Forex has caused large losses to many inexperienced and undisciplined
traders over the years. You need not be one of the losers. Here are
twenty forex trading tips that you can use to avoid disasters and
maximize your potential in the currency exchange market.
1. Know yourself. Define your risk tolerance carefully. Understand your needs.
To profit in trading, you must make recognize the markets. To
recognize the markets, you must first know and recognize yourself. The
first step of gaining self-awareness is ensuring that your risk
tolerance and capital allocation to forex and trading are not excessive
or lacking. This means that you must carefully study and analyze your
own financial goals in engaging forex trading.
2. Plan your goals. Stick to your plan.
Once you know what you want from trading, you must systematically
define a timeframe and a working plan for your trading career. What
constitutes failure, what would be defined as success? What is the
timeframe for the trial and error process that will inevitably be an
important part of your learning? How much time can you devote to
trading? Do you aim at financial independence, or merely aim to generate
extra income? These and similar questions must be answered before you
can gain the clear vision necessary for a persistent and patient
approach to trading. Also, having clear goals will make it easier to
abandon the endeavor entirely in case that the risks/return analysis
precludes a profitable outcome.
3. Choose your broker carefully.
While this point is often neglected by beginners, it is impossible to
overemphasize the importance of the choice of broker. That a fake or
unreliable broker invalidates all the gains acquired through hard work
and study is obvious. But it is equally important that your expertise
level, and trading goals match the details of the offer made by the
broker. What kind of client profile does the forex broker aim at
reaching? Does the trading software suit your expectations? How
efficient is customer service? All these must be carefully scrutinized
before even beginning to consider the intricacies of trading
itself.Please refer to our forex broker reviews to find a reliable broker that suites your trading style.
4. Pick your account type, and leverage ratio in accordance with your needs and expectations.
In continuation of the above item, it is necessary that we choose the
account package that is most suited to our expectations and knowledge
level. The various types of accounts offered by brokers can be confusing
at first, but the general rule is that lower leverage is better. If you
have a good understanding of leverage and trading in general, you can
be satisfied with a standard account. If you’re a complete beginner, it
is a must that you undergo a period of study and practice by the use of a
mini account. In general, the lower your risk, the higher your chances,
so make your choices in the most conservative way possible, especially
at the beginning of your career.
5. Begin with small sums, increase the size of your account through organic gains, not by greater deposits.
One of the best tips for trading forex is to begin with small sums,
and low leverage, while adding up to your account as it generates
profits. There is no justification to the idea that a larger account
will allow greater profits. If you can increase the size of your account
through your trading choices, perfect. If not, there’s no point in
keeping pumping money to an account that is burning cash like an furnace
burns paper.
6. Focus on a single currency pair, expand as you better your skills.
The world of currency trading is deep and complicated, due to the
chaotic nature of the markets, and the diverse characters and purposes
of market participants. It is hard to master all the different kinds of
financial activity that goes on in this world, so it is a great idea to
restrict our trading activity to a currency pair which we understand,
and with which we are familiar. Beginning with the trading of the
currency of your nation can be a great idea. If that’s not your choice,
sticking to the most liquid, and widely traded pairs can also be an
excellent practice for both the beginner and the advanced traders.
7. Do what you understand.
Simple as it is, failure to abide by this principle has been the doom
of countless traders. In general, if you’re unsure that you know what
you’re doing, and that you can defend your opinion with strength and
vigor against critics that you value and trust, do not trade. Do not
trade on the basis of hearsay or rumors. And do not act unless you’re
confident that you understand both the positive consequences, and the
adverse results that may result from opening a position.
8. Do not add to a losing position.
While this is just common sense, ignorance of the principle, or
carelessness in its employment has caused disasters to many traders in
the course of history. Nobody knows where a currency pair will be
heading during the next few hours, days, or even weeks. There are lots
of educated guesses, but no knowledge of where the price will be a short
while later. Thus, the only certain value about trading is now. Nothing
much can be said about the future. Consequently, there can be no point
in adding to a losing position, unless you love gambling. A position in
the red can be allowed to survive on its own in accordance with the
initial plan, but adding to it can never be an advisable practice.
9. Restrain your emotions.
Greed, excitement, euphoria, panic or fear should have no place in
traders’ calculations. Yet traders are human beings, so it is obvious
that we have to find a way of living with these emotions, while at the
same time controlling them and minimizing their effect on our lives.
