How to Trade the Forex Market With a Peace of Mind

ByPeter S Park

Expert Author Peter S Park

If you are currently trading currencies in the Forex market, or are considering it, I'd like to help you not only to become a better trader but also to trade with a peace of mind by offering you this simple advice: Be a long-term trader with a long-term gain in mind.

I believe that in order to be a consistently successful and profitable trader, you absolutely must trade for the long term. Short-term traders such as day traders and scalpers may have their success in the short run, but sooner or later they are bound to be outperformed (to put it mildly) by long-term traders, as they are at a great disadvantage against the long-term traders.

This is because short-term traders tend to cut their losses too early, usually after a day or so, not taking into account the possibility that the price might come back and even move in their favor in the future. Yes, it is a responsible and prudent thing not to allow your loss to become too big and uncontrollable. But at the same time, when you close out a losing position, you do have to realize that the loss is final and it cannot be recouped in the sense that you can't go to the broker and say, "Oh, I didn't mean to close out the position. Can I have my money back?"

On the other hand, if you choose to trade for the long-run, then you can always hedge your position after a loss reaches a certain level and wait for the price to return to the current level, for another chance at making profit with the original trade. That way you don't have to "realize" your loss like the short-term trader does. This is precisely the advantage the long-term trader has over the short-term trader.

Historical data strongly support this. As an exercise, pick at random any price level for any currency pair in the past 10 years or so. Looking at a monthly or weekly chart, try to count how many times the exchange rate returned to this arbitrary level after moving away from it. You might be surprised to see that more than 90% of the time the price "regresses" to the original level eventually.

Knowing this long-term tendency of the exchange rates, the long-term trader can trade with a much greater peace of mind than the short-term trader. It also serves to support the prevalent view among experienced traders that "Forex is not a get-rich-quick scheme, but slow and steady wins the race."

When I first started out as a trader, I too tended to trade with only a short-term outlook and pretty soon failed miserably because I lacked the patience necessary to become a long-run trader. I have learned my lesson now, and I know for a fact that if you are really serious about making currency trading your full-time business, then you can't afford to be a short-run trader. You have to be a patient, long-run trader who trades with a peace of mind.

Peter S. Park is a professional currency trader and educator. He is also the author of the blog Forex Training Online. For more information on how to be a consistently profitable long-term trader, please visit his website and subscribe to his posts.