Online Forex and CFD trading for beginners can be especially tough. This is mostly due to unrealistic expectations that are common among Forex newcomers. What you need to know is that Forex trading is by no means a get-rich-quick scheme.
Let's look at some valuable Forex trading tips for beginners.
You can always try using a risk-free demo account to get a better understanding of the market.
Knowing how the industry is mapped out is important, because the collective combination of all participants creates the market you trade in.
The relative weight of the trading party to the market, is measured by how much money that party manages – from billion dollar hedge funds and investment banks to private traders with a few thousand dollars in action.
The initial stages of your trading should be about preserving your capital – not trying to grow it. Minimising risk is the primary objective. One way to possibly achieve this, is to use a long-term trading stance.
What casual Forex trading beginners generally fail to realise is that most successful traders try to make a return on their investment based on long-term trends. They hold their orders open for weeks, months and even years. This way, Forex works as an investment and less as a lottery.
Long-term trading requires patience and modesty in trading volume.
And as a payoff, it requires fewer hours spent staring at the screen and therefore less stress. Mathematics is obviously useful in online Forex trading, too. And thankfully, there's some simple ways to calculate what balance, leverage and trading volume you need per instrument, to keep your risks in check.
Don't overload your charts with indicators and your strategy with handles or switches. The more complicated your trading strategy is, the harder it will be to follow and the less likely it is to be effective.
To find out how well a strategy performs on average in different markets, you need to carry out the necessary backtesting and research. Keeping it simple can be a challenge, especially considering the multitude of supporting tools you can apply to your charts.
Just remember – it's not about the amount of tools at your disposal, but it is about being able to use a few tools well.
Forex trading, for beginners or professionals, will require software. Competition between brokers means that most Forex trading software is available for free.
Many Forex trading beginners are also tempted to purchase FX robots a.k.a. Expert Advisers (EAs). While some EAs can be helpful, it can be hard for them to stay profitable when the market changes.
And unless you understand the code it's written in, you're probably not going to be able to adapt your EA to work with those changes.
If you are one of the many who believe an EA would outperform the market, then perhaps give it a try with the MT4 Supreme Edition plugin.
Analysis is absolutely vital to trading. Charts are helpful for both short and long-term trading. You should be looking at daily, weekly and monthly charts.
Any Forex trading guide for beginners of technical analysis will tell you that your main tools are:
Meanwhile, understanding fundamental analysis allows traders to gain an understanding of how one country's news events and financial policies can affect the Forex ecosystem.
Attributes such as minimum deposit and tight spreads are one of the last points to consider when opening a long-term trading account. Pay attention instead to instrument portfolios, execution models and the leverage offered.
The best Forex trading platform for beginners depends on the broker. The best Forex broker for beginners depends on the trading system.
What's important is the quote feed which also depends on the broker.
Be cautious of Dealing Desk accounts, unless you are specifically interested in conditions offered by them. Their features usually include momentous execution, instant execution and comparatively low minimum deposits. This simply means you are trading with the broker rather than through it.
Volatility is what keeps your trading activity moving. However, if you're not careful it can also completely destroy it. When volatile, the market moves sideways, which makes spreads grow and your orders slip.
Incorporate volatility analysis into your trading strategy. As a beginner Forex trader, you need to accept that once you are in the market, anything can potentially happen, and it can completely negate your strategy.
For example, the crisis with the Swiss franc in January 2015, ended business for many traders and brokers within hours.
Admiral Markets have helped to minimise volatility risk for you by offering a package of advanced volatility trading settings to help you avoid the reefs of the financial markets.
Spreads grow when news is out and before you know it, you are deep in re-quotes and slipping stop-losses. Unless you are a professional news trader, stay away from news trading.
Whether you are a beginner trader or a pro, you are best to trade with what you see and not what you think.
For example, you might think that the US dollar is overvalued and has been overvalued for too long. Naturally, you will want to short and you might be right eventually.
But if the price is moving up, it does not matter what you think. In fact, it doesn't matter what anybody thinks – the price is moving up and you should be trading with the trend.
When learning about Forex trading, many beginners focus on major currency pairs because of their daily volatility and tight spreads.
But there's numerous other opportunities – from exotic FX pairs, stocks, commodities and energy futures to indices. There are even indices that track groups of indices and you can trade them as well.
How many markets you scan for opportunities is up to you, but do not limit yourself to one instrument or one market. Market limitation leads to overtrading, so diversify your investment.
A regular Forex trading beginner concentrates on opening a trade, but the exit point is equally important.
If your trading strategy does not consider the mechanism of closing a deal, it's not going to end well, and you're much more likely to suffer heavy losses.
Financial trading is usually a legally regulated activity. Government-assigned regulators of brokerage firms urge caution to Forex trading beginners across the globe.
When checking for secure conditions in investing or trading, three major points to look for are:
Whatever happens, make sure your investment is protected.
Every broker offers a demo account – beginner or not, test every new strategy there first. Keep going until the results are conclusive and you are confident in what you are testing.
Only then should you open a live account and use your strategy in the smallest volume trades available. Be sure to treat your demo account trades as if they were real trades.
You may also use Forex simulation software to simulate market conditions, creating an impression of a live trading session.
A novice Forex trader must develop the mindset of a business owner. Every business requires a business plan, constant monitoring and regular auditing. Jumping ahead without plans and processes is a surefire way to fail.
Starting a trading journal is an absolute must. Everyday, be sure to write the following:
Keep your journal handy as a point of reference when analysing your activity. A journal ensures none of your actions are in vain. Analysis of good trades will boost your trading confidence and motivate you to push harder and go further.
On the other hand, analysis of bad trades will help you extract value and improve.
Generally speaking, the less you know, the more at risk you are, and there is no limit to how much you can know or risk. An endless amount of information is available on the internet free of charge, like:
Want to know how to learn Forex trading for beginners? Read everything and always analyse everything you read – don't just take information in good faith.
Learn to trade step-by-step with our brand new educational course, Forex 101, featuring key insights from professional industry experts.
As exciting as trading can be, it is still stressful work. There will be a lot of setbacks on your way to the top. Emotions can force your hand to open a trade too early and/or close it too late.
The main cause of stress for beginners in trading is the fact that some Forex trades will end in loss no matter what – it's just the way the market is.
Just remember that war is not won with a single battle. Rather, it is overall performance that counts (which by they way, is another reason to keep a trading journal).
Only one kind of money is good for investing and that's the kind that you are willing to lose. Preferably without damaging your physical and/or mental well being in the process.
An old saying sums up this article:
"Every profitable trader is profitable in his own way, while every loser loses exactly the same way."
Remember, use every available opportunity to learn. It's a never ending process!