The goal of every forex trader is to consistently make a profit. This profit is obtained by taking favourable currency trading positions with changes in the demand and prices of paired currencies. In other businesses, making a profit consistently requires diligently following and implementing proven profitable business strategies. However, in foreign exchange trading, a trader’s ability to constantly make a profit is often more demanding than this. Profiting from risk-rewarding strategies as it is in the forex market requires a combination of good trading skills, discipline and a strong understanding of various trading management strategies that minimize risks and maximize profit. These strategies are discussed in detail here.
Recommended Profit Maximization Strategies in Forex Trading
In forex, it’s essential to note that no one strategy guarantees 100% success all the time. But be that as it may, traders should always use proper risk management techniques, continuously improve their trading strategies and implement the tips below to remain profitable forex traders.
Follow Proven Market Trends
Whether you are a newbie or an experienced forex trader, you are sure to make a profit by following proven profitable market trends. These trends are determined using technical analysis tools like trendlines, momentum indicators and moving averages. However, bear in mind that the forex trading in Nigeria as it is all over the world is highly dynamic. Therefore, to remain profitable in the market as a trader, it is paramount that you move with market trends that are beneficial at that point and abandon them after they stop being profitable. An example is entering a trade with high volume during strong impulse movements that come with sustained price movements in a specific direction. Then you exit when this momentum changes adversely.
Implement Breakout Trading Strategy
Breakout trading is used by active traders to benefit from sudden and significant price movements. They enter a trade when the asset position breaks above a resistance level on the price chart with the anticipation that prices will continue rising. Conversely, breakout traders enter a short position when prices break below a specified support level. In either case, buy-stop and sell-stop orders are used to manage risk. This trading strategy is most rewarding when it is done after a thorough market analysis, well-managed risk and the ability to react quickly to market movements.
Use Different Trading Accounts
More often than not, some forex traders use more than one trading strategy on the same account for the same or different currency pairs. These strategies include scalping, swing, news, copy, long-term, or day trading which are all different from the other. When these strategies are badly managed, they often result in grave losses for the trader. Therefore, it is recommended you use different accounts for individual strategies on currency pairs. This helps you evaluate the profitability of a particular strategy against others. Where a trading strategy has performed well in the period under review, it is ideal to replicate that strategy so long as it continues to maximize profit with low risk.
Important Risk Minimization Strategies to Adopt as a Forex Trader
By carefully implementing these strategies, any forex trader can effectively manage risks at any time in the market and improve their forex profits significantly. However, as with forex profit-maximizing strategies, the trader should know what works best at any time and stick to it.
Guard Your Trading Capital
One easy way to crash a Forex account is by investing beyond your risk tolerance level. This is sometimes borne out of impulsive decisions based on emotions or market noise. At other times, forex traders fail due to a lack of discipline, and having no defined trading plan but with unfeasible profit expectations. Professional traders with proven profit plans do not invest more than 5% of their trading balance on any single trade. The lesson here is to avoid taking wild risks on single trades with uncertain profit probabilities. But at the same time, you grow your trading balance gradually while profiting from multiple trades.
Diversify Your Trading Portfolio
This entails spreading your forex investments across different currency pairs or asset classes. By doing this, it reduces the level of your risk exposure to adverse price movements on the overall portfolio. In trading diverse currency pairs, there are opportunities to capitalize on varying market trends and correlations to enhance the overall stability and resilience of a portfolio. It is given that when there are losses from a particular currency pair, you might likely gain from another pair.
Hedge Against Currency Fluctuations
Hedging against currency fluctuations in the foreign exchange market is a form of insurance to protect against unexpected and adverse currency price fluctuations. A financial instrument known as a forward contract is used to hedge against adverse price movements that would otherwise result in losses. As a foreign exchange trader, if you anticipate that a currency pair will depreciate in the future, it is expected that you hedge against this position and safeguard your portfolio against adverse market movements. By doing this, you will have minimised the risk in that particular trade.
Conclusion
There are no shortcuts to maximizing profit and minimizing risks in forex trading. Similarly, rarely will you make a profit as a forex trader without encountering some elements of loss. Available statistics have it that as little as 5 to 10% of forex traders make profit from trades. By carefully following the measures recommended here, you will have a higher chance of making profit with minimum risk in your forex business.
