Foreign currency exchange trading and gut feeling
Description: Does gut feeling work in foreign currency exchange trading? Read to find out.
The only way to succeed in the foreign currency exchange market is by avoiding emotional decisions. To avoid emotional decisions, you need to work out a clearly laid down strategy that will give you trading signals after certain conditions are met. Going with gut feeling in this market is wrong because majority of the time you will end up losing money. Since the forex market is one that is extremely volatile, emotions are bound to run high. Emotion is what makes traders see what they are not supposed to be seeing in the market at any point in time. It equally makes traders to rush in and out of a trade without any valid reasons.
To avoid allowing gut feeling and emotions to rule their trading, novice traders are often advised to develop a trading system that they must be ready to stick with at all times. A good system will be able to tell you what to buy, when to buy and when to close the trade. Sticking to the system equally helps in maximising profits.
Emotion is one of the major reasons why people fail. So eliminating it by using a mechanical trading system will ensure you do not become part of the losing forex traders. Finding a mechanical trading system is one thing, having the ability to stick to it is another. A mechanical system will cease being effective if you do not have the right ability to following it to the letter.
What your foreign currency exchange trading system should be able to tell you
What conditions should you watch out for to enter the market?
A good trading strategy should be able to tell you what your action in the market should be as soon as you take a glance at your charts. Any system that will require you to spend more than a minute to decide if you should enter into the markets should be dropped for something else.
Where should you place your take profit and stop loss levels?
Any system that is not able to tell you where you should place your stop loss and take profit levels is not good enough. Without the stop loss and take profit levels, your emotions will not allow you to know when you are supposed to exit a particular trade and when you should continue holding onto it. Even strategies that allow trades to run without take profit levels make use of stop loss levels.
What reversal signs should you watch out for?
Some trading systems will provide you with particular signs you must watch out for to exit a trade regardless of how much in profit or in loss you are. These signs help traders to avoid losing the full risk money on a trade or make small profit on a trade that could potentially go wrong.
When you have a trading system that provides you with all of these, the next thing you should learn is how to persevere. A trade may hit your profit target in a just a few minutes in one day but take hours to reach it in the next day. If you do not have the ability to persevere through the static period, you may end up closing a potentially profitable trade.