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Every currency trader actively pursues methods in order to obtain a higher return on his or her investment. Generally, you’ll find that the fundamental principle in this is simply one thing: knowledge. Knowledge of how the markets work, knowledge of what drives markets and knowledge of how you can manage your risks.
That being said, there’s five major things that you can start doing today in order to become a successful currency trader.
1. Know the state of the currency markets. In other words, watch the news, read the papers and make sure that you know what is actively influencing the value of currency in their respective markets. The macroeconomic factors such as economic data performance being released, political policy decisions and even political events can all widely change the coming economic outlook in a country. These are major factors; things like interest rates, international trade and equity markets are simple technical factors that may have a lesser impact on the value of currency. They’re still important, but they aren’t the major things that can swing the value of currency one way and then another the next day. Take your time, watch, and learn watch influences what in a market.
2. Take to heart every trade strategy you know. Understand the ins and the outs of each trading strategy that you’ve ever learned. It’s important to see why trading in one situation generally works. There is a method to every bit of madness. Momentum says which direction a market is meant to swing; selling low interest currencies and buying high interest currencies works with the carry strategy; and taking an investing position based on your view of a currency’s value is known as the valuation strategy. It’s up to you to know why these strategies work and to choose which one works the best.
3. Pick a trading philosophy. Do you trade based upon the macroeconomics of a market or do you prefer to trade based off of the hard numbers such those technical factors like interest rates mentioned earlier? Pick one philosophy and stick to it. Flip-flopping between both can be done if you have a good grasp of both, but too many times do investors make a loss, change philosophies, and then take yet another loss.
4. Manage your risks. Currency trading is no different from any other type of investment decision in this regard. Know how much you’re willing to be able to lose and concretely weigh that against your potential gains. If you can’t come up with a convincing answer to take those risks, the simple answer is: don’t do it. One mark of a successful trader is to think about how to mitigate your potential risks with an investment by using strategies such as stop orders and limits orders. It’s also key to know your potential strategies to limit that risk and understand the finer points of how they work.
5. Research everything about a market. A well-informed trader is a successful one and vice versa All currency markets move rapidly and they can fluctuate even quicker. Research about a local currency market’s situation will help provide you with insight that can make your long term investments more feasible.