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How to Crack Forex Trading in India?

Feb 5, 2021 4:50 AM 3 min read

When it comes to "currency trading", the first thing that comes to mind is probably the money exchanges you visit whenever you are preparing for an oversea trip. You physically exchange your local currency for the currency you need. However, that is not what currency trading actually entails.

Instead, we are referring to forex trading, where you can sign up with an online broker and begin buying and selling foreign currencies with the goal of making a profit off the price difference.

FYI: It is the kind of trading that prominent trader George Soros did that broke the Bank of England in the '90s that pocketed him $1bn (aka Black Wednesday)!   

Before we dive into the traits of successful forex traders, if you wish to kickstart your FX trading journey, you may want to refer to the guide to forex trading in India

What is Objectivity?

Forex trading is a highly volatile business with overwhelming numbers of indicators, charts, ratios, prices and news developments that will influence your decision making. To be objective means you have to assess, think and act rationally at every stage of the trade and not act out of greed or impulse. No matter how tempting it may be.

One way the pros ensure this is by creating a trading plan, which illustrates which signals are relevant and which to ignore. When to enter and when to exit. Suppose the price falls by 30%, what should you do next - should you sell, hold or average down by buying more at a lower price? Also, how much percentage of your trading capital should you allocate per trade idea? Knowing what not to do is equally important compared to what you need to do.

Once you have the trade plan laid out, the next thing to do is to follow it strictly and not meddle with it in the middle of the trade just because it doesn’t seem to work. You should only reflect and adjust your trade plan after the session ends. 


What is the Circle of Competence?

The idea of circle of competence comes from Warren Buffet and it's something he learned from the father of value investing, Benjamin Graham. It’s an important idea that extends to other kinds of trading too. The financial market is a highly competitive field; your competititors would be some of the smartest people you'd ever come across. The way you can have a lasting chance of success is to find out your circle of competence. Approach trading from a position of strength and competence rather than weakness.

Some people are good at macroeconomic analysis - like interest rate, government policies, trade tariffs etc. And others are good at reading market sentiment from order flows. Few are good at utilising advanced mathematics, data mining and machine learning. Whatever your trading strategy may be, it must suit your unique strengths and personality.

To find out what you are good at, look at your past results. Ask yourself what is something that you find easy and effortlessness that others struggle with. What are some things for which you find yourself willing to risk time, effort or even money? You may not get a direct answer, but it’s a good starting point. 


Avoid Risk of Ruin

Forex trading, whether it is CFD, futures, options or swaps, involves leveraged products, meaning you are trading on a high leverage ratio or low capital requirement. A 20:1 leverage ratio means you can leverage up to 20 times your trading capital, which boosts the same to $20,000 with just only $1,000 as deposit.

But margin trading is a double-edged sword: If the security value goes up by 10%, you would be making 100% from your capital of $1,000. However, if the value goes down by 10%, the $2,000 loss will not only wipe out your account but also put you in $1,000 of debt. When that happens, you would receive a margin call to increase your deposit or you would be forced to exit your trade.

All successful traders know the importance of risk management and capital management. They always avoid losing their entire capital i.e financial ruin, because they know that it is normal to have losing weeks, days or even months. But if they stay in the game long enough, their skills and trading strategy would eventually play out and be rewarded by the financial market.


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