Foreign exchange market (Forex) attracts more and more new traders worldwide offering great opportunities and quite achievable real benefits. But profits that come with the trading can truly be gained only through significant experience, enormous self-discipline and really hard work.
Some useful tips to get around the pitfalls of foreign exchange market and to reveal the potential of forex beginners are given below.
1Get basic Forex knowledge
First of all, it is crucial to have a basic understanding of currency markets and macroeconomic variables that drive market fluctuation. People become successful traders by learning how to stay successful over a long period of time. Forex trading experience results from the time spent on training, knowledge, and understanding ones have of the currency markets. Surely the final goal is to reach profitability. But to get there, beginner will have to learn hard above all. Luckily, everyone looking for useful knowledge can easily find it in Forex Guidebook.
2Set achievable trading goals
After you get the basic Forex knowledge it’s a must to set realistic trading goals. Once you know what you want from trading, you must systematically define a timeframe and a working plan for your trading career. Having clear goals will make it easier to stop efforts in the case when the risks / return analysis don’t guarantee a profitable outcome.
3Define clear strategy
The next essential step for Forex beginners is to define trading strategy that works for them, something that suits their needs. It doesn’t matter whether you’re a technical trader, or a fundamental trader, or a combination of both. Most importantly work on strategy that doesn’t take all day and night to do. What’s the point in having a really good system that’s making you a lot of money but you’re sitting in your office round the clock glued to your charts? Make sure you find out what works for you, what suits your style and your personality as a person and as a trader.
If you don’t have enough time to monitor the markets round the clock, you’d better manage your risk and protect potential profits through stop and limit orders, getting you out of the market at the price you set. Trailing stops are especially helpful since they track your position at a specific distance as the market moves, helping to protect profits should the market reverse.
5Never risk all money you have
Forex Beginners should learn how to manage their risks. Your deposit is your workhorse, and if you lose it, you are out of business. This is the reason why you should not risk more than 5% of your deposit per trade under any circumstances. Always keep in mind your money management ratio or risk /reward ratio for each trade you take. If a trade has 100 pips of potential and you enter the trade with a 30 pip stop at the outset, then the money management ratio is 100/30 or 3.3 to 1 positive. The higher the money management ratio is the better you do. Everyone has losses, it happens. But even with a 50% success rate and the proper money management ratio your account will grow.
6Control your emotions
The truth is that Forex Beginners are more likely to get emotional. They may feel so sure about a certain trade that they will go “all in” and forget about taking proper risk control. Emotional traders think of money as their safety-and-power-provider, and when they lose money, that they are often rash and erroneous. Forex Beginners are often paralyzed by failures instead of by capping their losses and getting out of the losing trade quickly and moving on to the next one. In order to emotionally detach yourself when trading, begin trading small amounts of money. And further, you can raise the amount of money you trade, gradually expanding your comfort zone.
7Evaluate your performance on monthly basis
Evaluate your trading skills by the end of a month or year. Do not judge about your trading success or failure on a single trade. You need to prove yourself over a long period of time. Do not think about the end result every time you close your positions. Make a number of trades, and then analyze the end result. A winning strategy may give you 10 loosing trades in a row with -15 pips loss, and one successful trade with +300 pips profit per month, and over the period of a year this strategy can yield +2000 pips net profit. But if you judge it within the bad days, you may give-up too early.
8Choose reliable Forex broker
Choosing the right broker is half the battle. It is impossible to overestimate the importance of this choice. So, what you need to pay attention to:
- Take your time to check reviews and recommendations.
- Make sure the broker you choose is trustworthy and suits your trading personality.
- Remember, that a fake or unreliable broker is able to invalidate all your gains. 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 broker aim at reaching?
- Does the trading software suit your expectations?
- How efficient is customer service?
- All these details must be carefully investigated before even contacting the broker.
9Get and analyze your trading journal
One the most effective tips for better trading is not only to get a trading journal, but also to read and act on it. The purpose of a trading journal is to build confidence in your trading system. When you trade with confidence you are able to trade objectively. By taking detailed notes about your trade setups, emotions as you enter, manage, and exit the trade, accompanying market activity, and profit/loss, you are able to break down which things are working and which are not.
10Use higher time frames
One more thing that any trader can do to improve their trading without much additional efforts is switching from trading the lower timeframes to the higher ones. Many traders have the misconception that they would find more trading opportunities on a lower timeframe and can earn more money. But the reality is the exact opposite. By “higher time frames”, we mean the 4 hour time frame and above, any chart less than a 4 hour chart is considered a “lower time frame”, 1 hour charts can be useful to more experienced traders for refining their entry or exit, but they are still considered a lower time frame and should be avoided by beginning traders.