Is Playing Forex Trading Profitable?

When you’re thinking about putting your own hard-earned money into the forex market, it’s important to be completely honest about the chances of seeing positive returns. The financial markets are a zero-sum game — for every winner, there is a corresponding loser.

The answer to that question is that for some people, but not all, forex trading can be profitable. The challenge is finding ways to stack the odds in your favor. In this article, we’ll explore ways to increase your chances of success, including:

  • Understand the forex market and other participants
  • Develop a trading mentality
  • Knowing the best way to make profitable trades
  • Set realistic profit targets as a novice trader

UNDERSTANDING THE NATURE OF THE FOREX MARKET AND ITS PARTICIPANTS

If you were to base your trades on a coin toss you would statistically expect a 50-50 split between winning and losing trades. The reality is that retail traders have a worse win-lose ratio than that.

All reputable and regulated brokers are required to publish information on the percentage of retail investor accounts that lose money when forex trading spread bets and CFDs with them.

A quick search of individual brokers shows that even high profile brokers report between 75% and 80% of retail investor accounts losing money.

That is apart from the broker offering a Demo account to practice on, research and learning services, and even ‘trade of the week’ style support.

If the laws of probability suggest that losses can be expected 50% of the time, why is the true total closer to 75%?

Part of the answer is that there are some seriously equipped traders operating in the forex market. Institutional traders, such as hedge funds are well resourced and highly experienced.

The goal is to be in the 25% that tilts the scales in their favor enough to make money.

WHAT IS AN EFFICIENT WAY TO MAKE MY FOREX TRADING PROFITABLE?

One way to make trading more profitable is to make sure you take full advantage of practice trading. New ideas should always be researched, developed and tested using a Demo account.

Only after extensive testing can any strategy switch to live trading. This transition should also be accompanied by trading in small amounts.

One of the results of following this process is that you will increase your chances of success by developing a better understanding of managing your trading life.

Let’s return to the coin toss example. If 50% of the price action is going your way and 50% against you, cash returns will be skewed if you ‘freak out’ and cash out the winner too early while letting your loser run to the finish.

It is a common trait among novice traders and boils down to basic human psychology.

Human nature assumes that things will eventually get better—so some traders let the losers ride too long. It does not like to give back something it has ‘won’, which causes traders to cash out winners too early.

The win-lose ratio can be 50-50, but poor trade management makes you one of the losing retail investor accounts.

Also remember that as a small scale operation, you may not be able to compete with large investment houses in all markets. Concentrating on one currency pair, such as EURUSD or GBPAUD, can work to your advantage.

Once you’ve established that a particular currency pair or strategy might suit you better, there’s also the question of where to trade it. There are many high quality regulated brokers to choose from and finding the right one can make a real difference to your trading profits.

Make sure the level one regulatory body regulates the broker you want to use. The next step is to open a Demo account to give it a try. Also, consider the mobile trading experience as it differs from broker to broker.

Checking out one of the ‘top 5 forex brokers’ lists will ensure you get off to a good start, but while all are great, you may find one that works exceptionally well for you. Some traders, of course, have multiple accounts and take what they want from each broker.

DEVELOP A FOREX TRADING MENTALITY

Trading-related learning journeys can be very interesting and rewarding. However, it is important to be aware of what you find attractive and profitable. The two may not always coincide.

Focusing on one particular currency pair can help your study to be focused and informative. In the same way, you may find a certain strategy works for you and choose to apply it to the currency pairs that are most likely to generate profits.

By concentrating on one currency pair or one strategy, such as Elliot Waves, you can try to resist the temptation to spread too thin. The goal is not to become a market expert but to become a profitable trader.

Successful trading requires discipline and calm. The strategy should include trade entry points and trade exit points. Taking free signals from third parties is a great place to start.

Be completely cynical and resist the temptation to let someone else’s signal make real money until you actually test it using virtual funds.

Demo Account is also useful to familiarize you with failed trades. If you make 100 trades and all of them are winners, you either developed the ultimate strategy or made a mistake.

You won’t win every time. Developing the ability to accept losses while reducing their occurrence is one way to increase your chances of making a profit when forex trading.

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