Everybody who comes to the forex market wants to be profitable. Nobody starts with the idea of losing his money. But a lot of newcomers lose them all. Read our essential 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?
Famous stock investor Peter Lynch once supposedly said: “You can invest just when you already have your house, car, saved 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 the a lot of recent events 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.
In the beginning, we recommend putting together a simple list. It should include:
- The amount, you want to invest
- Currency pairs you wish to trade
- Maximum position in one currency pair
- Maximum overall position
- Maximum position open overnight/over the weekend
- The average duration of positions
- Maximum stop-loss distance from the 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 a 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 a position with a loss, you will feel an urgent need to open a new position to cover your losses and to prove the world you are right. This anxiety will bring you to an end.
You will open more and more positions till you finish with zero on your account. It is more gambling than forex trading, isn’t it?
Discipline is essential because of risk management. You have to keep limits every time and with no mercy.
Once you break limits you set at the start, you will do it again and again. Int 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
It is nice to finish a day with a big profit. But it is much better if you can complete 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 for 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 targets and also the stop-loss limits have to be kept at all times.
If you reach your target sooner, that is great. But let your positions go in green deeply if they are on the 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 to your wish, but according to your expectations about market and currency pair.
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, seven days a week, and without orders, you will miss a lot of opportunities to close your positions at the right time and right price.
We wrote down just the basic rules for forex traders. However, good traders always try to look deeper.
They will search and read 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 whatnot. They look in the past, look at the profitable trades, and write down what they did before the deal, what analysis they made, what assumptions they had.
Best traders can find a pattern in their behavior in the past. They find out what kind of behavior leads to profit and what type of action to the loss.
And then they will repeat the winning behavior. Repeating of smart moves is just one tip from many on how to make a living forex trading.
Believe it or not, but if you read this article to this point, you are on the 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.
There is no full exhausting answer to question “How to trade forex successfully for beginners”. This is just the base you can use as a starter.