Online FOREX trading looks easy, but there is one factor that makes it hard to succeed and it is not picking market direction or the long term trend.
So what is the factor that makes online forex trading hard and causes the majority of traders to lose?
The factor that makes online forex so hard is volatility within the trend.
A common scenario
You spot a trend and enter. The market pulls back and you are stopped out. The market then reverses the way you anticipated and goes onto make $10,000 or more and you’re not in!
This happens to all traders at some point and is caused by volatility.
Of course, markets trend either up or down but there are frequent pullbacks against the trend
Many novice traders get taken out by them lose and the market of course, goes back to the way they had thought.
So how do you prevent yourself getting stopped out in online forex trading and stay with the longer term trends?
Here are some tips:
1. Use a breakout method to trade
Trade only significant, valid breaks of critical support or resistance.
Stop placement is obvious on these trades and the odds are in your favor, if momentum goes with the breakout.
2. Don’t trail your stops to soon
Another common error is for traders to trail stops up to quickly and try to lock in profit, however all they do is manage to get stopped out.
By trying to restrict risk, they actually create it.
If you want to catch trends and profit from them you need to give the market room to breathe.
3. Use options
Options are great tool for giving you staying power.
Use at the money or in the money options with plenty of time value, to ride out short term price swings against you.
4. Don’t day trade
Day trading is a great way to get yourself stopped out and lose.
Quite simply, volatility is random is daily or hourly time frames and your chances of being stopped out are great, as support and resistance and are not valid.
Volatility How to deal with it
The above are some ways to get around getting stopped out to soon.
Any trader trading online forex markets needs to have an in depth understanding of volatility and how to deal with it.
You need to know about standard deviation of price and that will be the subject of part 2 of this article, combined with some indicators you can use to enter when reward is high and risk is low.