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High or low frequency of trading?

The biggest part of retail Forex traders think that being a professional trader means constant attention to the charts all day. In fact this is no true. High frequency trading may easily distract you and actually lead you to stress and frustration. The reason is simple – too many trades increase the chance of being wrong. As we well know, being wrong or right does not really matter if your broker execution is not fair during certain periods such as news releases. Therefore the factors affecting your trade may be numerous and diverse which means you must only trade when you have 100% certainty of how and when to trade.

 After you read this article tell me how it contributed to your forex trading knowledge? Was it useful for you?

I need to say that in this article we are referring to human traders, not robots. High frequency trading machines are of course efficient and effective in executing their trades because they follow certain algorithms. A human person can hardly keep on with such schedule. Moreover human emotions will probably be an obstacle for executing the trading strategy.

The quickest way of improving your forex trading is to stop trading too much. A person who is constantly watching the screen will most likely click on it. Sometimes, people do not really estimate the value of their hard earned money now taking the form of numbers and currencies in their forex accounts. Always look the chart for a while and make decisions which are based on real analysis. The bigger the picture you analyze the higher the chance of getting well informed decision. This is not necessarily the right decision but at least it is taken because of some reason and not just like that.

How to be 100% sure?

Nobody can be sure 100% of something, especially in the Forex Market. However, what you can do is to minimize the chances of being wrong and gain some experience with that. Sooner or later you will find your edge (when to expect certainty). When you find your edge it will become easy to ignor the market when you don’t feel certain. That would be a great discipline and one should follow such trading manner to maintain a professional level of trading.

Well, until now I was referring to minimizing the number of trades for achieving success but there is one more thing to consider and it is as important as the frequency of trading. This is your position size. If you trade one per day but risking your entire account it will not make any sense. Obviously that will bring you to the same result as if you were trading smaller amounts but with high frequency.

Trading more than 2% of your account in a single trade is usually risky but it depends on your account size too. If you manage a 10 million dollars account, I would say that 0.8% is the maximum to invest in a single trade and sometimes much lesser. Conversely, if you play with a $100 account risking $50 will make sense. There is no a defined correlation between the amount you risk in a trade and your account size. Each trader should find this equation for himself and according to his trading style.

Generally, you should manage your risk by creating a set of rules and strictly follow them during the course of your trading. Obeying the rules is probably the most important factor for your successful trading career.

Focus on quality not quantity

This sentence is maybe true for many businesses but I would say that it is right on the spot for currency trading. As already discussed in the beginning trading too much can only lead to increasing the chance of being wrong. Here I would like to make a quick note: increasing the chance of being wrong is not the only possible outcome. The chance of being right is also increased. However, if you rely on chances you turn your trading into gambling and this is not the way you should follow. Feeling uncertainty will create immense stress and you will quickly end you trading career.

That is why it is best practice to only focus on long term high quality trades for which you feel high level of certainty. That would be the only possible way surviving on the forex market without experiencing bad downturns.

Final thoughts

High frequency trading is usually referred to as scalping can be successfully executed by robots and not by human persons. The reason is that emotions play big roles in our daily activities and how we perform them. Moreover, scalping robots are identified by forex brokers and some filters may be applied to your execution – slippage, re-quotes, etc. Why making your life difficult when you can trade on high quality and well informed decisions? Remember, the long term trading is what will keep you on track. Being too risky in Forex usually brings you to the situation of having 0 dollars in your account.

Guest post by Peter Traychev.

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