First of all, I should apologise for the delay in an update post. I have been a bit busy finalising the busy period at work, and also properly deciding where I want to go with this blog series. But, I’m not back on track to learning how to become a Forex Trader.
I had considered going down the route of stock trading instead of FOREX. However, based on my research, I genuinely think FOREX is more accessible to people globally. However, I may do a stock trading journey in 2020!
Since my first post, I have properly decided upon a broker, set up my MetaTrader4 (MT4) platform, and got a DEMO account set up with roughly £500 in it.
“Why £500?” – Simply, I wanted to make this difficult and realistic. Not many people can put £50,000+ into a trading account. I could easily put a large balance on the account and luckily leverage large wins to make it seem as though I was more successful than I am. There’s no way to hide success with a small account, and that’s how I want it to be. Cutting all the BS!
I have set up my FOREX account with XM, as this is a broker which was recommended quite regularly online. I am open to trying different brokers throughout this journey, but for now, I will stick with XM as there is an unlimited demo mode with them. Also, their leverage isn’t too high (max of 1:30). I don’t want to learn with a large leverage, as to some extent I feel as though it may make the learning process more difficult.
The FX Trading Journey: What Have I Been Studying?
The past week I have mainly focused on trying to get a solid FOREX ‘Strategy’ under my belt. I think it is important to choose something which suits your personality, and what you find interesting. Then, once this is decided, stick to it.
What I have read during my research is that a key aspect of failing Forex traders is that they constantly change their strategy when things go wrong. You will have good days and bad days in trading, no matter how good your strategy is. Of course, if the strategy plainly does not work, then go back to the drawing board. However, one day in the red does not warrant a restructure of your plan. The longer you stick to the same strategy, the better you will become and more you will understand the nuances of the FOREX market involving your strategy.
I have become a member on the BabyPips forum, and I’ve been doing a lot of research based upon my readings there. Thankfully, there is a whole forum section on FOREX Strategy, so after doing some general reading, I would recommend going there to further your learning.
I spent most of this weekend reading about the impact of trading volume upon the ups and downs in the market. What I learnt during this weekend is what I will write about mostly during this blog post.
It may be helpful to mention that the date today is: 06/05/2019.
The Importance of Volume of Trades as a Forex Trader
What do I mean by Volume? Simply, how much people are buying/selling a currency pair. Unfortunately, MetaTrader4 cannot tell me whether or not the masses are buying or selling, I can only get a total volume number. So, in order to decipher what is going on, I need to be able to analyse my candles.
Let’s look at the screenshot I took below and discuss:
Here we can see a pretty significant rise towards point A which I have noted. At the bottom of this screenshot you can see the volume amounts based upon the chart above it. We can see that the volume of trades reaches its peak around point A, and then after point A, everything declines.
What I’ve noticed in ‘point A’ is that the wick is quite prominent. This shows me that there was significant selling pressure dragging the candle down. Comparing this to the volume, I can see that the volume is still quite high, and therefore this may imply that the volume consists primarily of traders ‘selling’ the currency pair. If a large volume of Forex traders are selling, then it is going to drag the currency down.
If we look at ‘point B’ as a comparative, we can see a significant ‘tail’ on this candle. The currency seems to attempt to make a rebound here, however the candle directly after this causes this to reverse. There is also a spike in volume here, and another long wick candle. This suggests to me that there are going to be large volume of selling of the currency, which will further drag it down.
While the price did drop a little, it has flattened out eventually. This is where FOREX trading becomes difficult, and that is in the case of predicting when it is time to exit a trade. You wouldn’t want to stay in this one for too long in the hope of further gains, as the market could quite easily reverse on this drop.
If we look at the first green candle in the screenshot, we can see another long tail (similar to ‘point B’). This is also accompanied by a spike in volume, and this suggests a large number of traders buying the currency pair. This has then led to a large surge upwards up until ‘point A’.
In this diagram, the first candle would have been a fantastic point to buy in on the currency pair. However, the difficulty is knowing when to get out. There are numerous candles between the first and ‘point A’ which may suggest the chart is about to change directions. This is something I am going to focus on learning more about in the coming week!
Make sure you stay subscribed and come and read my forthcoming posts.
I am yet to properly start trading, however I suspect I will start my first trades in a couple of weeks once I have fully solidified this strategy and learnt the ins and outs of it.