Trading can be a very effective way to take better control of your finances, and earn some good money. Like any financial risk, Forex trading, and other trading, should be entered into carefully. Before trading currency pairs, there are some trading tips that every new trader should know.
- Know the markets. It’s essential to educate yourself on the forex market. Take some time to study currency pairs, and what affects them before you risk your own capital. This investment in time could save you a lot of money in the long-run. A Forex broker can also help you to understand the market.
- Make a plan and stick to it. It is critical that you create a trading plan if you’re going to be successful. This plan should include your profit goals, risk tolerance level, methodology, and evaluation criteria. When you have a plan in place, make sure that every trade you consider fits into the plan’s parameters. You’ll be most rational before you place a trade and most irrational after the trade is placed.
- Practice. Put your plan to the test under real market conditions with a risk-free forex practice account. You can take the chance to see what it’s like to trade currency pairs and test your plan without risking any of your own capital.
- Forecast the weather conditions of the market. Fundamental traders prefer to trade based on news and other political and financial data. Technical traders prefer analysis tools like Finobnacci retracements to forecast market movements. Most traders use a combination of both. Whatever your style, it’s important to use the tools you have to find trading opportunities in moving markets.
- Know your limits. This is a simple tip but is critical to your success. This means you must know how much you’re willing to risk on each trade, setting your leverage ratio to match your needs, and never risking more than you can afford to lose.
- Know when to stop. You won’t have time to sit and watch the markets all day. You can manage your risk and protect your profits through stop and limit orders, getting you out of the market at the price you set. Trailing stops are useful; these trail your position at a specific distance as the market moves, helping to protect profits if the market reverses.
- Check your emotions at the door. You have an open position and the market isn’t going your way. Perhaps you could make it up with a trade that isn’t in your plan? Don’t do this. ‘Revenge trading’, as it’s known, rarely goes well. Don’t let emotion get in the way of your plan for successful trading. When you have a trade that is losing, don’t try to make it back in one shot. Stay with your plan and make the loss back a little at a time. This way, you’re less likely to be struck by two bad losses and losing the profit you’ve made. Stick to your plan and leave emotions out of it.
Photo by Austin Distel on Unsplash
