Shares Magazine
September 28, 2006

By: Marilyn McDonald

I love magazines – from Wired to Populate Science to Bloomberg Markets – but I especially love the silly girl’s magazines. I subscribe to several of them and once a month I race to the mailbox to see what stay-up-late reading material the postman has delivered. This month’s stash was focused mainly on dating and it struck me how much trading is like dating. So here I have created my own Top Tips for Dating (the currency market).

Be Prepared

If you really want to succeed in the trading game, decide what you are looking for, do your own research and be ready to commit to trading. Half-heartedness won’t work. Also, you need to be prepared for some let-downs along the way. Try not to take trading too seriously.

Get Your Act Together

Begin a regime of study. Join a trading group, read trading magazines and talk to other traders. Though it will not help you place a trade, you will begin to feel a million times more confident the more you know.

Go Shopping

Treat yourself to some new analysis tools. These don’t have to be expensive. In fact, most brokers will give you what you need for free.

Have a good think about your trading goals and time-frames

Do you see yourself retired in ten years? If you do, then approach trading accordingly. If you are more laid back and don’t plan on trading aggressively, then map out your goals. Are you simply trying to make more then your pension plan or deposit account?

Sort out your confidence levels in advance

By following the first four tips, you will feel better and be more focused. Boost your confidence, avoid negative friends and surround yourself with other traders (online and in real life if you can manage it).

Choose the currency pairs you have a good chance of trading

If you are after a risky date then trade the more volatile pairs. The volatile pair will require more vigilance and attention. If you don’t give them that, then they will probably just take your money. If you are looking for a calmer, more reliable trading record, you may wish to trade the pairs that are more stable. They may not be as attractive initially but you may have longer term success with a calmer currency pair.

Meet the Friends and Family

Find the pairs that have correlating or diverging prices. There are pairs that will follow each other (or do the exact opposite). It is also worthwhile investigating what influences your pair. Is it the price of crude or gold? Does the pair react strongly to fundamental news announcements or is it rarely fazed by those? Knowing how outside factors influence your chosen pair will help you gauge the reaction to any given event.

Be familiar with your environment

What is the range your pair likes to trade within? Can you look at a price and instantly see if it is high or low for that pair? Understanding your environment can make it easier to predict your pair.

Don’t trade too many pairs at once

The danger here is that you will mix up the details. It is easier to have an understanding of one or two chosen pairs. If you spread yourself too thin, you run the risk of making basic mix-ups and causing yourself nothing but heartache.

Analyze the playing field

Work out in advance what trading scenarios will appeal to you and place the pending orders with profit targets and stop losses. By carefully analyzing the playing field, you are giving yourself an advantage in the markets and not just picking up a trade because it seems like a good idea at the time.

Be able to pay your way

Come into the trade with a bit of money in your back pocket because testing and learning in the trading game can be a little expensive. Most brokers will offer micro lots, which will help, but you don’t want to open a position and then face a margin call because you have committed every penny to a trade. Leave yourself a little maneuvering room. It could just pay off.

Easy does it

Take time off from trading occasionally if it is not going well or you are suffering from trading fatigue. Trading is a marathon, not a sprint, so recharging your batteries and keeping confidence and optimism levels high is an absolute must. Trade in phases if necessary.

I think the bottom line is to enjoy your trading for what it is. It is taking a risk and watching to see if your analysis was correct. The fact is, trading is interesting and while you might not get into the market to learn about economics and world events, you may just walk away with a world-class education.