Forex Trading Essentials

forex tradingForex traders who are really serious about their profession and have a desire to hone their trading skills believe that knowledge is power. They will actively look for various sources of information, in the belief that any new thing they learn will help them improve how they trade – minimizing risks while at the same time maximizing gain.

If you are a beginner trader, gaining forex trading knowledge should be at the top of your priorities. Only by learning and absorbing good information can you become a competent trader.

Some people think that Forex trading is like going to the casino – either you’re lucky or you’re not. This is far from the truth. Forex trading is a science that involves in-depth analysis and a deep understanding of market forces and economics. Only ten percent of Forex traders are successful on a consistent basis The following are ten essentials of forex trading that will guide you as you hone your trading skills.

    • Most of your time should be spent studying the 15 minute chart. The movements in this short time frame will be more predictable and you’ll be able to hone your chart-reading skills better. Don’t spend time on the five minute chart because it will only confuse you.

  • Don’t be greedy. This is sage advice especially for new traders who think they can go in on their first few weeks and be able to rake in profits. Be conservative and try to carve out little gains to build confidence and also learn the nuances of the market. Twenty pips at a time is a very good FOREX trading strategy.

  • Don’t rely on the MACD. Many traders use the MACD (Moving Average Convergence-Divergence) as an instrument that will tell them the right signals on when to buy or sell. But the truth of the matter is that it is not a useful trigger.

  • Always protect yourself by using regular stops. The Forex market has a tendency to just suddenly move at a fast clip. It will move so many pips before you even have time to react. It’s a good thing if the movement favors your position. But if it doesn’t then goodbye investment. In order to protect yourself, you should always set up regular stops. About 20 to 30 pips per stop is good, conservative practice. Remember that you will usually lose three out of every ten trades so it is imperative that you keep your losses to the minimum.

  • Use trailing stops. You should always have a conservative view when it comes to the core of your investment. One of the best ways to do this is to use trailing stops as you move up and get more Forex profits. This way you will always actively protect yourself from losses.

  • Take notes. You can only learn if you study the past – in this case, your previous transactions. Always keep a detailed log of all your trades – regardless of whether it was a good or bad trade. Study your logs and determine where you made a bad decision in your bad trades and what were your correct decisions in your good trades. You’ll learn a lot from this exercise. You’ll also find out what your trading weaknesses are, which you can then correct in the future.

  • There’s no room for gut feel in Forex trading. Don’t ever enter into a trade just because you “feel” like the market is going to move favorably to your intended position. Only trade based on the strength of your analysis and after you’ve seen the indicators you’re looking for.

  • Forex trading is serious business. This is not a game. If you can’t be serious about this form of investment then you shouldn’t even start trading.

If you have any questions, please ask below!