If you’re a newcomer to the forex market, the sheer amount of information and strategies on the internet might seem overwhelming. The key is to take it slow and start with the basics. Here’s a list of tips for forex beginners to keep in mind when you begin your journey.
Learn the Basics
Get a complete and deep understanding of the forex markets and other relevant topics, step by step. You should learn the basic forex concepts, such as leverage, pips, spreads, swaps, lot or volume sizes, and trading software. Be aware of economic developments and news around the world and make sure to catch up on all the press releases from the Central Banks of different countries. You should have knowledge of the major currency pairs, their mechanism, and their correlation too. Invest in good forex written courses and instructional trading videos. Do not waste time learning about short cuts or get rich quick schemes. These are not realistic in the forex market.
Decide on a Trading Plan and Stick to It
A successful trader will take time to develop and test a trading plan that has shown consistent profitability over time. This is the stage when you must decide upon your risk tolerance and capital allocation, and then formulate your strategy. Some knowledge of technical and fundamental analysis is required for this. Stick to the plan after you have decided on it. You should not get into the habit of changing your strategies frequently due to a few losses. Learn and fine tune based on any negative experiences.
Choose the Broker Wisely
When selecting your broker, Non-reputable or unreliable ones will simply invalidate all your hard earned gains. Always check the credentials of the broker and make sure they are licensed by known authorities like the FCA or CySEC. Your broker should be aligned with your trading goals. See if the trading software they offer suits your needs. Look for reviews of their customer service too.
Start Trading Small
Start with an account offering lower leverage. The account should suit your expectations and knowledge level. You can begin trading with small sums and lower leverage, and then increase the size gradually as you gain more experience. In the early stages, it is better to focus on a single currency pair, one that is most liquid and widely traded.
Use Stop Loss
The stop loss mechanism helps you identify risks. It will force you to think about the scenarios in which a trade could go wrong and give you profitable trades/losing trades ratio. If your trade goes bad for some reason and you aren’t able to close it manually, stop loss will prevent your entire account from getting wiped out due to one badly chosen trade. Remember to place stop losses at a safe distance from the entry price though. Otherwise your trade can get stopped before the market moves in your favour.
Do Not Overtrade
Many traders get excited with initial gains and overtrade, only to lose their money rapidly after that. You may make a lot of emotional mistakes if you trade with high frequency. As a trader, you must be realistic and well-grounded. Over-leveraging and over-trading could cost you.
Learn and Interact
Keep a diary or journal of trading activities to analyse the mistakes made. One way to do this is to automate your trading choices and behaviour. However, do not opt for forex robots or expensive technical strategies for this purpose. Other fellow traders can give you valuable inputs too. Become part of an online forum of traders and interact. You can learn a lot from their mistakes and gains.
One of our final tips for forex beginners is that you cannot become a trading genius overnight. It is a long process and much of it will involve risks and failures. Ask questions, seek support from reputable traders and choose a solid broker with a support team who can help you along the way.