Forex 101: Four Simple Steps to Increase Your Profit Potential
In the world of forex, everyone wants to come out on top, and one of the best ways to do that is to increase your chances of making a big profit on every trade you execute. Of course, this is easier said than done. Every trader is working towards the same goal, and yet some of them do it so much more successfully than others.
So what, exactly, are their secrets? Read on and we’ll let you in on a few of them…
Tip One: Make Long-Term Investments
In the forex stratosphere, the current trend is to focus on short-term trades. This can be a good move for the novice trader, but one of the main reasons that it’s so well suited to the inexperienced is because it’s relatively low risk. The addendum to this is that it also significantly lowers your profit opportunities. For those looking to make more, this makes long-term investments a much better choice.
Tip Two: Increase Your Investments
The more money you invest, the greater your chance of loss – but also your profit potential. Most traders are, understandably, reluctant to risk their capital, but if you want to give yourself the opportunity to make more, then you have to invest more. This doesn’t have to be a significant change – after all, gambling too much is simply foolish. On that note, if the universally accepted practice is to invest up to three per cent of the total amount, why not consider increasing this to five or ten per cent? If you trust in your strategy and stay updated with global and economic events that can affect forex markets, this small change could make a big difference.
Tip Three: Avoid Multiple Transactions
You might think that the more transactions you affect, the greater your chances that one of them will yield a profit. This is not the case. Keeping an eye on multiple transactions simply increases your chance of missing an opportunity, so the best thing to do is to look at each one separately, carry it out to the very best of your abilities, and only then consider moving onto the next. This method should increase your chances of making a tidy profit on each transaction, rather than losing money or failing to maximise multiple open trades.
Tip Four: Perfect the 80-20 Rule
The 80-20 rule is present in many areas of business and finance, and is also commonly referred to as the Pareto Principle. The principle states that 80 per cent of your results will come from 20 per cent of your activity. The thing to take away from this is that it pays to cut back on your trades. Most investors make the mistake of being too active, not in the sense mentioned above, but rather in the way of thinking that it will pay to have their fingers in multiple pies, regardless of the quality of the individual confections. This means that rather than trading as much as you have been, only consider the trades that have a really high chance of winning, and delivering a substantial profit at that. The important thing to remember is this: trading frequency doesn’t help you to earn money – being right does. By focusing on the latter, you simply weed out the trades that will lose you money, and continue to carry out those that will deliver a profit.
Forex will always be a game of luck as much as skill; the trick is to remember that if you bring as much skill as possible to the table, the pay off when things go right might just be enough to turn you into a true victor.