A guide on how to trade Forex effectively. 8 tips for traders
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Not long ago trading on Forex was considered an opportunity to increase your income only if you have a large amount of capital. However, that idea has changed radically. Now almost anyone can start trading on their own. Modern Forex traders can now earn on the difference between currency exchange rates, without large capital risk.
That’s the main reason new entrants to the Forex trading space have increased exponentially. Yes they have entered, but there is a catch. Failure rates have also increased significantly. The tendency is that traders, seeking quick gains, are opening their initial trades too quickly. That is without conducting the research this form of trading requires. The end result? Zero balances.
In this short guide, we are going to describe the best ways to trade on Forex effectively. Here find tips on how you can maximise your capital, and detailing on whether it is possible for new entrants (those without trading experience) to earn on reputable platforms.
So, Forex trading is attractive, affordable and yes it does provide an opportunity to earn. In most cases though, with variable success. Is it luck, knowledge, or strategy that divides the gainers from those that lose? What is needed for successful trading? Luck and strategy play important roles. Both factors are interconnected, and you should realise that the less luck you have, the better strategy you have to create.
Never forget that the Forex market is highly volatile, and the possibility of making big profit is always fraught with considerable risk. Therefore, before you start undertaking trades, you need to be prepared for risk. Do not trade more than you can afford to lose, have patience, and also know the rules of Forex trading.
1: What is needed for successful Forex trading?
The main principle of Forex trading is to buy currency at a lower price and sell it at a higher price, making a profit on the difference. But, despite its speculative characteristics, "Forex" is not a game of luck, it’s trading should be treated as a serious job. This allows many traders to use it as a stable income source.
2: Is financial education important? Do I need a demo account?
Newcomers think of Forex as an extremely complex process. In their opinion it makes no sense to delve into Forex without special education. Of course, having a financial education is a huge plus, and is an important foundation for successful Forex trading. Saying that, if newcomers don’t possess such education, it does not necessarily mean they don’t have a chance.
Being successful in Forex trading doesn't require knowing ALL of the secrets of trading. First of all, it could be enough to have an analytical mindset. Being able to study and comprehend the main factors which affect exchange rates, is a plus. A basic mastery of Forex trading, also implies knowing at least the basics of conducting technical and fundamental analyses.
3: Obtaining the necessary knowledge for this is not difficult nowadays.
Almost all large brokerage companies offer their clients training materials, courses and seminars, and general information on this issue can always be found on the Internet. For example reputable broker EagleFX gives newcomers an opportunity to test their skills as traders on a demo account. If you are new to trading, you do not need to risk your money right away. Most likely, you would lose it.
Practice on a demo account for several months first. So, without risking losing real money, you get the opportunity to put your new knowledge into practice. You improve your chances of earning with Forex by first understanding the principles of Forex, and choosing the strategy that suits you best. And remember, most Forex aces didn’t start out as traders. They come from various professions, just like you.
The key to their success was hard work, patience, the desire to learn, and conviction in their own strengths. If you are eager to get started quickly, practice for at least a few weeks first. The longer the better.
4: Make sure you know your platform like the back of your hand
Your trading platform is what you will use to trade and place orders. Knowing how it works is vital, because at the same time, a lot of people in the forums devoted to trading discuss the simplest errors, such as incorrect position size, incorrect stop- and limit- order placement, and so on.
5: Stick to your strategy
Impulsive, unreasoned transactions that are not part of your strategy usually end up in failure. A prerequisite for successful work is a reliable, carefully tested strategy. Do not deviate from your strategy. Even if such a deviation looks very tempting.
First, do a preliminary and retrospective test of your strategy. Many Forex traders prefer to conduct retrospective testing of their strategies. So you can see how your strategy would have worked in the past. This retrospective analysis is a normal practice, and can be very beneficial. However, even if your strategy performed well in the past, there is no guarantee that it will be successful in the future.
When we analyze something after the fact, there is a temptation to “tailor” our interpretation of the existing results. So, you’ve conducted your detailed retrospective testing of your strategy? Now before putting it into practice, make sure that it works. Again follow your selected strategy by first working with a demo account for several months.
6: Think about risk
Make sure you have a sound risk management strategy. Do not deviate from it. For example, you decide that you can risk 2% of the total amount in your account for one trading operation. You might want to move your stop to breakeven when the operation is greater than 1%. Whatever strategy you choose, stick to it, because chasing the market is rarely the best option.
Everyone wants to quickly complete the first operation and "join" the market. Please remember, it is better to be patient and prepare well for your debut. This can significantly reduce incurred risk, and increase your chances of getting the results you want.
7: Don’t gamble. Be careful!
It is easy to become impudent, once you’ve a long series of successful transactions behind you. It can easily make you feel invincible in the market. That’s when rash decision making can occur, impulsive decisions. Remember, you’re a small fish in a very large pond when you trade Forex. To be successful, always remember just how small and inconsequential your trades are to the larger market.
8: Be sure you are trading on the right platform
There are plenty of trading platforms nowadays. You want to stay updated on the latest market events, you want to access analysis, and desire the chance to engage in profitable trades. It’s difficult to do so alone. Most trading systems use ‘mechanical trading systems’ that have special computer programs for trading on Forex.
These provide transactions, analyze incoming market information, and perhaps most importantly give ‘signals’ for action. The choice of a good platform will enable you to receive this up to date analytical and trading information. Information that can radically improve the chances of high-quality transaction execution.
The most popular and reliable ones, in the opinion of most traders now, is Meta Trader 4, Meta Stock and Omega Research ProSuite 2000i. MetaTrader 4 is available on EagleFX. It gives an opportunity to trade not only from your laptop but also from the other devices, making it quite beneficial for “travel bugs”.
So be aware that Forex trading is quite deceptively associated with the idea of being an easy way to make money. In order to become a professional trader, you need to apply a lot of effort. Successful trading is hard work, requiring serious preparation and patience. Good luck!
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