Trading is a high-performance activity and doing it successfully requires skill, determination, and sometimes the foresight to be in the right trade, at the right time. Here are 5 forex trading tips to help you in your trading.

1. Know when to leverage

Leverage is a double-edged sword because it can amplify both gains and losses. However, knowing when to use it is key in potentially producing large returns. Many trades that you take will just keep you ticking along at a steady pace. However, it will typically be a handful of high-conviction trades that really boost your return each year. Knowing when to identify these opportunities is very important. In the FX markets, an apt time to leverage a position is when some significant and unexpected news is released. For example, a surprise interest rate announcement or a political election that surprise the markets. The bigger the event and the bigger the surprise, the better it is to use leverage with the trade. At the moment, one of the key awaited decisions is the NAFTA agreement. A surprise announcement that the US is pulling out of NAFTA and that a deal is not going to be materialised would weaken the Mexican peso and the Canadian dollar, thereby providing a high-conviction opportunity to leverage a position in response to this news. A historical example of an appropriate time to use leverage would have been when the Bank of Japan issued a quantitative easing (QE) programme in April 2013, which pumped a huge amount of money into Japan’s economic system devaluing the JPY. Fundamental analysts’ expectation of the effect of the Bank of Japan’s QE programme was that price on the USD/JPY chart would reach 110 and it did, around 14 months later. This example alone shows not only the impact of monetary policy on a currency but also when it is a suitable time to use leverage.

2. Never let a trade turn into an investment

Seriously, don’t do it. Now although it can be good to use leverage at certain times, never use so much leverage that you have turned a trade into an investment. When the Swiss National Bank removed their peg from the 1.2000 price on the EUR/CHF, many people were caught out. Many individuals were badly affected by the collapse of the floor for the simple reason that they had allowed a trade to turn into an investment. Many traders had been scalping bounces off the 1.2000 floor area and, for a while, it worked very well. However, some traders relied too heavily on the bank to protect the floor. Eventually, the SNB could not hold the floor and when they pulled the floor, the results were devastating. Those traders who had turned their trading accounts into an investment account, through overleveraging, lost all their money in the blink of an eye. Ouch! See the weekly chart below to see the size of the fall.

3. Preserve capital during slower market times

Overtrading is an easy trap to fall into. “Oh, look at that bounce off the 200MA, I could short that.” “I didn’t notice that price is sat on the 100MA on the GBP/USD pair. I could just take a speculative long here.” Trading on technicals alone can quickly become a habit that leads to overtrading. Overtrading will quickly drain your account as spreads, swaps, and slippage all add up against you. In the quiet times, preserve your capital and don’t trade simply for trading’s sake. Remember that nothing can, at times, be the most profitable thing you can do.

4. Always know when key data is going to be released

You see a great news story and the price is in a great technical place. You buy your instrument and then, 20 minutes later, you see that you were stopped out on a large spike. You forgot to check the news and some top-tier scheduled data was released. It is a very good idea to find out ahead of time when any significant data or news relevant to your instrument is going to be released.

5. Always have a fundamental bias for your trade

One of the traps that beginner FX traders fall into is that of overreliance on the technicals. The search for the holy-grail system is a compelling feeling that most traders have been through at one stage of their trading career. Weekends spent backtesting, sore eyes, switching between different systems, and then listening to self-proclaimed ‘trading gurus’, urging you to become their ‘disciples’. Technicals give you the ‘wheres’ of your trade. Where to place your stops and your exits. However, it is knowing the fundamental picture which tells you why you should place your trade. So, for example, recently in August 2018, the Reserve Bank of New Zealand adjusted their forward guidance and set themselves on a lower for longer rate path. The NZD was instantly sold and going short on the NZD was the obvious trade to take. All long NZD signals should have been ignored on this RBNZ release. Allow the fundamentals to give you your bias and then, once you have your fundamental picture, use your technical analysis to set up your trade.


HYCM Lab is a financial analysis source that provides regular insights on how global news affects the markets including forex, commodities, stocks, indices, and cryptocurrencies*. Run by the HYCM team, it equips traders with everything needed to make informed trading decisions.