Forex trading offers an unusual combination of experiences – it can be thrilling and exhilarating, but at the same time requires patience, diligence and level-headedness.
The world of Forex means you’re plugged into an international financial matrix.
A financial matrix where you’re mixing it with traders all around the world, from individuals to some of the biggest global financial institutions, and it’s hard not to get excited about that.
The retail Forex trader has two options when it comes to operating a trading account – taking a proactive approach or going down the auto trading route.
While proactive trading (i.e., managing your currency pairs and trades manually) allows you to develop your own individual strategies, there are inherent risks.
The most common of these is overtrading – taking positions that don’t conform to your risk and money management strategies.
Overtrading is often the result of entering into additional trades when those you are currently holding are going well and showing a profit, or a sense that you constantly need to be in the market and trading.
Emotion and excitement disrupts your established Forex trading plan, and making trades on this basis can quickly erode a profitable position.
The reverse of this is where you find yourself behind and try to trade your way out of it, by again taking positions that aren’t in line with your plan.
In this case, overtrading is the result of an emotion not dissimilar to that experienced by the compulsive gambler – “The next big win is coming, I can feel it, I just need one trade to go my way…”
In either case, the key to avoiding overtrading is knowing what you’re looking for in the market, taking emotion out of your decision-making, and making choices on risk and money management before you begin to trade, not while you’re caught up in the moment.
The solution can be to use an automated trading system.
These take several forms, but essentially are designed help you to devise a Forex plan, and then put automated procedures in place to keep you within your established parameters.
A mirror trading system, for instance, enables you to copy the strategies of successful traders.
You can choose which traders you wish you to mirror and then an auto trading system, such as ZuluTrade, automatically executes trade signals in your account.
An alternative approach is to use an Expert Adviser (EA), software that evaluates signals based on technical charts, and then executes trades based on these.
Algorithmic trading is a variation of this, whereby computer programs structure trades based on a set of pre-defined algorithms defined by the user.
While much of the appeal of retail Forex trading comes from the feeling of independence it creates, this is not diminished when you use an automated system.
Irrespective of the system you opt for, you are ultimately responsible for establishing objectives, risk levels, stops and limits, or choosing which trader to follow or currency pairs to trade.
So while automated systems can help you avoid overtrading, nevertheless the ultimate success of your trading career depends on the approach you take and the parameters you establish yourself.
In the end, whether you choose a proactive approach or an automated trading system will depend on your approach to risk and money management.
However, whichever way you choose to go, you can try Forex trading risk-free using a demo account, which is provided for new clients by many brokers, including avatrade.com.
As discussed above, successful Forex trading isn’t about gambling, it’s about developing clear objectives and then sticking to them, so if you’re looking to become a trader, take advantage of a free demo account to put your strategies into play before you begin.
It will pay off in the long run.