Everybody who comes at forex market wants to be profitable. Nobody starts with the idea to lose his money. But a lot of newcomers lose them all. Read our basic advice about how to trade forex successfully for beginners.
Can you afford it?
The first and foremost thing you have to know before starting trading on forex is simple. Can you afford it?
As famous stock investor Peter Lynch said. You can invest just when you already have your house, car, save enough money for the education of your children and your mortgage is almost paid.
Forex trading means that you can lose everything you invest. And as latest events (see Swiss Franc Armageddon) showed us, you can even lose more than you have on your account.
So if you want to trade forex, use just money you can afford to lose. It’s just not possible to win at forex every time.
All successful traders started with risk management. Nobody starts with currencies, goals, and profits. Limits, margins, VaR are the basics you have to set at the start.
At the beginning, we recommend putting together a simple list. It should include:
- Amount, you want to invest
- Currency pairs you want to trade
- Maximum position in one currency pair
- Maximum overall position
- Maximum position open overnight/over weekend
- Average duration of positions
- Maximum stop-loss distance from market price
- List of good brokers for beginners and their spreads
It is all about limiting your losses in case markets will go against you. You need to know your worst case scenario before your first trade.
A lot of people trade forex intuitively. It usually works for some time, but then in case of small increase in volatility, these people go bust as first.
Discipline and patience
Discipline and patience are two attributes that matter most in forex trading. Discipline is about keeping the limits and restrictions you defined before your first trade. Patience is about the timing of pushing of trade button.
These two characteristics are necessary to become a successful trader making a lot of money every day. If you are impatient, you will probably exit your profitable positions too early. You will open a lot of useless positions just because you feel itches on your finger, and in your stomach.
After closing position with a loss, you will feel an urgent need to open new position to cover your loses and to prove the world you are right. This anxiety will bring you to the end, you will open more and more positions till you finish with zero on your account.
Discipline is important because of risk management. You have to keep limits every time and with no mercy. Once, you will break limits you set at the start, you will do it again and again.
And at the end, you will lose everything. Limits are here to save you from chaotic trading and keep you at a healthy level of risk.
If you miss discipline or patience, forex trading is not for you.
Short-term versus long-term profitability
We think that it is much better to be profitable in long-term than short-term. It is nice to finish a day with a big profit. But is much better if you are able to finish a year in profit.
Setting a strategy is important. If you decided that currency X will appreciate against currency Y in six months, then you should open your position and be prepared to hold on it six months. There is no need to close it after two days because you see some small profit there.
You should keep your targets. Profit ones and also the stop-losses. If you reach your target sooner, that is great. But let your positions go in green deeply if they are on right paths.
There is a saying on markets. Stop-Loss is your friend. Funny and true. Not every saying is like this.
Using orders is basic stuff for every forex trading starter. Orders help you to set goals for every position. How much you want to earn and how much you will accept to lose. You set your goals not according your wish, but according to your expectations about market and currency pair.
It is good to have set take-profit versus stop-loss ratio. Generally, if you expect, that one of three of your trades would be profitable. You should have take-profit two times bigger than stop-loss. Then you will be at zero if your expectations are right.
It is important to let your profitable positions live longer than losing one. With simple order management, you can save a lot of money on your account.
Not using orders is a way to hell. You will not watch markets 24 hours a day including trading on weekends and without orders, you will miss a lot of opportunities to close your positions at the right time and right price.
What is written here, that is just basic rules, you should keep. Good traders always try to find out more. More about markets, more about expected events, more about themselves, more about the psychology of other traders, more about their past mistakes and successes.
Good traders always analyze what they did right and what not. They look in the past, look at the profitable trades. Look what they did before the trade, what analysis they made, what assumptions they have.
Best traders are able to find a pattern in their behavior in past. They find out what kind of behavior leads to profit and what kind of to loss. And then they will repeat the winning behavior. Or even find ways how to make money in forex without actually trading.
Believe it or not, but if you read this article till this point you are on right track. At least, you showed some patience, which will be very important for forex trading. Keeping our simple rules and recommendations will not make you forex genius. It will just put you on the right path.
The necessary prerequisites to become successful traders, but they are not all. There is no full exhausting answer to question “How to trade forex successfully for beginners”. This is just base you can use as a starter. Good luck.