You must know that Forex has been the cause of huge losses for many traders with little experience or unruly investors. Do not make the same mistakes. We worked to make a brief summary about Forex Trading, that has been divided into points, to give you some advice in order to avoid being part of the long line of those who, in currencies, left us, partially or totally, the capital.
FOREX TRADING: What you need to know to be a good trader
1- Know yourself
Carefully define the risk threshold you can afford. Risk / reward balance according to your needs and possibilities.
If you want to profit, you must learn to read the market. And to read and understand the market, you must first understand yourself. The first step in delineating your situation and being aware of what you can actually do is to establish your risk tolerance, and how much of your capital you want to allocate to currency trading, which should not be excessive but not too small. In other words, carefully check your availability and determine your goals before any operational decision.
2- Establish your objections concerning the pre-established plan
Once you understand what you want from your trading activity, you need to systematically define the time frame to work with and the operational plan. Analyse what determines the failure? And what’s the success? What time frame to use to try and find out what mistakes, which you will inevitably make, will constitute a very important part of learning? How much time do you intend to spend on trading? Do you want to achieve financial independence or just get extra income? These are just some of the questions we suggest you take before you have a clear view of what kind of approach it will be more correct to give to trading. Then, if you have well defined your goals, it will be easier to understand, in the face of a negative risk / return ratio, to make the right decision that could be to close this experience or completely change the approach.
3- Carefully evaluate the broker
Although many trading beginners overlook it, it is impossible not to emphasize the importance of the broker’s choice. When we have to choose, it is necessary to understand if what is offered corresponds to our needs and our expectations. Imagine having done some good work, perhaps with extreme effort, and then the broker nullifies all the hard work. So, even in this case, you have to ask yourself some questions. What kind of customer does the forex broker apply to? What kind of profile can you use? Does the trading software match your needs? And is customer service efficient? All these aspects must be carefully evaluated, even before starting the trading itself.
4- Choose the type of account and leverage according to your needs and expectations
Following on from the previous point, we advise you to evaluate and choose the package that is most suitable for you, your needs and expectations, and your own knowledge. At first glance, the different types of accounts that brokers make available can create confusion, but you can use as a “general rule” that of leverage: the lower the better. If you know well how it works, and that of trading more generally, probably the best choice is on a standard account. If, on the other hand, you’re just starting out, you have to do some testing before starting with a small test account to practice. In summary, the fewer risks and the more chances you have of earning, so you work conservatively, especially at the beginning.
5- Start with small amounts, increase your account with real gains and not with deposits
The best tip we can give, to trade in currencies, is to start with small amounts and low leverage, trying to increase the bill gradually. Do not think that having a large capital also means getting a higher profit. If, then, your account starts to grow because you choose the right trade and win … fantastic! Otherwise, you do not need to continue to feed the bill with money you could burn quickly.
6- Focus on a single currency pair, you will increase with the acquisition of the necessary skills
The world of currencies is, by its nature, complex and very vast, fed continuously by a myriad of different traders who operate in as many different ways. We cannot think of mastering all the instruments of this world, we must choose a currency pair that we can better understand, and thus restrict our activity. For example, choosing the Euro, our currency, could be a good idea, since it is more familiar to us and we can better understand the developments and the elements that can affect its performance. If, however, you are more oriented towards another, check whether its liquidity is high: in fact, a currency pair traded on a large scale is a good choice to practice, both for beginners and more experienced traders.
7- Do operations that you can understand
Search for simplicity, because if you cannot respect the rules you have imposed to follow risks of failure, as happened to an infinity of traders. In short, if you cannot understand the strategy, you cannot find the logic and a valid motivation to implement it, probably the decisions taken should be reviewed. Do not do business just because you’ve heard of it or someone claims it as a winning strategy, and do not enter the market if the operation is not so clear and you do not know the positive and negative aspects of the position.
8- Do not continue betting on a losing position
In the course of history, traders who, ignore the bases of the market or forgetting to respect them, have encountered many problems, without mentioning the losses. Nobody, a priori, can know where a certain currency pair will be heading in the next few hours, in the next few days or even in the coming weeks. Many experts boast of knowing what will happen on the market, but the truth is that one can only make assumptions. However, we have a certainty, that is, the current situation. As a result, if we are losing it does not make much sense to stay in position, betting on a change of trend, unless you want to bet. We can keep a losing position open only if it is part of the plan, if we have put this case in advance, it is reasonably close.
9- Stop the emotions
When the trader plans his actions he must be able to put aside all those feelings and emotions that can negatively affect his work. What are these emotions? Greed, eagerness to gain, excitement, euphoria, fear. All traders are human, and therefore everyone is at “risk emotion”. However, it is possible to learn to manage instinct and to leave it free only when it cannot do damage. The suggestion we want to give is that, at least in the initial phase, not to work on large sums. Trade stress is a reality that must be tackled step by step, without haste and without adding too much wood to the fire. If you operate with a reduced capital, even the possible risks will be less fearful. Less emotions and more logical, is the ideal formula for trading.