Trading foreign currencies is an enticing way to make money. One reason: it’s the largest market in the world, reaching $5.3 trillion a day in April 2013. In addition, you can get into the market whenever you want and for as long as you want because it is open 24 hours a day, seven days a week. And there is a vast number of combinations you can bet on -- the U.S. dollar and the Japanese yen, the deutschmark and the British pound sterling, and so on. However, forex trading is also an easy way to lose money, and traders must take care to reduce their risks. One way is to make just one trade a week.
Many individual traders of forex, particularly novices, engage in short-term moves. So-called “scalping” and other such techniques involve making a large number of trades in a short period, say, 100 trades in a day. Traders will make rapid-fire moves generally when one or more technical indicators that plot market movement predict one currency will rise or fall against another. You’ll make money faster with more trades, the logic goes, and surely the hard work will pay off.
Not so, according to seasoned traders. Short-term trading leaves you with a tiny amount of information to predict movement in a fast-changing, dynamic market. Losses could pile up quickly as you make frequent trades. Nial Fuller, a professional trader, points out that “lower time frames are going to have more false signals and whipsaws.” Another disadvantage is the amount of time needed to make money. If you have a full-time job, you won’t have time to sit in front of a monitor trading eight hours a day.
One Trade a Week
It’s better to be patient and wait for a “perfect set-up” that is likely to appear over longer time frames -- a few days or perhaps a few weeks, for a rough average of once a week, according to StreetDirectory.com. This means following not just one technical indicator, but four or more indicators. Not only are the chances of success higher, but the potential profit from the long-term shifts is much greater than the miniscule gain from typical short-term moves. “Just one of these per week can be enough to make an excellent living from forex trading,” says StreetDirectory.com.
Rules to Follow
Weekly trading puts a premium on discipline and patience. You must be prepared to trade only when certain conditions are met, which means you might not trade for several weeks, said Fuller. And you have to stick to a plan that promises long-term profits when you post a string of losing moves, even though it’s tempting to lower your standards for trading and place more frequent bets to try to get back on the black.
Gene Linn started writing professionally in 1980 and has deep experience as a reporter. He has written for such publications as UPI, Bloomberg and the Equities.com. He earned a Bachelor of Science in journalism and a Master of Arts in East Asian studies from the University of Kansas.