That is why traders are always advised to begin with small amounts. By
reducing our risk, we can be calm enough to realize our long term goals,
reducing the impact of emotions on our trading choices. A logical
approach, and less emotional intensity are the best forex trading tips
necessary to a successful career.
10. Take notes. Study your success and failure.
An analytical approach to trading does not begin at the fundamental
and technical analysis of price trends, or the formulation of trading
strategies. It begins at the first step taken into the career, with the
first dollar placed in an open position, and the first mistakes in
calculation and trading methods. The successful trader will keep a
diary, a journal of his trading activity where he carefully scrutinizes
his mistakes and successes to find out what works and what does not.
This is one of the most importance forex trading tips that you will get
from a good mentor.
11. Automate your trading as much as possible.
We already noted the importance of emotional control in ensuring a
successful and profitable career. In order to minimize the role of
emotions, one of the best of courses of action would be the
automatization of trading choices and trader behavior. This is not about
using forex robots, or buying expensive technical strategies. All that
you need to do is to make sure that your responses to similar situations
and trading scenarios are themselves similar in nature. In other words,
don’t improvise. Let your reactions to market events follow a studied
and tested pattern.
12. Do not rely on forex robots, wonder methods, and other snake oil products.
Surprisingly, these unproven and untested products are extremely
popular these days, generating great profits for their sellers, but
little in the way of gains for their excited and hopeful buyers. The
logical defense against such magical items is in fact easy. If the
genius creators of these tools are so smart, let them become
millionaires with the benefit of their inventions. If they have no
interest in doing as much, you should have no interest in their
creations either.
13. Keep it simple. Both your trade plans and analysis should be easily understood and explained.
Forex trading is not rocket science. There is no expectation that you
be a mathematical genius, or an economics professor to acquire wealth
in currency trading. Instead, clarity of vision, and well-defined,
carefully observed goals and practices offer the surest path to a
respectable career in forex. To achieve this, you must resist the
temptation to overexplain, overanalyze, and most importantly, to
rationalize your failures. A failure is a failure regardless of the
conditions that led to it.
14. Don’t go against the markets, unless you have enough patience and financial resilience to stick to a long term plan.
In general, a beginner is never advised to trade against trends, or
to pick tops and bottoms by betting against the main forces of market
momentum. Join the trends so that your mind can relax. Fight the trends,
and constant stress and fear will wreck your career.
15. Understand that forex is about probabilities.
Forex is all about risk analysis and probability. There is no single
method or style that will generate profits all the time. The key to
success is positioning ourselves in such a way that the losses are
harmless, while the profits are multiplied. Such a positioning is only
possible by managing our risk allocations in accordance with an
understanding of probability and risk management.
16. Be humble and patient. Do not fight the markets.
Recognize your failures, and try to accommodate them if they can’t be
eliminated completely. Above all, resist the illusion that you somehow
possess the alchemist’s stone of trading. Such an attitude will surely
be ruinous on your career eventually.
17. Share your experiences. Follow your own judgment.
While it is a great idea to discuss your opinion on the markets with
others, you should be the one making the decisions. Consider the
opinions of others, but make your own choices. It is your money after
all.
18. Study money management.
Once we make profits, it is time to protect them. Money management is
about the minimization of losses, and maximization of profits. To
ensure that you don’t gamble away your hard-earned profits, to “cut your
losses short, and let profits ride”, you should keep the bible of money
management as the centerpiece of your trading library at all times.
19. Study the markets, fundamentals, and technical factors leading the price action.
That we have placed this so low in the list should not surprise the
experienced trader. Faulty analysis is rarely the cause of a wiped-out
account. A career that fails to begin is never killed by the
consequences of erronerous application or understanding of fundamental
or technical studies. Other issues that are related to money management,
and emotional control are far more important than analysis for the
beginner, but as those issues are overcome, and steady gains are
realized, the edge gained by successful analysis of the markets will be
invaluable. Analysis is important, but only after a proper attitude to
trading and risk taking is attained.
20. Don’t give up.
Finally, provided that you risk only what you can afford to lose,
persistence, and a determination to succeed are great advantages. It is
highly unlikely that you will become a trading genius overnight, so it
is only sensible to await the ripening of your skills, and the
development of your talents before giving up. As long as the learning
process is painless, as long as the amounts that you risk do not derail
your plans about the future and your life in general, the pains of the
learning process will be harmless.
