Forex Data – What Separates the Trading Professional From the Novice Trader

If you hope to become a professional Forex trader you need to understand it is not a game… it is a business. There are risks involved with Forex trading, but also lots of potential rewards at the same time. A trading professional will be able to interpret Forex data and obtain more winning trades than a novice trader.

There are some basic requirements to knowing and understanding how the Forex market works. At the core, it is a simple case of buying a currency at one price and selling it at another price where the difference in price makes you a profit. Other factors are added into the mix and it can appear to be a complex system… it isn’t. The system is still simple and the same rule applies – buy a currency at one price and sell it at another price that makes you a profit.

In saying that, the risk is always present that a currency can move in the opposite direction than you want. This is very important to understand as you are not able to directly influence the market, so you must know how to understand factors that are likely to influence currency movements. This is how professional Forex traders distinguish themselves from novice traders… they use their knowledge to set realistic targets and evaluate risk involved to reduce potential losses.

A trading loss is an accepted part of trading on the Forex market and has to be understood if you want to make a profit. A Forex professional will use a risk/reward ratio to determine acceptable losses and in the long-term, if winning trades equal or exceed losing trades, the professional trader will always make a considerable profit.

An example of a risk/reward ratio of 1:2, where every $1 risk can return $2 reward, makes use of stop losses to limit potential losses in a trade. For example, if you placed a stop loss of $100 and used a 1:2 reward ratio, it means the maximum loss per trade would be $100 and the maximum gain per trade would be $200.

If over the course of 1 month you placed 100 trades and half of the trades were successful and the other half unsuccessful, you would still make an overall profit. Placing a monetary value into this example would be as follows:

Winning trades result in 100x50x2 = $10,000

Losing trades result in 100x50x1 = $5,000

Gross Profit for the month = $10,000 – $5,000 = $5,000

Even with losing 50% of your trades in a month, you can still make a decent profit. However, it does require you remain prudent and not become greedy – as excessive greed will be your ultimate downfall. Make sensible trades after identifying any trends or accounting for any forthcoming news announcements and you should easily be able to obtain more than 50% winning trades in a month.

If you use a sensible risk/reward ratio and only ever invest with disposable income, the chances of making a profit from Forex trading are significantly improved. I cannot stress this enough, but whenever you are trading on the Forex market you should only ever trade with disposable income… if you trade with money you can’t afford to lose, you have already lost as your judgment is impaired due to needing that money to deliver a return on investment.

Overall, to trade Forex like a professional you should:

1. Evaluate risk

2. Use only disposable income

3. Understand trends and how news can influence currency movement

4. Accept your lost trades as part of trading

5. Never be greedy

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