One of the biggest challenges that beginner forex traders face, is the lack of information around getting started with trading that is especially unforgiving, not only to novice traders but experienced ones as well. Forex trading has caused large losses to many beginner and undisciplined traders over the past years. The best traders hone their skills through practice and discipline. They also perform self-analysis to see what drives their trades and learn how to keep fear and greed out of the equation. These are the skills any forex trader should practice.
Below are more than twenty forex trading tips for beginners, that you can use to avoid trading disasters and maximize your potential in the foreign and CFD exchange market.
1. Know Yourself, Understand Your Needs, Define Your Risk
Forex Trading Tip number 1 is – To profit in forex or day trading, you must recognize the markets.
To recognize the markets, you must first know and recognize yourself. The first step of gaining self-awareness is ensuring that your risk tolerance and capital allocation to forex and trading are not excessive or lacking. This means that you must carefully study and analyze your own financial goals in engaging forex trading.
2. Define Your Plan And Stick To It
Once you know what you want to achieve from trading, you must systematically define a time frame and a working plan for your trading strategy and goals.
- What constitutes failure, what would be defined as success?
- What is the time frame for the trial and error process that will inevitably be an important part of your learning?
- How much time can you devote to trading?
- Do you aim at financial independence, or merely aim to generate extra income?
These and similar questions must be answered before you can gain the clear vision necessary for a persistent and patient approach to trading. Also, having clear goals will make it easier to abandon the endeavor entirely in case that the risks/return analysis precludes a profitable outcome.
3. Choose Your Broker Carefully
While this point is often neglected by beginners, it is impossible to overemphasize the importance of a good and regulated broker. An unreliable or unregulated broker invalidates all the gains acquired through hard work and causes other issues best avoid. It is equally important that your expertise level and trading goals match the details of the offer made by the broker.
What kind of client profile does the forex broker aim at reaching? Does the trading software suit your expectations? How efficient is customer service? All these must be carefully scrutinized before even beginning to consider the intricacies of trading itself. Please refer to our forex broker reviews to find a reliable broker that suits your trading style.
4. Carefully Choose Your Account Type and Leverage Level
Taking into consideration you picked a good broker, it is necessary that you also choose the account package that is most suited to your and knowledge level and overall strategy.
The various types of accounts offered by brokers can be confusing at first, but the general rule is that lower leverage is better. If you live in the EU, having high leverage is not an option, so that is good if you are a beginner.
If you have a good understanding of leverage and trading in general, you can start with a standard account. If you’re a complete beginner, it is a must that you undergo a period of study and practice using a cent, mini, or demo account. In general, the lower your risk, the higher your chances are of making a profit. Therefore, make sure your choices are conservative, especially at the beginning of your career.
5. Start Small And Grow Your Investment Capital Organically
One of the absolute best tips for trading forex is, to begin with, a small balance, and low leverage, while adding up to your account as it generates profits. There is no justification for the idea that a larger account will allow greater profits. If you can increase the size of your account through your trading choices, perfect. If not, there’s no point in keeping pumping money to an account that is burning cash.
6. Focus On A Single Currency Pair, Then Expand
The world of currency trading is tough and complicated, due to the chaotic nature of the markets, and the diverse characteristics of its participants. It is hard to master all the different kinds of financial activity that go on in this world, so it is best to restrict your trading activity to a currency pair that you understand completely.
Trading the native currency of your country is a good place to start. If that’s not an option, sticking to the most liquid, and widely traded pairs can also be an excellent practice for both the beginner and the advanced traders.
Also, following the news and rates of major currency pairs is always important in discovering new opportunities/
7. Trade What You Understand
Simple as it is, failure to abide by this principle has been the doom of many new traders. In general, if you’re unsure about what you know and what you’re doing, do not trade it. This applies to trading strategies and assets alike. Do not trade on the basis of hearsay or rumors. And do not act unless you’re confident that you understand both the risk and reward of a potential position.
8. Do Not Add More Capital To A Losing Position
While this is just common sense, a lot of traders keep pumping losing positions with the hope that the market will move in their favor. Nobody knows where a currency pair will be heading during the next few hours, days, or even weeks. There are lots of educated guesses, but no precise knowledge of where the price will be set.
Thus, the only certain value about trading is in the present. Nothing much can be said about the future. Therefore, there is no value in adding more capital to a losing position, unless you take a gamble. A position in the red can be allowed to survive on its own in accordance with the initial plan, but adding to it can never be an advisable practice.
9. Master Your Emotions
Greed, excitement, euphoria, panic, or fear should have no place in traders’ day-to-day activities. Yet traders are human beings, so it is obvious that we have to find a way of living with these emotions, while at the same time controlling them and minimizing their effect on our lives.
That is why traders are always advised to begin with small amounts. By reducing our risk, we can be calm enough to realize our long-term goals, reducing the impact of emotions on our trading choices. A logical approach and less emotional intensity are the best forex trading tips necessary to a successful career.
