“Great things are done by a series of small things brought together.” – Vincent Van Gogh.
Perhaps he didn’t quite have FX trading in mind when he uttered those words, but there’s no question that your success as an FX trader lies in doing a number of relatively simple things quite well, and in the right sequence. In this article, we explore a checklist of simple FX trading factors that could herald greater profits when implemented.
4 Small Things That Can Bring About Big FX Trading Profits
1. The Importance Of Sniffing Out The Best Pip Spreads. Given how competitive FX trading has become, you might fully expect all brokers to offer broadly the same level of pip spreads. This is simply not so – there can be a marked difference in the pip spreads charged by one broker to the next. It’s certainly worth knowing which currency you intend to trade the most and then find a broker that charges relatively lower spreads. Your long term profits will most certainly be impacted by how well you bargain pip spreads with your broker.
2. Start Small & Let Success Breed Success. As the FX trading industry has evolved, brokers have tried to welcome all clients – from those with millions to those with barely a hundred quid to test the waters with. Thanks to high leverage, brokers now offer micro accounts where traders can start placing smaller trades to hone their skills with real equity. For example, losing 10p per pip would only incur a £2 loss if the trader places a stop 20 pips away from his entry point. Not many people would lose sleep over that actual loss, and these micro accounts can get the new FX trader to a fit and proper state of experience at which point they can trade with more equity.
3. Brush Up On Your Chart Patterns On A Regular Basis. There are numerous chart patterns that crop up time and again within all FX currency pairs. These patterns also turn up on all time frames and represent high probability trading opportunities. They are relatively simple to spot, and once the FX trader has a trained eye they can use these patterns along with their favorite FX indicators to get a better feel of where FX price action might be heading. Some patterns to be on the hawk out for include reversal patterns (such as classic and inverted head and shoulders, double tops or bottoms and 1-2-3). Additionally, some patterns will suggest that an existing trend may well be about to continue. These patterns include flags, pennants, triangles, wedges and rectangles.
4. Understand How Divergence Works Within The FX Trading World. Divergence can almost be a blank check for the astute FX trader. Divergence happens regularly in the world of trading, and tells the trader of a sinister discrepancy between the actions of price and the trading indicator. For example, MACD is often a key trending indicator that many FX traders use to pick up on market direction. If price action happens to be trending upwards (progressively higher highs) but the MACD is making lower highs – this is divergence. Normally, we would expect the MACD and price action to act in tandem. As price scales higher highs or lows, the MACD would normally do the same. When it doesn’t, it can be a strong indication that price may be about to follow the MACD and head downwards. Traders who understand divergence can position themselves before price actually turns.