If you are new to the forex trading world, you may think that it is just like any other type of trading. And in a way, it is true. There are some rules that apply to both forex and other types of trading, but there are also some important differences.
ALSO READ: Stocks and Taxes: What You Need to Know this Upcoming Season
So, what are the best tips for forex trading and how to actually implement them? By reading this article, you will take the first (and possibly the most important) step on your way to becoming successful in the realm of forex trading.
Do Your Research on Time
Just like with any other market, if you have money to invest, you won’t face too much opposition from forex either. And that’s the catch. Indeed, getting into forex is relatively easy, but making a substantial profit – not so much.
This means that you have to research the market carefully, paying attention to a number of details such as the most effective trading strategies, the best forex trading platforms, and so on. Some of this information you can read in this article.
Did you know that forex trading daily volume is about 53 times larger than the New York stock exchange? That’s what we’re talking about. Learn everything you can before investing your money.
Choose Your Broker Wisely…
A good sports team usually has an expert coach. That’s how it goes in forex too – for successful trading, you need to have a reputable forex broker.
It is your broker’s duty to ensure a fair, safe, secure, and transparent online trading environment. It goes without saying that you should only consider hiring a broker who is licensed and regulated by a reputable regulatory authority like the SEC, NFA, FCA, etc.
Finally, it is important that you select a forex broker who aligns with your personality, trading capabilities, as well as trading style.
… And Your Strategy Too
Speaking of your features as a trader, you need to discover what works for you in terms of the strategies you are using. Not all strategies will work for everyone, and the sooner you realize this, the better.
Here are some of the most common forex trading strategies to consider:
A very popular strategy, scalping is a short-term tactic that involves a high number of trades with a small profit from each.
– Day trading
This one works better for someone who is an old hand at forex trading. Here, the best technical charting time periods are 15 minutes and 1 hour, and you profit from intraday moves.
– Swing trading
Swing trading extends over a few days and it allows you to establish and then close out trading positions based on the momentum of the underlying currency pairs.
– News trading
It’s pretty obvious how this one works. You trade around the time of key news events such as a major economic data release.
– Trend trading
Finally, trend trading requires technical analysis in order to identify trend direction and determine the suitable entry points. Here, traders normally take overnight positions.
Use a Practice Account
Forex trading platforms usually come with a practice account (also called a simulated or demo account), which allows you to practice by placing hypothetical trades without a funded account.
Practicing like this can be very useful and help you learn how to use order-entry techniques, saving you money and stress once you start trading with real money.
Once you have got the hang of forex trading basics, you can start investing for real. But practicing with fake money and trading with real money is not the same. That is why you need to be careful and start small.
There are a number of factors that can make an impact on your trading, and you can’t really know them all before spending some time on the real market. For example, your trading plan can prove to be completely wrong in practice even though it worked great in theory.
In addition, emotions could give you too much ‘fuel’ and you may end up investing too much money at once just because you let your emotions cloud your reason.
Speaking of which…
Emotions Are Your Enemy
Even if you know and have used various forex trading strategies for a long time, there comes a time when your emotions overtake you and you start making irrational decisions. When angry, stressed, or even overconfident, traders usually face huge losses.
So although it may sound too harsh, in forex trading, emotions are your worst enemy. And instead of succumbing to greed, stress, and anger you should try to:
– maintain a stable and clear mind
– keep awareness of the uncertainties
– focus on facts rather than feelings
Business involves risks, period. As a forex trader, you need to be aware of those risks and all potential outcomes. If you fail to practice this approach, you may end up with losses that will prevent you from getting back to the forex market.
Therefore, even though it is a cliché, you should never invest more than you are willing to lose.
Also, if you are a newbie, don’t trade with leverage because this can result in great losses. In forex, leverage is a highly advanced and risky trading strategy. It comes from a smaller investment which is used for bigger trades in foreign currency.
Don’t Forget the Taxes
Even though forex trading and cryptocurrency trading are different, both cryptocurrency tax mistakes and forex tax mistakes are quite common. Regardless of your field, you need to be aware of tax regulations in order to trade legally.
Forex trading activities imply earning money, so you need to understand the associated tax regulations. It is best to consult with a qualified and experienced accountant or tax specialist that can help you keep abreast and avoid any surprises that can cost you too much money.
Take Your Time
In the beginning, you will probably feel more ‘productive’ making a larger number of smaller investments, and that is completely fine. As the matter of fact, some of the more experienced traders do this on a regular basis.
However, sometimes your best move is to sit and wait. It sounds too simple, but it is true. Some of the most successful forex traders make only a few big trades a year. This strategy is called a long-term hold strategy and it normally provides higher returns as opposed to active trading.
That is why sometimes you need to invest and take your time, patiently waiting for your profit. And this leads us to the next point.
Patience and Persistence Are Your Friends
As a beginner, you probably think that you will start making a lot of money right from the start. Well, sorry to disappoint you, but that is what most beginners dream of.
Making a profit through forex trading takes time, money, and work. On your way to becoming a successful forex trader, you will face a number of challenges, but it is crucial to stay grounded and persistent.
You can’t get rich overnight. So, practice patience and persistence, and you will get where you want to. However, it will probably take longer than you think.
You Live, You Learn
Lastly, it is very important to realize that forex is an ever-evolving market. And this means that you need to keep up with all the new changes that happen on a daily basis.
Moreover, although failures can sometimes teach you valuable lessons, you shouldn’t allow yourself to learn only from your defeats. Instead, try to educate yourself through:
– online courses
– videos, etc.
Final Thoughts – It’s a Business
If you have experience running a business, then you know that individual, short-term wins and losses are not crucial to your long-term business success. In that respect, forex is the same.
If you want to work your way up the forex trading ladder, it is important to constantly remind yourself that there will be both good and bad days. Therefore, you should try to avoid getting emotionally attached to your gains and losses. Especially losses.
There is no overnight success in business, and forex is no different. There will be a lot of expenses, losses, risk, taxes, uncertainty, etc. But if you follow the strategies we listed, rest assured that you will find a place in the forex sun.