Did you know that Forex is the world’s largest market in terms of daily transaction volume? On top of that, it’s nearly the most liquid market?
Many people choose Forex trading over trading on the NYSE for a number of reasons. Namely, the fact that the market is open 24 hours a day and you can make use of farm more leverage through Forex trading are two of the major appealing factors.
Are you thinking about Forex trading but aren’t sure where to start?
Let’s take a look at 8 Forex trading tips to get you started.
- Define Your Goals and Your Trading Style
The first tip for Forex trading for beginners is that you should define your goals. Some people might want to take a more conservative approach while others might want to use a trading style with an increased risk profile but more potential for reward.
Your trading style will also have to do with how much time you are able to commit to managing your positions. One person might choose to swing trade Forex, which means that they hold their positions for days or even weeks. However, some people might not be able to get a restful night’s sleep if they know that they have an open position in the market.
For those people, they might want to consider day trading. This is when you open and close a number of different positions within the same trading day.
If it is your goal to put funds into one trait that will appreciate over months, then maybe you should try out position trading. Consider your personality when you are deciding what kind of trading style to use, as a mismatch between your style and your personality will lead to losses and a lot of stress.
- Do Your Research Before Choosing a Broker and Trading Platform
It is essential to choose a reputable broker when you start trading on the foreign exchange. You will want to invest a significant amount of time into researching the difference between all of the different brokers.
You also need to make sure that the Forex trading platform offered by your broker is suitable for your style of analysis. For example, if you like to use MACD in order to help verify your trades, you should make sure that the broker’s platform has that capability.
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- Develop a Consistent Methodology
It is important that you develop a concept of how you make decisions in order to execute your trades. You want to do this before you enter any type of market as a trader. You will need to learn what kind of information is essential for you to make the right decisions in terms of when to enter and when to exit a trade.
Some people use technical analysis, while some solely rely on fundamental analysis. Many people use a combination of the two. Either way, you want to make sure that you are applying your methodology consistently and that it is adaptive in order to keep up with the constantly changing dynamics of a market.
- Plan Out Your Trades Ahead of Time
It is truly amazing how your psychology can change once you are in a trade versus how it was just moments before. For this reason and for others, it is a good idea to plan out your entry point and your potential exit points. As far as exit points go, this means coming up with a level at which you will take profit as well as a stop-loss where you will accept your losses.
Without a profit target, you could end up having a lot of money on the table and then watching it all fall away to eventually become a loss. In the heat of the moment, it’s easy to assume that a trade will continue going your way and forget about the analysis that you had done that justified entering the trade in the first place. Making a decision about where you think a good place to pull profit would be is absolutely essential before you make a trade.
Similarly, and perhaps more importantly, is the necessity of having a stop loss. A stop loss is a point where you will exit the trade at a loss in order to avoid losing more. Without a stop loss, you can get yourself in a situation where you are praying and hoping that the position turned around, and if it doesn’t, you can lose way more money than you ever meant to.
- Only Trade What You Can Afford to Lose
While there are certainly people who trade on the foreign exchange as their day job, you cannot expect to learn how to do so overnight. When you are first starting out, you should only be playing with money that you could afford to lose. This is because there is a very real risk that you could lose this money.
Never use money to trade in any market that you need in order to cover the living expenses and basic needs of you or your family. If you do not have any excess money at this point, then you probably should save up some money specifically for the purpose in order to safely trade.
It’s important to understand that you will have losses no matter what. It’s a good idea to train yourself to be psychologically prepared for small losses. Small losses can actually be viewed in a positive light when you realize that you are successfully managing risk.
- Analyze Your Trades After the Fact
When the market is closed on the weekend, it’s a good idea to analyze all of your trades. You can take a look at what you did well and what needs improvement. Going back over your trades after the fact can help you to grow and learn as a trader.
You also want to study weekly chart and keep up with the news to get a sense of how your trade might be affected or what moods you might make next week. Making a plan on the weekend is a great idea because you can be a lot more objective when the market is closed. This is when you will make your best plans, do you want to get into the habit of doing your planning when you can actively trade.
When it comes time to execute your trade, be patient and wait for your setup. Learning to be patient is an absolutely essential aspect of Forex trading for beginners.
- Keep a Printed Record
Every time you make a trade, print out a chart of the trade. Then you can list all of the reasons that you made the trade that can include both the technicals and the fundamentals that impacted your decisions. Mark the chart with your precise entry and exit points and take some time to figure out how you could improve the same trade next time.
It can also be a good idea to make relevant comments right on the chart. If there were any emotional reasons that you took the trade, be honest and think and write them down here. Whether you were anxious to, greedy, or on the verge of panic, he will want to be straightforward about your emotional reality at the time.
Successful Forex traders and traders in other markets are able to objectively view their emotional state. When they see that they are feeling greedy, anxious, or perhaps vengeful towards a trade that went wrong, they are able to be self-aware enough to walk away. Good trading decisions do not come from one of these extreme emotional states so it’s always better to keep your money out of the market at these time.
Look for patterns in your trades and the emotions that you experienced during them, as well. By analyzing your own performance, you will be able to continue the progress as a trader.
- Understand Trading Psychology
Speaking of emotions, it is essential to do some research into trading psychology. Things like fear of missing out, fear, greed, anxiety, and rage can all emerge when you are dealing with the high-stress environment of the market. Studying trading psychology should be just as important as learning about the market, as you will never be able to be successful if you don’t learn how to understand and master your emotions in relation to trading.
Forex Trading Tips: Research and Homework Is Key Before Trading in Any Market
There are a lot of reasons why a trader or investor might choose Forex over stock trading. No matter what market you decide to trade in, though, you want to make sure that you do your homework first.
Always do your due diligence even if you hear someone say something is a “sure bet.” If you don’t know how to do your due diligence, back up and study more before you get going. Trust us, you’ll be glad you did!
Did you find this article full of Forex trading tips interesting? If so, be sure to check out the rest of our blog for more fascinating and informative content!