10. Learn From Your Mistakes
An analytical approach to trading does not begin with the fundamental and technical analysis of price charts, or the formulation of trading strategies.
It begins at the first step taken into the career, with the first dollar placed in an open position, and the first mistakes in calculation and trading methods. The successful trader will keep a diary, a journal of his trading activity where he carefully scrutinizes his mistakes and successes to find out what works and what does not. This is one of the most important forex trading tips that you will get from a good mentor.
11. Use Automation
We already noted the importance of emotional control in ensuring a successful and profitable career. In order to minimize the role of emotions, one of the best ways is to automate your trading.
This is not about using forex robots or buying expensive technical strategies/indicators. All that you need to do is to make sure that you follow a structured pattern. In other words, don’t improvise. Let your reactions to market events follow a carefully studied and tested pattern.
12. Do Not Rely Entirely On Forex Robots
Surprisingly, these unproven and untested products are extremely popular these days, generating great profits for their sellers, but little gains for their excited and hopeful buyers.
The logical defense against such magical pieces of code is in fact easy. If the genius creators of these tools are so smart, let them become millionaires with the benefit of their inventions. If they don’t use it for trading, then neither should you.
13. Keep It Simple
Forex trading is not rocket science. There is no expectation that you be a mathematical genius, or an economics professor to acquire wealth in currency trading.
Instead, clarity of vision and well-defined, carefully observed goals and practices offer the surest path to a respectable career in forex. To achieve this, you must resist the temptation to over-explain, over-analyze, and most importantly, to rationalize your failures. A failure is a failure regardless of the conditions that led to it.
14. Do Not Go Against The Market
In general, a beginner is never advised to trade against trends or to pick tops and bottoms by betting against the main forces of market momentum. Join the trends so that your mind can relax. Do not pick a fight with the trends.
15. Understand That Forex Is All About Probabilities
Forex is all about risk analysis and probability. There is no single method or style that will generate a profit for you all the time. The key to success is positioning ourselves in such a way that the losses are harmless, while the profits are multiplied.
Such a positioning is only possible by managing our risk allocations in accordance with an understanding of probability and risk management.
16. Be Humble And Patient
Recognize your failures, and try to face them if they can’t be eliminated completely. Above all, resist the illusion that you somehow discovered the secret formula to trading. Such an attitude will surely put an end to your trading career eventually.
17. Share Your Experience
While it is a great idea to discuss your opinion on the markets with others, you should be the one making the final decision. Consider the opinion of others, but make your own choices. It is your money after all.
18. Master Money Management
Once you make profits, it is time to protect them and manage them. Money management is about the minimization of losses, and maximization of profits.
To ensure that you don’t gamble away your hard-earned profits, to “cut your losses short, and let profits ride”, you should keep the bible of money management as the centerpiece of your trading library at all times.
19. Study Both Fundamental and Technical Factors
A bad analysis is rarely the cause of a wiped-out account.
A career that fails to begin is never killed by the consequences of erroneous application or understanding of fundamental or technical studies. Other issues that are related to money management, and emotional control are far more important than analysis for the beginner, but as those issues are easy to overcome, and steady profits are realized, the edge gained by successful analysis of the markets will be invaluable.
The analysis of all factors that move the markets is important, but only after a proper attitude to trading and risk is mastered.
20. Don’t Give Up
Provided that you risk only what you can afford to lose, persistence and a determination to succeed are what can lead you to greatness.
It is highly unlikely that you will become a trading genius overnight, so it is only sensible to await the ripening of your skills, and the development of your talents before giving up. As long as the learning curve is painless, as long as the amounts that you risk do not derail your plans about the future and your life in general, the pains of the learning process will be harmless.
21. If You Lose Money, Take A Break
When you start to lose money consistently and nothing seems to be going right, take time out.
A monthly float to use as your trading capital is a good idea because if that float runs out, you should stop trading for the month. Take the time to clear your head and start afresh the following month. And resist the temptation to try and make back lost money by ‘chasing the market’.
22. Concentrate On One Trade At A Time
Do not overburden yourself with multiple trades. The simplest trades are usually the best ones.
23. Be Aware Of Trading and Other Hidden Costs
Always be aware of carrying costs when running positions overnight, or over multiple days. Selling a high-yield currency incurs higher costs than a lower-yielding one.
24. Don’t Use Oscillators And Moving Averages Alone To Spot Trends
A common trading mistake is to look at an oscillator, decide the product is overbought, and trade against the prevailing trend, but this is usually a mistake. Oscillators and moving averages should be used to complement trend, support, and resistance analysis.
Ready to take on the financial markets? I hope the tips we provided for you to guide you to a better trading path. Take a look at our guides below to choose the style of broker and asset you want to trade.