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Before you start something new, begin with the fundamentals. Let’s look at trading tips every trader should consider before trading currency pairs.
1. Know the Markets
We cannot overstate the importance of educating yourself on the forex market. Take the time to study currency pairs and what affects them before risking your own capital; it’s an investment in time that could save you a good amount of money.
2. Make a Plan and Stick to It
Creating a trading plan is a critical component of successful trading. It should include your profit goals, risk tolerance level, methodology and evaluation criteria. Once you have a plan in place, make sure each trade you consider falls within your plan’s parameters. Remember: you’re likely most rational before you place a trade and most irrational after your trade is placed.
3. Educate Yourself
We can’t emphasize enough the importance of educating yourself and learning as much as you can about the forex market.
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Before risking real money, make sure to study the different currency pairs and understand what makes their prices go up and down.
4. Practice
Put your trading plan to the test in real market conditions with a risk-free FOREX.com practice account. You’ll get a chance to see what it’s like to trade currency pairs while taking your trading plan for a test drive without risking any of your own capital.
#1 Forex Trading Android App for Nigeria (Google PlayStore)
5. Forecast the “Weather Conditions” of the Market
Fundamental traders prefer to trade based on news and other financial and political data; technical traders prefer technical analysis tools such as Fibonacci retracements and other indictors to forecast market movements. Most traders use a combination of the two. No matter what your style, it is important you use the tools at your disposal to find potential trading opportunities in moving markets.
6. Know Your Limits
This is simple yet critical to your future success: know your limits. This includes knowing how much you’re willing to risk on each trade, setting your leverage ratio in accordance with your needs, and never risking more than you can afford to lose.
7. Know Where to Stop Along the Way
You don’t have time to sit and watch the markets every minute of every day. You can better manage your risk and protect potential profits through stop and limit orders, getting you out of the market at the price you set. Trailing stops are especially helpful; they trail your position at a specific distance as the market moves, helping to protect profits should the market reverse. Placing contingent orders may not necessarily limit your risk for losses.
8. Check Your Emotions at the Door
You have an open position and the market’s not going your way. Maybe you could make it up with a trade or two that don’t fit with your trading plan...just a couple couldn’t hurt, right?
“Revenge trading” rarely ends well. Don’t let emotion get in the way of your plan for successful trading. When you have a losing trade, don’t go all-in to try to make it back in one shot; it’s smarter to stick with your plan and make the lost back a little at a time than to suddenly find yourself with two crippling losses.
9. Keep It Slow and Steady
One key to trading is consistency. All traders have lost money, but if you maintain a positive edge, you have a better chance of coming out on top. Educating yourself and creating a trading plan is good, but the real test is sticking to that plan through patience and discipline.
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10. Start small
A common mistake made by a lot of novice traders is to dive straight in, but you shouldn’t enter a trade until it’s been well thought out. When you do, start small – £1 a point at the very most, and slowly but surely build your confidence. There is no such thing as beginner's luck in trading; when you start, you will lose money on some trades and make money on others.
This is why it makes sense to make mistakes early and ensure they are not too costly. If you start at £10 a point and the market goes against you by 25 points, you will be down by £250 straight away, not to mention the subsequent loss of confidence. That’s an expensive lesson, especially when you consider that when you enter a trade, it’s very unlikely the market will move in your favour immediately.
11. Don’t Be Afraid to Explore
While consistency is important, don’t be afraid to re-evaluate your trading plan if things aren’t working like you thought. As your experience grows, your needs may change; your plan should always reflect your goals. If your goals or financial situation changes, so should your plan.
12. Know your own statistics
Analyse where you've been making profits and losses by keeping track of all your transactions. Tracking the performance of your trading history allows you to spot patterns where your failures and successes are occurring, so you can cut out the poorer trades and place more of the trades that lead to a profit.
13. If you're losing 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. Resist the temptation to try and make back lost money by ‘chasing the market’.
14. Choose the Right Trading Partner for You
It’s critical to choose the right trading partner as you engage the forex market. Pricing, execution, and the quality of customer service can all make a difference in your trading experience.
FOREX.com is a worldwide leader in currency trading and offers competitive pricing, great customer service and helpful guides and tutorials so you have a wide range of tools to start forex trading.
#1 Forex Trading Android App for Nigeria (Google PlayStore)
15. Don't focus on just one technical indicator alone
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 trends and used in conjunction with other indicators, such as support and resistance levels and Bollinger Bands.
16. Evaluate the past
One of the key tenets of the technical approach is to evaluate the past – the Dow theory works on the premise that 'history repeats itself’. Looking at past price action on an asset can give clues as to how the price will behave in the future, based on previous experience.
Human behaviour can be predictable to a degree, given a certain set of circumstances, and this is how the technical approach can work. Market forces dictate price and price is driven by people just like you and me who succumb to the same human emotions of hope, greed and fear as anyone else.
Seeing where previous highs and lows have occurred in the past and how the market has behaved previously when at these levels can give clues as to what might happen next, so enabling traders to formulate a number of strategies using 'what if' scenarios.