Five Good Forex Trading Habits

The secret of successful trading is to keep bad habits at bay and develop good ones. Here are five good forex trading habits that will help you on the road to success.

1. Be consistent

Successful traders take a structured approach: they formulate a strategy, test it and stick to it. Don’t be tempted to deviate from your strategy because you think you might be ‘missing out’ on a good trade. Remember, sticking to your proven trading strategy is what will bring results. 

2. Keep up to date

World news and events have marked effects on the forex market, so make reading the news part of your trading routine. As a first step familiarize yourself with the economic announcement schedules of the countries whose currencies you trade, as well as the implications of positive or negative results.  Before you place your trade, always check to see if there have been any overnight events that might affect market activity, and make sure you are aware of any pending announcements that might impact your currency pair.

3. Keep a journal

Even the most experienced forex traders are still learning how to trade forex, which means that from time to time they will need to update their trading plan. A good basis for updates is a trading journal. Keep a record of your winning and losing positions and then analyses your results later. This will help you look at your decision making process as objectively as possible. By keeping a journal, you can capitalize on your successes and avoid repeating your mistakes. Crucially, you can use what you learn from past trading activity to update and improve your trading strategy.

4. Be responsible

Even the most successful forex trader faces some losing trades. You can minimize the effects by being responsible at all times. There a number of ways to do this. First of all, determine how much you are prepared to lose – this will help you decide when to exit a failing trade. Responsible traders always placea stop loss on their trades. A stop loss is like a safety net – it will limit your loss and help you preserve your capital. Using a stop loss you can calculate ahead of time how much you stand to lose if the market moves against you. It’s also important to take full responsibility for your trading outcomes: remember, your results are based on your strategy and only inexperienced traders blame the market.

5. Make analysis your friend

Don’t let others sway you - before entering a forex trade, make sure you have studied the currency pair and the profit or loss scenarios that might lead to closing the trade. You can then build an exit strategy based on the possible consequences of closing. Above all, once you have defined your trading and exit strategies, stick to them.

EURO Drops Despite Good News

If you ever wondered about the power of a single person’s comment on a currency market, wonder no more. Despite the European Central Bank’s (ECB) prediction of a smaller shrinkage for the euro zone economy this year than previously anticipated, the ECB’s president’s remarks after the release of the latest positive figures caused the euro to drop to a six-week low against the US dollar, according to NordFX Company.

The ECB had previously thought that the euro zone economy would shrink 0.6% in 2013, but now says it will only contract 0.4%. That news did not cheer ECB President Mario Draghias much as many had hoped. “I am very, very cautious about the recovery,” he said in recent remarks. “I can’t share enthusiasm. It is just the beginning. Let’s see, these shoots are still very, very green.” 

That decided lack of enthusiasm immediately spooked traders, who caused the euro to plummet in value. Why does this happen? Because traders often believe that people like Draghi have access to other information that has not been made public yet and a more comprehensive view of the exact state of a given economy, hence the gloomy words, according to NordFX Company.

In another reaction to the news that reflected a lack of enthusiasm, the ECB held interest rates at 0.5%, despite the signs that the euro zone is indeed recovering. Draghi said in July that interest rates will probably remain low for an “extended period.” How long that period will be is anyone’s guess; it will depend on the performance of European economies over the next few months.

A growth rate of 0.3% between April and June caused the ECB to revise its earlier forecast of 0.6% contraction. Germany and France led the way, with 0.7% and 0.5% growth during the second quarter, which was stronger than expected. Spain, Italy and the Netherlands, however, all saw output fall during the same time period.

The ECB, despite its president’s lack of infectious joy, still believes that the euro zone recovery will continue throughout 2013 at a gradual pace. Most analysts think that recovery will continue, and strengthen, in 2014, according to NordFX Company.