Try the Pro Trade CopyCat RISK FREE for 71 days. Learn this powerful Fibonacci Retracement method FREE that pulls 500+ pips per trade. Download these Forex Scalping Cheatsheets FREE. Today we’ve got another special contribution from David Henderson (millionaire trader behind PROTradeCopyCat). David discusses the common question traders face – how often should you trade? Thanks to David for his excellent advice. I strongly suggest you visit his site as he is a man who knows what he is talking about:
How frequently do you need to trade in order to have success in Forex?
A so called “intraday” trading system is highly sought after by Forex beginners. Even if there is a motionless market, the intraday prices constantly oscillate – ten pips up and twenty pips down and so on. It is often possible to have a good day using scalping, even when the obvious trend is absent. This is something beginners will generally attempt in order to try and make a quick buck.
However you won’t need to wait very long before the inevitable disappointment arrives. When you open the position once again to make more profit, and the price seems to be moving in the right direction passing ten pips, the chart is raring suddenly in the opposite direction, passing not ten pips, but anywhere up to one hundred pips and the income disappears before you know it!
I advise you to take caution against this common mistake. It should not be documented that trading success is directly proportional to the frequency of trades. It is possible to fulfill one trade in a year and be a more successful trader than those who deal five trades every hour. What are we talking about? You are right; we are going to discuss the advantages of long-term positions in Forex! At first we will use the obvious example.
In December 2009, EUR rate against USD rate (EUR/USD) was 1.51. Later in June 2010 it had dropped to 1.19. What does it mean? It means that a person would have gained 3,200 USD having opened a sale position of EUR with 0.1 lots in December 2009 investing only 151 dollars with standard credit leveraging 1:100. Money invested would have matured to an incredible 20-fold return! Suppose you had made a 1,500 USD investment? 32,000 USD is a great income, isn’t it?
This income was achieved from only one trade during a half-year period. Of course, a follower of intraday trading would most likely tell us that he would earn more for the same period. ‘Perhaps’, we would answer, and then add, ‘Perhaps he would have lost everything instead because during this half-year period the price wasn’t moving linearly on a down slope. At times the price changed its direction and for a week or two weeks it was actually moving in a bullish direction (upward). In these correction conditions against the main trend, the intraday trader faces a considerable risk, and many adherents of frequent scalping are losing their deposits when the trend rapidly resists the main movement!
Every time you open the position, you have some losses, as a broker will always take an entry fee in the form of a spread. This spread is generally two-five pips, which is not significant for a longtime position, but for those who orient on income through ten pips, five pips it a considerable figure. Having focused on intraday trading and enduring constant losses on spreads, one may miss a great earning opportunity that is provided by long-term tendency.
We advise traders, beginners in particular, to focus on long-term trading. It is much safer, and that is exactly what a beginner needs. Furthermore it is not difficult to determine a long-term trend – it is enough to build a simple 65-day moving average, which will show you a dominant long-term tendency.
“But trends are mostly absent in the market! The market is flat for 80% of time. How can it be possible to earn under these conditions?” Look for a market with a trend – that’s it. By the way, concerning the EUR-USD pair in the example above, this pair is rarely moving in a sideways trend. Usually a long-term trend takes place. Have a look at the charts and assure yourself!
Keep in mind, if you do open a short-term position, you should do it with the help of a small lotsize and a stoploss order minimizing risk, as it is difficult enough to predict the short-term movements. Watch your step and may good luck be your constant follower!
Millionaire Forex Trader