You’ll read much on the advantages of trading currencies – yet most traders tend to turn advantages into disadvantages-due to lack of understanding. That is why 95% of forex traders lose money – and there is one thing in particular that wipes out more trader equity than something more volatile! Most forex traders simply can’t deal with the volatility.
Volatility, Deal with it or lose Money
Coins are volatile, and in theory can operate you thousands of dollars in profits each day, but the reality is that:
Most traders make fundamental errors when it comes to dealing with the volatility, and that has gone away. The main mistake that people make is with stop placement. These merchants are so eager to avoid risk, they actually create. They do this by placing their stops incorrectly, giving themselves no chance of winning.
The volatility is also more of a problem to deal when using the leverage. Many forex brokers will grant up to 400:1 leverage – and if you can’t deal with volatility, then leverage simply compounds the problem.
Many forex traders are great to choose the direction of the market, but these traders are continually enhances detained by the volatility. They are frustrated when it stops and then see the trade going to make $10,000 to $30,000 – and they’re not in!
Today, in our world of instant communications, currencies are more volatile than ever before. While you can see the big, long-term trends on any forex chart, the volatility within these trends is enormous. This volatility will soon take your equity – if you do not have a forex trading strategy to combat it-and lead you to currency trading success.
If you want to be successful in forex trading, then you need to deal with volatility, so here are some tips to help you:
1. Do you know what standard deviation is?
If not, then look on the net right now – or read our previous articles. If you want to deal with volatility, then an understanding of the standard deviation is a necessity.
2. You Need To Take A Calculated Risk
Most of the traders have their stops very close, and despite the fact that they seem to have a lower risk, the fact is that the odds are strongly in favour of their stop being hit. It may look a low risk on paper, but it is almost a guaranteed loss in practice – making it high risk.
A perfect example is the forex day trader – who thinks they can place stops using daily support and resistance and keep the risk low. However, all volatility is random in short periods of time – so say goodbye to your equity.
If you want to win for trade, then you need to be a successful player, bet big when the odds are in your favor – and do not bet, when they are not.
Only place stops behind valid resistance and support – and be VERY selective with your trading signals.
3. Accept a Reduction in Opening Equity
When trailing a stop, be patient, you need to hold back enough not to be carried out by the market noise. This is difficult when you see thousands of people in the equity wiped out in a day. However, keep your forex trading system firmly focused on the bigger prize – and accept that you’re going to have losses in the short term – to make longer term meaningful gains.
The volatility in the forex market is a great advantage – but you must learn to deal with it properly, in order to achieve forex success. If you can’t deal with volatility and risk, then you are going to lose money, as simple as that.