There are a number of different ways that you can approach trading the foreign exchange market. There is no “right” way to trade the markets – what works for one trader may not work for another. But, by understanding your personality and risk tolerance, you can find a trading style and approach that is comfortable and suits your individual needs.
We have prepared a few questions answering which will help you to find your personal style in trading. Let’s see what these questions are.
1. What type of security do you want to trade?
Different types of securities have different characteristics that can affect how you trade them. Price, volatility, and liquidity are all important factors to consider when choosing which security to focus on. The answer to this question yourself, you will also decide the question of choosing a broker – maybe you won’t even need the one. For example, TMGM review can help you get acquainted with more details.
2. How long will you hold the trades?
There are a variety of opinions on how long traders should hold their average trade. Some traders scalp, holding positions from a few seconds to a few minutes in order to take advantage of quick, small movements. Others take a longer-term position trading approach and hold trades for many hours or even days, seeking to take advantage of extended price movements.
3. What causes you to enter a trade?
Developing traders should focus on a few core setups that make sense to them, as these will be key elements of their trading strategy. Experienced traders have a playbook of trades that they use, but new traders should find what works best for them and stick with it.
4. How are you going to manage the positions?
Your position management skills will determine your trading style and affect how profitable you are on winning trades and how much you lose on losing trades.
You need to think about how much money you will risk on each trade and what will make you increase your investment size. Some traders only risk a small amount of money on each trade but only increase their size if the trade is going well. Other traders prefer to risk more money at the start of the trade, but don’t add on if things are going well.
5. How are you going to exit the position?
The last thing you should find the answer to – is the position exiting. Some traders focus so much on finding the perfect entry point that they overlook the importance of exiting trades correctly.
When trading, you may find that you prefer exiting all of your trades at once when a given profit target is hit. Alternatively, you may prefer to get out of a portion of your position for a scalp trade while holding on to the rest for a longer-term position trade. Your exit preferences will also affect how long you hold onto each individual trade on average.
The goal of the questions above is to help you find your trading style and approach. Answer the following 5 questions honestly, and refer to the descriptions provided afterward to see which style fits you most. Once you have a good idea of your preferred approach, be sure to keep these things in mind when planning your next trade.