When someone is trying to get you to start currency trading, they always try to make it sound straightforward. However, it is usually not as simple as they make it look, even with the most tradable currencies at your disposal with trading psychology.
We are going to use this article for diving deep into what it will take if you want to get profits from the world's most tradable currencies.
We will incorporate trading psychology in this, to make sure that you have all it takes to be remarkable at the whole thing. If you are just a beginner in the market, you will benefit from the best forex brokers. That is why we have prepared forex broker reviews.
Read through them and finish your forex education, so you can have even higher chances of succeeding in the world of currency trading.
Placing trades in the forex market is straightforward. However, you need to know that the mechanics, though similar to what you will find in other markets, involve different analyses.
By the end of this, you should know how to do currency trading and make profits, using the most tradable currencies, without having to go through too much trial and error to get there.
Defining Currency Trading & Most Tradable Currencies
First of all, in currency trading, not every currency is tradable. The tradable currencies are those that have these three crucial characteristics:
- They must be floating. That means that the central government, which issues the currency, allows the value to be dictated by forces in the market. Because of that, currencies like the Chinese Yuan and Hong Kong dollar, do not qualify to be called tradable currencies. They operate under a fixed currency regime.
- The currency must be listed widely across most of the trading exchanges, if not all of them.
- The tradable currency needs to have what we call inter-convertibility with the major currencies. That means it has to pair and exchange well with other currencies.
Now that you know what the currency trading concerning tradable currencies means, we can get into the basics that you will need to see if you want to make profits.
What Are The Basics Here?
Before we start talking about how you can profit from currency trading, it is good to know that you understand some of the basics. In the most tradable currencies, you need to avoid pitfalls, and the best way to do that is to learn the basics.
They are as follows:
- We treat currency trading like a two-way street. You can profit when the prices go up, and you can profit when they go down, using the long (buy) or short (sell) positions, respectively. It is all about where you will be when the tide turns.
- The profit and loss in currency trading have the potential to come from the price difference between the entry and exit prices in a position you take.
- In currency trading, we always trade them in pairs.
- The movements in forex are small when it comes to price. For that reason, the market is heavily leveraged. You will need to know how to use leverage properly, to profit from the most tradable currencies. Even with leveraging, the traders have to put up an amount as the collateral. We call this the margin.
- Currency trading quantifications are done in terms of the size of each position. The standard measurements of trade size in forex start with the Standard Lot. It is the equivalent of $100,000 of the traded currency position. The size is further divisible into:
- Mini lot- this is a tenth of the Standard Lot and is worth $10,000. Any position between 0.1 lots and 0.99 lots, is a mini-lot.
- Micro lot- this is one-tenth of a mini-lot or one-thousandth of a Standard Lot. The position is worth $1000, and any position taken between 0.01 lots and 0.099 lots is a micro-lot.
Now that you know all these details, we can get into the rest of it. Learning currency trading by using the most tradable currencies is not enough. You will need to have the trading psychology skills to pull it off.
Here’s What You Have to Do to Make Profits
If you want to be able to remain profitable over a sustained amount of time, you will need to make sure that these three factors are guiding your actions or are incorporated into what you do as a trader:
- Trade should have a trading system. That is the first thing you need to know about currency trading. With it, you have the chance to identify the potentially profitable things you can with very clear entry and exit rules.
- You need to have the appropriate trading psychology. Currency trading, especially with the most tradable currencies, will need you to keep your emotions out of the equation. You need to be able to control your emotional response to make sure that it does not factor into your trading strategy.
- Above all these things, and for your good, your currency trading system needs to have a risk management plan/system that will make it easy for you to ensure you do not wipe yourself out.
To make it even clearer, we are going to break down all the things we have listed here and make sure that they are further understood. Do not worry; we will not bog you down with unnecessary details.
The Trading System
When doing currency trading with the most tradable currencies, what should your trading system look like? What should it have? First of all, you need a system where it is easy for you to notice the most profitable setups of the most tradable currencies.
It does not matter the strategy you use. However, it has to follow some very simple rules that we are going to highlight here, just to make sure that all of this is very well understood.
- You have to be profitable over time.
- You must be able to spot setups where the risk to reward ratio is at least 1:3
- You must have clearly defined entry and exit strategies/parameters.
- You should be able to do risk management with minimum effort.
The best way to come up with a trading system that can work properly is to copy that of a successful trader or to come up with your own. Some of the ways you can copy from other traders are through copy trading, and if you want to develop one by yourself, you should consider training using demos, and then when you get consistent results, try the real world.
