Forex trading is becoming more and more popular with casual online traders, however it can be highly risky too. Being successful means knowing what you’re doing and sticking to some tried and tested principles.
Look before you leap
Don’t jump in headfirst. Becoming a successful Forex trader isn’t easy. Most people lose money in their first year. Signing up for an online course can help, of course. There are also many online trading platforms such as CMC Markets that offer extensive guides and webinars to getting started – and getting better.
Start with one currency pair. Even the best traders usually only trade with several different pairings. Read financial news, articles and reports and become an expert on with your currency pair, before taking on another.
Practice makes perfect
Begin with a mock trading account. Once you start to see profits, only then you should consider trading for real. While you’re practicing, stash away cash for fund capital for you start trading in earnest.
Look out for trading platforms that give you the data and tools to help you make sound trading decisions. These should be able to give you at least three timeframes and plot a number of technical indicators, such as moving averages. The more indicators you use, the fewer opportunities will arise, but it also means you will have a more reliable system.
Invest for the medium term
The most successful Forex traders adopt a medium term strategy. This means holding a position for a day or two and taking advantage of technical opportunities. The thing to look out for is when most or all of your technical signals are pointing in the same direction. This represents a solid, low risk opportunity. But before making any trade, always use all the information at your disposal, such as trendlines and Fibonacci Retracements.
Know when to get in and when to get out
When all the indicators are pointing in the same direction, that’s a good time to think about getting in. However, before placing a trade, make sure you have exit points positioned at key levels. Only change them if other variables change, which either strengthen or weaken your position.
As we mentioned early, Forex trading can be very risky, especially for the inexperienced, so do everything you can to mitigate risk. Wherever possible, increase the number of indicators you use, place stop-loss points at the closest resistance levels and use trailing stop-losses to lock in profits and limit losses.
Look after your investment
It can’t be emphasised enough how risky Forex trading can be. The FX market is one of the most volatile markets in the world of trading. Any number of factors can cause currency rates to swing wildly from one end of the spectrum to the other in a very short span of time, sometimes in minutes, so the key is to only ever trade when good opportunities with low risk arise. This isn’t a market for gut instinct.
Mind over matter
A good attitude and mindset is vital when it comes to playing the Forex markets:
Stick to what you know – Only use the tools and markets you’re comfortable with. Don’t step out of that comfort zone, unless you’ve successfully trialled your strategy using a simulator. Better still, test your system on a number of different mock trading models. That’s also a good way to find the one that suits you best.
Be consistent – Once you find the methodology that works best for you, don’t stray. Be patient, disciplined and always realistic in your expectations. That means always waiting for prices to reach the entry and exit levels before trading. And always try to keep emotion out of your decisions.