Millions of traders have different skill levels and distinct strategies in the forex market. But all of them are united by one common goal of making significant profits from trading, for which they need to catch the targeted number of pips at the end of their trades.
Pip is the basis for all the crucial trading decisions in the forex market, but finding the pip value in the currency that you are looking to trade in can be a daunting task if done manually. However, things can be made easy with the use of a pip calculator, which quickly analyses the value of pips from one currency to another. This simple tool makes the trading process easier for all types of traders.
Similar to this, there are some trading tips that can work for everyone, irrespective of your strategy and trading style. Keep reading to find out the 4 powerful tips to become consistently profitable in forex trading.
Be rational and manage your emotions
The forex market has become easier to access, and learning to trade has always been challenging. The internet has all the information and knowledge that you would need for trading, and everyone gets a fair chance in the currency market. However, only a small percentage of traders are able to attain long-lasting success in the forex world.
Lack of knowledge and not having a solid strategy can lead to failure in forex trading. But sometimes traders cannot make consistent profits despite having enough knowledge, skills and a sound trading plan because they make poor trading decisions under the influence of emotions.
Being rational and making calculated moves is essential for navigating the volatile currency market. Otherwise, you will end up taking excess risk while making illogical decisions, and that’s how traders make costly mistakes—feeling stressed, excited, greedy or impulsive while trading is normal. But you should be the one in control of your emotions and not the other way around.
Emotional trading makes you lose a lot in the trading process and can wipe out your trading capital even before you realise it. So, always trust your analysis and focus on risk management in each and every trade.
You will have to estimate the potential profit and risk of loss prior to entering a trade. You can use a forex profit calculator to calculate the potential return on your trades. Based on this information, you will be able to adjust the stop loss and take profit levels. By doing so, you will be pre-planning your exits while limiting your exposure to risk, thereby minimizing the potential loss if the trade doesn’t work out.
Study about harmonic pattern
A vast majority of forex traders rely on technical analysis and pattern recognition for executing their strategy. They look at the charts and interpret the patterns formed by price movements to understand the market situation. They predict the potential price movements based on this analysis.
One of the advanced technical analysis techniques that can help you find ideal trade setups is the use of harmonic patterns. Having knowledge about harmonic patterns is useful for predicting future price movements. This is done by identifying potential reversal points when there is an ongoing trend. Harmonic pattern recognition often involves the use of Fibonacci numbers.
Harmonic patterns are based on the assumption that the price patterns will often repeat over time as traders tend to think alike while analyzing the charts. This forms the collective psychology of the market. We can also refer to it as market sentiments and market behavior.
Traders often use harmonic patterns to predict higher-precision price reversals, and they decide their entry points based on this metric. You can also use various trading calculators to decide the optimal entry points for your trades. They help you make quick decisions by automating the calculation process, which would take a lot of time if done manually.
There are many harmonic Patterns, but I will list the most common ones used by traders.
This is the most straightforward harmonic pattern, and it is based on the formula AB=CD. Firstly, there is a sudden price movement from point A to B, then a corrective movement from B to C. After another impulsive moment from C to D. Here, point C is considered to be the Potential Reversal Zone (PRZ), and you can also choose to wait until the price reaches D before opening a position.
Just as the name suggests, this pattern is shaped like a bat, and it looks like an extra leg (X) is added to the ABCD pattern along with an extended CD and AX, which are the same length. Here, point D is the potential reversal point.
This pattern Resembles a butterfly and suggests a possible reversal. This pattern uses different combinations of Fibonacci ratios for spotting all potential reversal points.
The Crab Pattern:
This pattern is known for its asymmetry, and traders use it to enter the market during peak high or low points in a trend, as a reversal is most likely to happen after the price reaches this level.
Several other harmonic patterns exist, such as the Gartley, deep crab, and shark patterns. All these patterns can be bullish or bearish based on how they are formed. By learning to interpret different harmonic patterns, you will be able to decide your entry or exit points based on potential reversals.
Trade using Fibonacci retracement levels
I mentioned using Fibonacci ratios and numbers in harmonic patterns, but it is also a powerful indicator for identifying potential support and resistance levels. Forex traders are using this tool to identify the price levels at which reversals or pullbacks can happen.
The precision of Fibonacci retracement levels has made it a popular technical indicator among currency traders. The Fibonacci retracement levels are drawn from the swing high or swing low on a price chart. The high point is considered during an uptrend, and the low point is used when there is a downtrend.
The Fibonacci retracement levels are drawn as horizontal lines on a price chart. The key Fibonacci retracement levels must be watched to decide an entry point, set an optimal stop loss, or take profit based on the upcoming reversal or pullback.
The most important levels to look for are 50.0% and 61.8%. 50.0% is not a typical Fibonacci number but indicates a 50% retracement of the earlier price movement. Hence, this is a key level for spotting potential price reversals.
61.8% is referred to as the golden ratio in Fibonacci retracement, suggesting strong support and resistance levels for prices. It would be ideal to use other indicators to confirm when the price reaches this level, as the price corrections tend to pause at this point, and later on, the prevailing trend resumes. Place the stop loss above the 61.8% level to limit the potential losses. Fibonacci retracement levels are very helpful for technical analysis, but risk management is important as no indicator is 100% reliable.
Try News Trading
Beginners are often advised not to trade the news as they don’t have much knowledge about the market fundamentals to predict the potential outcome of a news event. Economic news related to major economies always impacts the forex market, which can lead to short-term or long-term volatility in currency pair prices.
News trading is a strategy that is aimed at making profits from the sudden price fluctuations that happen after a news event. For example, major news affecting the value of USD will influence the princes of all major pairs.
But you need to follow a cautious approach as the sudden volatility can also result in losses if your calculations go wrong. News trading can be complicated and tough for beginners as they lack experience and are not sure about how the market will react to the news. Hence, you need to learn about market fundamentals and closely monitor the impact of various news events on the currency pairs that you trade with before trying news trading strategies.
With that, we have come to the end of this write-up, and I hope the 4 tips I shared with you can help you move forward in your trading journey. Remember that the road to success is not easy; you will have to push through the difficulties and challenges and stick to your plan like a professional.