How to Adapt to the Changing Environments in Forex Trading
Posted on 6th Jan 2018
Consistently profitable forex traders do not blindly rely on luck-instead they do the necessary legwork to make their strategies relevant to variable market conditions. The markets are so diverse that there is no one-size-fits-all approach to them and you have to change your trading behaviour from trade to trade. Most of you devote time to concentrate on a strategy based on entry and exit price. By doing that you often tend to overlook the need of adapting your trading method to different market environments. The markets are always in a flux and there are different phases to it. Sometimes the markets consolidate or are range-bound, break out or there are also trending markets at times. So how do you turn market volatility in your favour? Let's find out:
1.The Right Mindset:
The outcome of each trade is unpredictable and it can sway either way. At the same time the results of your previous trades in no way affect your successive trading results. The outcome of your future orders is not contingent on your recent trades. Once you understand this fact you can easily execute your trades with the right mindset devoid of any fear or remorse.
2.Technical Studies:
You can apply a combination of technical indicators to determine if the market is changing. There are various technical indicators like Candlesticks, MACD, Bollinger Bands, Stochastic Oscillator etc. that aid you in adopting a trend-based forex trading approach. By using these you can accurately gauge volatility, momentum, price action and fine-tune your trades.
3.Place Wider Stop Losses and Take Profits:
Your stop loss should be set wider when volatility increases. That is because when prices spike, they might surpass your entry, head to your stop loss before heading for your original take profit. When forex markets are volatile you have to use bigger take profit orders as well, to control the volatile moves and earn more profits. Imagine your disappointment on finding that a price movement forced your exit before you could even make money. The reverse is true in less volatile market conditions and stop loss orders should be set a little nearer to your entry. Also, your take profit orders need to be set nearer to your entry too.
4.A Trading Edge:
A trading methodology with a cent per cent win rate simply does not exist. Successful traders are forever looking for market opportunities and always willing to tweak them as per their requirements. Winning and losing trades are randomly distributed, and a trader must initiate several trades over a time-frame to get winning ones. If you base a series of trades on a set of favourable conditions or edge that you have identified, then the probability of having winning trades increases over time. This is called a trading edge. Thus once you have a market edge you are less likely to fret over wins or losses and will be more confident that sooner or later your edge will give positive results.
Even the best strategies fail in certain market conditions. As a trader it is imperative on your part to make the odds work in your favour irrespective of the market situation and mould forex trading strategies for success.
