Forex trading isn’t child’s play; it requires great consistency and observation to become a successful trader on forex. Unlike stocks and other trading modes, forex is slightly different. The techniques used for risk management or the ideal time frames for trading in forex are unconventional.
Risk management and Time frames are two interrelated factors in forex trading. If you choose the optimum timeframes while trading in forex, you’ll automatically mitigate many risk elements. You should know about the best risk management techniques and ideal trading timeframes to be successful in forex trading.
As risk management is the number one priority when trading in forex, let’s discuss it first, and then we’ll move on to find out ideal timeframes.
03 Risk Management Techniques for Forex Trading
- Always Invest Extra Money in Forex
Forex is a highly volatile trading platform; if there are high profits, the losses are equally high. Take this as a golden rule for forex trading; always invest the money that doesn’t make a difference when you lose it. Those who invest the income they depend on; usually don’t survive in the market for long. As a trader, you’re required to manage many things. Therefore, if you invest your income, you’ll get the stress that you won’t be able to manage when you are on the verge of losing your bid.
- Be Aware of Your limits
Don’t be a daredevil in forex trading. You should always know your limits of risk tolerance. These limits will keep you from losing big money. To set your risk-taking limit, make sure to be mindful of these things:
- Your investment objectives
- Your Forex trading experience level (noob, expert, ace)
- The amount of loss you can bear
These three factors will help you determine your limits. Once you know your limits, you’ll be able to make beneficial trade decisions. Apart from this, you should never refrain from experimenting because you never know which move can bring a fortune for you in forex trading.
Undoubtedly, you are free to make your decisions based on your risk assessment. These limits only help you to keep things in control. If things are always in your control, you will only prosper. So, make sure to set your risk tolerance limits.
- Believe in Consistency
Many people become overconfident after making a profit in forex trading, but this overconfidence can oftentimes kill. Forex trading largely depends on fair insights, in-depth research, and predictive approach; if anyone bypasses these factors, they fall flat on their face. The key to success in forex trading is consistency; you should stay consistent even if you’re making profits. And believing that consistency is the best risk management technique, you can get optimal results.
Consistency never means that you can’t expand. It means to look around and plan before making a move. If you want to manage risks efficiently, you should believe in consistency. You should change your position and increase your risk levels after thorough research, strategic planning, and in the best timeframe.
03 Timeframes Used by the Forex Traders
Finally, we’re ready to discuss timeframes. We’ll discuss timeframes according to various trading techniques used in forex. It’ll help you choose the ideal timeframe for you. So, keep on following!
- Position Trading Timeframe
Position trading timeframe is a long-term trading approach. Established traders mostly use it because of less risk. Moreover, it is comparatively easy to manage. In position trading, the timeframes used for trend identification depend on weekly and monthly charts. The weekly charts help identify potential entry points, whereas monthly charts are used to identify grading trends.
The newcomers refrain from choosing position trading timeframes because they look for quick cash. Position trading can be very promising in certain timeframes; if you identify a trend, you can easily make a profit.
- Swing Trading Timeframe
Swing trading is the most commonly used trading technique on forex. But swing trading requires risk management and essential assessment of the market before making a move. In swing trading, you can either make big money or face a big loss. The daily charts are used to identify small recurring trends, and the trader also looks at 2–4-hour charts for entry points and potential positions. It is a long-running game. That’s why the swing traders stick to trade for longer periods.
Swing trading is a lot beneficial for beginners only if they learn how to do it effectively. In swing trading, the traders also have sufficient probability to seize big opportunities as they keep on checking the charts.
- Day Trading
Day trading is the riskiest trading technique used in forex. The trader needs to be active enough to identify the trends and seize opportunities using hourly charts. It requires a frequent decision about entering and exiting the trade that keeps the trader involved for the day long. In day trading, the traders use hourly charts for identifying trends and minute timeframe charts for identifying potential entry points.
Day trading is proved to be very beneficial for quick profits. It mainly depends on RSI and moving average indicators. Keeping in mind the risks involved, day trading is not meant for beginners because there are eminent chances of big loss.
How to Choose the Ideal Timeframe in Forex Trading?
It is the most commonly asked question by traders. The selection of timeframe in forex trading totally depends on the trading strategy you’re implementing. You need to review your trading goals and trading strategy before choosing a timeframe. We’ve discussed all the timeframe in common trading techniques that you can choose. These timeframes are tried and tested by experienced traders who are making huge profits from forex trading.
We would suggest you don’t go for a specific strategy or specific timeframe when trading in the Forex market. As you know, the market is highly volatile and always in flux; you should change your strategies from time to time and experiment with different timeframes until you find what is best suited for you.
Najeeb Ullah is a versatile content writer and strategist. He loves to make a positive contribution by his writing skills. He has been providing copywriting, Amazon affiliate content marketing, ghost-writing, technical SEO services in different niches like Forex Trading, Business, Tech, Health and Fitness, IT, Fashion, marketing, food, home improvement, and Lifestyle.
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