How to Set the Right Targets in Foreign Exchange Trading - Regal Core Markets

 

What is the likelihood of investors profiting from foreign exchange trading? It is difficult to quantify the probabilities. There are many factors at play. This question is similar to deciding whether to trade stocks or forex. The right answer depends on what an investor wants to achieve.

However, when it comes to hitting targets in foreign exchange trading, it is possible to come up with sensible strategies without the specifics convoluting the process. Investors can formulate plans and contingency measures to reduce the risks, improve the chances of making profits, and minimize or avoid losses.

 

Setting targets

Before going into the main discussion, a discussion on the need to set trading targets is in order. Why is it necessary to do this? What impact does this have on forex trading success?

Setting trading goals is advisable to establish and stick to a trading plan. It leads to a process-oriented approach in trading instead of focusing too much on the results. This may sound counterintuitive, but it is not. It is important to be mindful of the trading outcomes, but obsessing over the results does not help in setting up a good strategy. This is particularly true among new traders. A process-centric way of trading helps hone risk management and technical analysis skills.

Additionally, setting trading targets leads to consistent trading. Consistency is necessary to avoid overtrading or undertrading. As a Trading Education guide puts it: “if you do not have a consistent forex trading plan, you will lose money and eventually fail as a forex trader.” Successful traders typically grow their wealth through a consistent series of profitable trades, not with a single or few ones.

Emphasis on the process

Again, the targets should be about the process, not the results. Setting a 1% per day return on an investment, for example, may sound logical, but it is not something many will find sustainable in the long run. Over time, this target becomes difficult to achieve, forcing a change in strategies every so often. The foreign exchange market is dynamic and is unlikely to produce opportunities linearly, which means some trading periods will appear good while others will leave much to be desired.

Examples of process-focused targets are the reduction of risks by choosing the correct lot size and the swift execution of trade by setting an optimum stop loss level. Instead of aiming for a 10% profit, it is better to plan the level of trading capital to roll over the next months or quarters. Traders have no control over the potential profits, but they can decide on how to maintain their capital.

Even algorithmic trading focuses on the process, not arbitrary profit figures or percentages in the trading outcomes. It employs strategies that monitor market and related developments that could impact the exchange rates. It focuses on speed and latency in responding to market fluctuations. “As algorithmic trading grows in importance, the focus for many participants is on speed, fairness, transparency,” writes a white paper on algorithmic trading in the global forex market.

The auto hedging strategy in algorithmic trading, for example, is designed to minimize a trader’s exposure to risks. Similarly, the algorithmic execution strategy works by executing a process-based objective such as the reduction of market impact or the speedy execution of trade. All of which do not involve any fixed result or profit level.

Achieving targets

One of the most crucial factors in achieving trading targets is the selection of the right trading platform. It is essential to choose a platform that provides all the up-to-date information and tools necessary to conduct a well-informed trade. These include market insights and proven trading strategies that can be configured according to a trader’s preferences.

There is no single trading platform that can address the needs and preferences of all kinds of traders. The market analysis and core forex strategies cited in a research by Regal Core Markets reveal the need for different strategies for different approaches in trading. “In FX trading, there are countless different strategies, each with their own strengths and weaknesses,” the research writes. That is why it is important to be prudent in examining and choosing a platform.

In addition to choosing the right platform, it is important to monitor and measure progress. Some platforms provide the tools to do monitoring and gauging conveniently. For those that do not have such functions, it is advisable to have a trading checklist and journal. These allow traders to maintain focus on what proper trades look like and spot weaknesses or areas that need improvements. It also helps to have a scorecard for each completed trade.

Moreover, it is advisable to look at best practices. Find out how other traders go about with their money management strategies, protective stop loss orders, on-time profit-making trade closing, position holding, and risk management. It is possible to learn all of these based on an investor’s own experiences. However, the learning process will be considerably faster by using insights from experienced traders.

This article does not intend to make it appear that outcome-based targets are totally useless. However, process-centric goals are usually better. This is an idea shared by most forex trading advisers. Results-oriented targets generally only work for highly experienced traders, since they are already familiar with how the outcomes tie with the processes they adopt.