting trading activities, certain mistakes can occur be avoided from the outset. Decisions should always be made rationally and not emotionally when trading.
Automated trading does not mean that traders do not have to make decisions
Automated trading is becoming increasingly important. Automated trading systems allow the price trends of several underlyings to be scanned simultaneously for promising trading opportunities. If necessary, the corresponding trade can then be placed automatically.
For professional traders, the advantage of automated trading is that it can analyze significantly more price movements at the same time than would be possible manually. It is also no longer necessary for the trader to be on the computer all the time. So-called virtual private servers (VPS) do not even require the user to be online.
Nevertheless, these advantages do not mean that every user can automatically generate a profit through automated trading systems. The algorithms do not necessarily have to be created by yourself, but can also be purchased free of charge or for a fee from various providers. However, the trader must decide for himself when and with which underlying he will use an automated trading system. Here the user has to weigh up whether a positive expected value can be assumed. Just because a trading system has been successful in the past does not have to be the case in the future. Changed conditions such as special market situations may make it necessary to adapt the algorithms, otherwise the positive expected value is no longer given.
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The right provider: What influence the broker has on the Success has
Traders can already have a decisive influence on the trade balance when choosing their broker. Trading costs play a role here, as they have a direct impact on the bottom line. Regardless of whether profits or losses are generated during trading, additional fees must be paid. The lower these are, the more money the trader will have in the end.
In addition to trading fees, investors should also clarify the following further questions before registering with a broker:
- Is there a trading platform available with which I can implement my chosen strategy comfortably and effectively?
- What additional services, such as current news, expert analyzes or educational materials, does the broker offer?
- Can I answer any questions or problems to a competent customer service, and is this also possible in German?
- Is the broker considered serious and is regulated by an EU authority?
With our reviews we would like to support our readers in a detailed broker comparison. Before opening an account with one provider, the costs that would arise for the different providers in the implementation of the planned trading strategy should be compared. If traders are not sure which broker to choose, a free demo account can be opened with most providers. This does not usually require full registration. The trading functions and conditions can be tested extensively with the virtual credit provided by the broker.
Conclusion: Serious trading is associated with hard work
Anyone who is long-term successful with Forex pairs want to act must first invest a lot of time and energy. This begins with the acquisition of the required knowledge, which is partly possible with the broker itself.
The comparison of different brokers should not be neglected either, because not all of them can implement the planned strategy equally well and also with there are clear differences in trading costs.
Nevertheless, there is no guarantee of success for investors with the appropriate trading knowledge. The trading prices are subject to considerable fluctuations, which cannot be calculated by technical analysis or other processes. This variance means that there will always be lossy phases. In order not to lose the entire trading balance in such phases, well-thought-out risk management is required, which should then be followed consistently.
In order to be able to make rational decisions at all times, investors should be aware of the psychological processes involved in trading Be clear and be able to quickly identify undesirable behavior patterns in yourself.
Due to the high risk, you should under no circumstances use money for trading that is otherwise needed. The entire trading balance is risk capital, which in the worst case can be completely lost. Professional traders are aware of this and therefore do not finance their livelihood directly from trading capital.
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