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Forex Trading: How To Predict The Unpredictable

If you’ve traveled to another country before and exchanged your national currency for the one used there, then you’ve engaged in small-scale forex. After returning from the trip, the reverse transaction either gained you a profit or garnered you a loss. Now think of the bigger picture. Do you see why this market is so intricate? There are always tremendous sums at stake.

It’s no secret that currency is the heart and soul of the foreign exchange market. In fact, it’s commonsensical knowledge. But few people actually understand what that entails. Unfortunately, having this at its core makes trading volatile and uncertain.

So, is there a way to predict the unpredictable? Let’s find out.

Practice Makes Perfect.

Any amount of knowledge that you possess on this topic can be rendered useless in seconds if you don’t master it first. Signing up for a forex trading practice account is a good way to go about this. It will allow you to see just what this activity entails, as well as give you the chance to test out multiple strategies in conditions that are faithful to those in real life.

This sort of demo offers you live information on the actual forex market and applies the existing conditions to test runs of your chosen methods. This is especially useful for someone who’s just getting into the business. however, this doesn’t mean that seasoned practitioners can’t benefit from it too. New strategies emerge all the time, so having an outlet to assess them safely is a valuable resource for anyone in the field.

But what is the best approach? According to Investopedia, there is no sure way to succeed all the time. No method is one hundred percent failsafe due to the very nature of each individual currency and the pairing between them. Values can change in the blink of an eye because that’s what geopolitics and economies do as well.

Still, by acquiring top-notch skills in this field, you can ensure that profits will come your way most of the time. On top of that, if you’re resourceful and intuitive, you will minimize any potential losses as well. Aiming for none is simply not realistic, seeing as how even the best in the game experience them often. But by keeping them low, your wins will be even more substantial.

The Best Possible Plan.

Do you know what great forex traders such as Bill Lipschutz, Andrew Krieger or Bruce Kovner have in common besides flawless risk management skills and tons of self-confidence? The answer is simple: a plan. The best possible approach has four simple steps to it, as follows:

  • Label your major and minor levels of support resistance accordingly, then set proper alarms in your preferred software. Don’t forget to be mentally prepared as well. Having the right mindset and avoiding emotion at all costs is essential.
  • Risk and goal assessment. Set a profit target and don’t stay in the trade after you’ve achieved it. Also, understand that you might not always reach and know when to leave. Assess all the risks concerning liquidity, currency volatility and transaction costs that might occur and avoid them through hedging and ADRs.
  • Entry and exit. Knowing when to enter a transaction is easy, but exiting at the right moment is crucial. This is why you need to have a clear goal and an objective approach. If you can no longer aim to win, try to at least minimize your losses.
  • Record-keeping. Always keep track of both your gains and your losses, as well as every single step you took towards them. By doing this constantly, you will be able to identify successful strategies and those that no longer work as well.

Use Trends to Your Advantage.

Forex trading relies heavily on trends. These movements can last as little as a day or as much as a few months, depending on the geopolitical and economic landscape of the world. Catching trend shifts triggers whipsaw losses, which usually pertain to range trading. In this case, knowing your moving averages is the best solution.

With that being said, a moving average crossover is the best tool you can use to determine the path and possible outcomes in such a scenario. By evaluating various short-term periods, you will determine when the middle of a trend occurs. However, there are other ways to predict trends as well.

One of them is looking at momentum. This is calculated using moving averages as well, most popularly through Gerald Appel’s MACD indicator. This measures differences between short-term and long-term moving averages to determine uptrends and downtrends in FX.

Another option is to consider support and resistance. Support refers to an increase in prices due to demand, while resistance entails amounts being capped by supply. Uptrends form when exchange rates surpass resistance levels, while changes in matters of support predict a financial decline.

Just like any other technique, these are never bulletproof. As previously mentioned, this market is an ever-changing one, and even experts in the field are sometimes surprised by the outcome of certain situations and events. Still, mastering them is important because it gives you a clear advantage over someone who’s just basing their decisions on luck.

Conclusion.

When it comes to the foreign exchange market, almost everything is unpredictable. Even the best strategies which have worked flawlessly a thousand times before ultimately fail if any minor, yet unexpected changes occur. But this doesn’t mean that you shouldn’t strive to always cultivate and improve your knowledge in this field.

Devising your own personalized plan and following through with is essential. By being prepared and having adequate resource at hand, you will be able to set realistic goals for your trades and manage risks properly. Being aware of liquidity, as well as currency volatility and transaction costs is something that must always be on your mind while exchanging.

Finally, you need to learn from your mistakes. By recording your activity thoroughly and discovering what went wrong, your future moves will be better informed and more successful. And when failure occurs, don’t be disheartened. Even the best of the best went through it in  their heyday.

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