Understanding Trading Psychology
This is one of the nuanced parts of currency trading. When it comes to trading the most tradable currencies, you will need to make sure that your emotions are in check. We are talking about money on the line here, and emotions tend to get out of hand sometimes.
After all, we are just human beings.
Money earned when doing currency trading is the reward for all the mental and physical work you poured into making it work, and if your money is not in a good place, all sorts of emotions bubble up.
Try as we may, currency trading is almost always an emotionally charged affair. Otherwise, we would not have “sentiment” as a facet of analysis. In trading psychology, you need to learn that you will undergo fear, caution, anxiety, panic, and euphoric happiness.
Some of the emotions are good, and others are bad. The bad kind will cause your trading psychology to go to a negative side and result in irrational decisions that could cost you money in the end.
Before you get started, you must have superb trading psychology to make sure that you are in the right place mentally before you start anything. In trading psychology, there are rules on how to operate, and we are going to take a look at them.
- Find at least three good reasons to enter the trade.
- Learn never to adjust the stop loss and take profit settings, regardless of what happens.
- Take time off trading if you get a string of losses.
- Resist the temptation to want to recoup or recover the losses you make immediately
- Get enough sleep
When it comes to trading psychology, the truth is that we cannot go through all of it using just these few paragraphs. Even reading about it seems inadequate in so many ways. It is something that you will not only have to learn over time but also cultivate so that you become invulnerable to most of the emotions.
The thing is that conditioning is what will help you. As someone in currency trading trying to make profits by trading the most tradable currencies available, you can start with simple strategies that include setting up the trade and then leaving your computer.
The only thing you will need here is to have alarms and notifications of when key targets get hit. Artificial intelligence is rising and will no doubt be an asset to eliminate the problems of human emotion.
Until then, you need more than these few paragraphs we have provided here and a lot of practice.
Risk management is a part of the currency trading process that you cannot skip. It is the thing that will enable you to either swim or drown in the market. You do not want to be shark food.
When it comes to the forex market, protection of your account from the times when bad results come at you is what we call risk management. Mitigating the bad effects of a string of losses is very crucial in keeping you alive and doing your currency trading.
Poor risk management leads to accounts that have more profits than losses to get the margin call that everyone dreads. What goes wrong?
Well, if you want to avoid getting the margin call when trading the most tradable currencies in the forex market, you will need to insulate yourself under layers of risk management strategies. Risk management is what sets apart the good traders and the greatest traders.
Who do you want to be in your currency trading?
The Top Most Tradable Currencies
Let’s look at the most tradable currencies, the central banks that offer them and the countries from which they hail:
- The US Dollar- It comes from the world’s largest economy and is commonly referred to as the Greenback. The Federal Reserve (Fed) is the central banking body of the US dollar. A board controls it.
- The Euro is issued by the European Central Bank and is headquartered in Frankfurt, Germany. The Eurozone has 19 member countries. They have a board to govern everything.
- The Japanese Yen- It comes from the BOJ (The Bank of Japan) and can be traced as far back as 1882. The BOJ is the central bank of the world's third-largest economy. They have a Monetary Policy Board to control everything.
- The British Pound (GBP) is offered by the BoE (Bank of England). It is the central bank of the United Kingdom. It is the equivalent of the Federal Reserve System in so many ways.
- The Swiss Franc is abbreviated as CHF and comes from the Swiss National Bank. They have a governing body with both private and public ownership. Their system is a little different from what most of the world is used to. However, it works well since this is one of the most prosperous economies ever.
- The Canadian Dollar is also called the Loonie for some weird reason. The Central Bank of Canada offers it. They manage their stability, inflation, safety, and security.
- Australian/New Zealand Dollar. These two are on par in many ways and are regulated and offered by the Reserve Bank of Australia and the Reserve Bank of New Zealand, respectively.
- The South African Rand is abbreviated as ZAR and is offered by the South African Reserve Bank.
As you will find out when you get into the markets, leveraging the most tradable currencies in the world properly, is one of the best ways to make money that you will ever find.
The currency trading market is one that requires you to know more about what happens first hand before you can consider yourself good enough. In dabbling with the most tradable currencies in the world, you need to be able to have all assets ready.
Pay attention to everything, including the trading psychology of it all. Who you are at the core, will influence the kind of results you get. For that reason, you need to be prepared enough in both a mental and analytical perspective to make things happen your way.
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