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Forex Education

Top Trading Tips to Help You Avoid Losses

April 19, 2019
BY Emma Richards

2019 promises to be a wild and exciting year for currency traders. There’s Brexit, a troubled EU, the US-China trade wars, and even recession fears stirring up the global markets—and we’ve only just moved into Q2.

With so many influences pushing and pulling the foreign exchange market, the resulting volatility can create incredibly profitable trading opportunities. But with greater potential profit comes greater potential risk. Jumping into a stormy market without first testing the water will likely end badly for you. Here are our top trading tips that may help you to avoid losses and maximize trading performance in 2019.

Stormy weather

Even the major currency pairs are experiencing volatility.

Trading tips tend to vary depending on the political and economic environment. This year is shaping up to be dynamite. We’ve already seen some epic and stormy price moves from GBP, USD, and EUR, but it seems the “fun” is just getting started. Despite the recent volatility, these three currencies are still the most stable instruments for traders looking for small short-term trades, but none of the major currency pairs are as safe and predictable as they used to be. Exotics and minor pairs are also experiencing raging price swings, and many traders are suffering from analysis paralysis trying to decide which pairs are worthy of investment. Are there any safe or stable currency pairs worth trading right now?

Since 2019 got underway, the most valuable trading tip a trader could follow has been to “avoid volatile pairs” as much as possible. A tight ‘Stop Loss’ should be considered a must. But how tight should you set it? Pending order levels depend on many things including trading budget and even your profit goals. Experienced traders prefer to analyze support and resistance to create a price-oriented range for stop orders, which is not as complicated as it sounds. To simplify this trading tip:

  • Mark on your charts the last few times that a price movement reversed after a fall. These are the support levels
  • Mark on your charts the last few times that the price movement reversed after a rise. These are the resistance levels
Let the market price history show you how tight your pending orders should be.

By identifying the support and resistance levels, you can set your ‘Stop Loss’ and ‘Take Profit’ based on recent price moves rather than a gut feeling. These market-derived figures might not suit your trading budget, so erring on the side of caution is understandable. Just remember that if the currency pair is in a volatile pattern, then the support and resistance levels might be extreme and even unrealistic for you, so use it as a benchmark, not as a rule.

Don’t bite off more than you can chew

It’s not uncommon to see a new trader get a run of profitable trades and become overly confident. Confidence is great, overconfidence is a killer. Placing a substantial order with the goal of making a “quick killing” carries a high risk of loss and is a common and costly experiment that most— if not all—traders have made in their first year.

Follow a trading plan that will set out how you will gradually increase your investments day-by-day. Consistency will allow you to better enjoy your trading activities, build experience, and protect your trading funds whenever you hit a bad run. Smaller orders can still give the excitement of a win, and you can raise your budget each day (based on your trading results with a larger goal in mind for the future).

Top trading tip: Hope is not the answer

Taking on higher risk always brings stress. Consider sticking to your budget, and not chasing losing orders.

The perfect way to explain the dangers of being hopeful is to look back on the digital currency market. As 2017 came to a close, digital currency traders were celebrating the rise of “the people’s money” and looking to retire early. They ate, drank, and enjoyed the holiday season with their family and friends, daydreaming about new cars and vacations …

When January 2018 rolled around, digital currency prices were already falling fast across multiple exchanges. The smarter traders hit “sell” in a panic, which sounds negative and emotional, but it was the very best thing they could have done. As for the worst thing they could have done… you’ve got it—hope! So many digital currency investors watched with indecision as their fortunes waned, hoping that a reversal was coming soon. It didn’t.

As a trader, try to keep emotions out of the equation whenever possible. Don’t get attached to a particular currency pair and leave an order open too long. If your order was weak from the start, let it go, take the hit, then focus on making up the losses with a new order. Flogging a dead horse won’t make it run faster.

Death by robots

Robots are only as good as their programmers.

These days, algorithmic trading bots are running the show, or rather the financial markets. Market analysts estimate that 70%-80% of 2018’s trading volume—in the US—was generated by A.I. learning machines. Trading bots can be incredible. They work for you day and night. They never make mistakes, never forget, and always do what you want them to do. The problem with the bots starts with the user.

Traders who can’t find the time to learn and experiment on the forex market can get tempted by a trading robot’s. Bots are relentless performers, but FX News doesn’t recommend using a trading bot straight away. Get to know the foreign exchange market, stop orders, money management, and market volatility. Only when you understand these aspects of trading can you consider yourself qualified to set the parameters for a trading bot.

When an inexperienced trader tries A.I. trading, it becomes an accelerated and repetitive barrage of unmonitored trades. There are no learning opportunities, and often the bots just keep trading until the account runs dry. Invest time in educating yourself before you invest money with trading bots. Only after you’ve started building your portfolio with proven strategies and specific pairs can you think about allowing a robot access to your funds.

The top trading tips to take away

  • Use a lower-leveraged account whenever trading volatile currency pairs to avoid rapid losses from unexpected price spikes.
  • Consider ‘Take Profit’, ‘Stop Loss’, and even ‘Trailing Stop’ orders carefully. Use the recent market range as a benchmark. Remember, if your ‘Stop Loss’ setting is too tight, it could prematurely trigger the closing of a potentially profitable order.
  • Only act on economic releases and news reports that give a clear and significant position. For example, Brexit has had Parliamentary votes, meetings, and more articles than anything else in Europe this year, and yet we still know nothing about the political future of the UK.
  • Raise your trading budget as your account balance rises and don’t put all your eggs in one basket. It’s called diversification. This way if one instrument loses, you still have a chance of closing the day in a plus.

Trade smart in 2019 and enjoy the excitement of forex trading

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Disclaimer: the publication of analysis is a marketing communication and does not constitute investment advice or research. Its content represents the general views of our experts and does not consider individual readers’ personal circumstances, investment experience or current financial situation. Analysis is not prepared in accordance with legal requirements promoting independent investment research and Exness is not subject to any prohibition on dealing before the release of analytics. Readers should consider the possibility that they might incur losses. Exness is not liable for any losses incurred due to the use of analysis. Risk warning: CFDs are leveraged products. Trading them carries a high level of risk, so it is not appropriate for all investors. The value of investments can both increase and decrease and an investor may lose all their invested capital. Under no circumstances shall the Company have any liability to any person or entity for any loss or damage in whole or part caused by, resulting from or relating to any transactions in CFDs. © 2008—2019, Exness

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