Forex Trading Tips for Beginners
Forex trading is one of the best ways to earn some residual income online. Whether you are looking to make an extra 1000 dollars per month or raise millions to finance a huge project, Forex trading is a viable option. As a Forex trader, you need to understand from the beginning that Forex trading requires learning, practice, and patience for you to succeed. The following forex trading tips for beginners outlined in this article can apply to experienced traders as well.
Start with a Demo Account
Many forex trading platforms offer demo accounts that operate as real accounts with the exception being you do not invest your money. Use the demo for at least a 2 months before opening a real account and make sure that you learn everything about trading during this period. Once you have executed about 20 trades and made a profit in at least 80% of these trades, then you can open a real account. Remember to start small when investing in a real account. 500 dollars is recommended as this gives you the margin you need to execute your trades while at the same time acting as a learning opportunity in case you make losses.
Learn to Use Stop Loss
Stop loss is an indication of the level of risk you are willing to take and can accommodate. Many traders fall for the temptation of trading without a stop loss. When your trade starts going against your prediction, you start hoping that something happens and the prices reverse so that you can close your trade. Unfortunately, this hardly happens and you end up losing almost all your capital. By using a stop loss, you determine in advance the amount of dollars you are willing to put to risk to make a profit. Also, by using stop loss, it enables you to hedge which implies executing one buy trade and one sell trade simultaneously on the same stock or currency pair. If the market reverses instantly, you can be sure to make a profit without losing your entire invested capital.
Be a Rational Trader
Forex trading requires that you should trade without involving any emotions. Take time to learn about all the market indicators and how they predict prices. If you are keen enough, you should be able to make predictions and trends about price movements after sometime. Use your predictions, knowledge on trends, expert predictions and information released by the historical calendars to execute your trades. If all indicators predict that price will increase and you have executed a buy trade, do not close your trade because of small losses. Naturally, the market is very volatile and can shift from time to time as prices keep adjusting but in the end, the predicted trend will prevail. Thus, learn to be patient enough with your trades. Do not close your trade because you just hit a profit and you are too excited, you need to pick your exits as carefully as your entries.
Have Realistic Targets
If you plan to make a million dollars in a month through Forex trading, you might need to consider more realistic goals in the short term. Successful traders take time to set goals and work at achieving them. Remember your performance with the demo account, in how many trades did you make a profit? What percentage of your trades did you make a profit? Do not expect to magically have 100% profit in all your trades. Thus, set realistic targets on the basis of your experience with your demo account. If 80% of your trades were profitable in the demo, use this figure to set how much you want to make in a day, a week or a month.
Learn to Accommodate Losses
As pointed out above, do not expect to make profits in all your trades. Most beginners make the mistake of trying to compensate for the losses such that when they lose in one trade, one executes multiple unplanned trades just to recover what you lost. One trade can never compensate another thus when you lose, learn from it, close your trade and move on. It is advisable to take some time off after making a loss just to relax and rebuild your confidence. When you return to trading, start each trade with a fresh mindset.
These top 5 forex trading tips for beginners are just a small percentage of what you need to know to succeed as a Forex trader. Take time to expand your knowledge on trading by reading books, articles, blogs and any available materials. Also, talk to other traders or consultants to increase your knowledge base, remember information is power.