Every year a hoard of new people try their hand at learning how Forex trading works. It’s an exciting process, and it offers deep market liquidity. Currency values are constantly shifting, which opens up plenty of opportunities for traders to earn from their investments — provided, of course, they do it right.
But the trading game can be daunting too. For better chances of success, consider following these useful tips.
1. Educate yourself
It would be foolish to go in blind when there are risks involved in currency trading. Take the time to learn all aspects of the trade, and not just simply how to buy or sell a currency pair. There are a lot of things you need to familiarize yourself with, such as strategies, candlestick charts, and much more.
One option is to get formal training. Attending Forex trading seminars is a good way to help you gain a better understanding of the process. It also serves to connect you with other traders who can give you advice and valuable insight.
Another area you need to educate yourself about is current events, which can greatly affect the performance of key currencies. In its discussion on the history of the Euro, FXCM explains how it is affected by various factors, from political events, to natural disasters, to acts of terrorism. The Euro is the second most widely used currency in the world, and is used by over 19 countries. This means that every small movement of the currency can affect millions of people, and vise versa. World and regional events have a major impact on the value of currency. As a trader, you must stay updated on the latest news as well if you want to make successful trades, not just on the EU, but with other currencies as well.
2. Look for a reliable broker
Be careful when choosing your Forex broker, as there are many scammers trading on the market. Before placing your trade, scour the web for any reviews or articles before you invest your money in them. Take note of the platform your broker uses, as well. Make sure that their platform suits your preferences, especially when it comes to your strategy.
Trusted brokers usually provide quotes in real-time as well as advise on what currencies to buy. They will even go the extra mile to send you educational info on Forex trading, a service that newbie traders can greatly benefit from.
3. Keep track of your trades
After doing your research and choosing a reliable broker, understand that there is no shortcut to becoming a good trader. While these will prepare you for the basics, keeping an open mind and constantly evaluating your own trading strategies and their outcomes will make you grow even more.
In truth, you can learn a lot from your previous trades if you have them recorded in a weekly journal. The data you keep can help you analyze your areas for improvement and formulate a better plan for your next trades. The Balance’s guide on weekly journals suggests using pictures instead of written records. Screenshots of charts allow you to annotate key points, thereby providing you with visual proof of how you perceived the market on a particular day. This is much easier than jotting down notes that may not tell the entire picture when you return to them later on. Make it a point to review your journal at the end of each week and month to clearly understand your strengths and weaknesses.
4. Trade on higher time frames
Many often think that they can earn more if they focus on lower time frames. Seasoned traders know that it’s less stressful to trade on higher time frames, because they give you more time to make decisions. You have room to calculate your trade parameters, for instance.
This is not to say that you cannot profit from low time frames, of course. You still can, but it is generally more reliable to get trading directions from high time frames.
5. Consider currency futures
Business Management Ideas defines currency futures as contracts made to buy or sell a set amount of a particular currency at a specific date and price in the future. You can use these contracts to manage risks that involve currency fluctuation. However, currency futures are highly risky themselves, which is why you need to learn how they work. Your knowledge and predictions on currencies are crucial in making these contracts effective.
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FAQs
The 5-3-1 trading strategy designates you should focus on only five major currency pairs. The pairs you choose should focus on one or two major currencies you're most familiar with. For example, if you live in Australia, you may choose AUD/USD, AUD/NZD, EUR/AUD, GBP/AUD, and AUD/JPY.
What is the 5 3 1 rule in forex? ›
The 5-3-1 trading strategy designates you should focus on only five major currency pairs. The pairs you choose should focus on one or two major currencies you're most familiar with. For example, if you live in Australia, you may choose AUD/USD, AUD/NZD, EUR/AUD, GBP/AUD, and AUD/JPY.
How to earn on forex trading for beginners? ›
How to Make Money from Forex Trading
- Step 1: Understand the Basics. ...
- Step 2: Choose the Right Pairs. ...
- Step 3: Making a Trade. ...
- Step 4: Stay Informed. ...
- Step 5: Use Tools and Platforms. ...
- Step 6: Manage Risks. ...
- Step 7: Keep Learning. ...
- Step 8: Practise Before Investing.
Rule 1: Always Use a Trading Plan
The key here is to stick to the plan. Taking trades outside the trading plan deviates from your predicted performance and nullifies the value of your plan even if they turn out to be winners.
What is 90% rule in forex? ›
The 90 rule in Forex is a commonly cited statistic that states that 90% of Forex traders lose 90% of their money in the first 90 days. This is a sobering statistic, but it is important to understand why it is true and how to avoid falling into the same trap.
What is the golden rule in forex? ›
The golden rule of Stop Losses is that they should never be moved away from the market once the trade is opened. If a trader feels that their stop loss is incorrectly placed, they are recognising that the foundations of their trade are incorrect and therefore they should close out.
Is it possible to make $1000 a day in forex? ›
Sure it is. For example with the F1M Forex robot's high-profit setup, you can make an average of 3-5% profit per day. Sure you need a relatively high balance to earn daily 1k, but your account will grow fast, so you can reach the goal fast with a smaller initial balance.
What is the trick to forex trading? ›
The basic key questions you should ask yourself are: a) is there a trend? (yes/no); b) if there's a sideways trend – do nothing, with an upwards trend – look to buy, and with a downward trend – look to sell; d) look for support and resistance areas and then decide whether to place a trade.
What is the fastest way to make money in forex? ›
The way to make money fast in forex, is to understand the power of compound growth. For example, if you target 50% a year in your trading, you can grow an initial $20,000 account, to over a million dollars, in under 10 years. Break the norm, and gain more. Follow some of these tips and make your way into the big gains!
What is the most successful pattern in forex? ›
While there are a number of chart patterns of varying complexity, there are two common chart patterns which occur regularly and provide a relatively simple method for trading. These two patterns are the head and shoulders and the triangle.
This lot size accounts for 1,000 base currency units in every forex trade, determining the amount of a particular currency. Suppose you're trading the USDJPY (U.S. Dollar-Japanese Yen) currency pair, and the base currency is the USD. In that case, a 0.01 lot is equivalent to 1,000 U.S. dollars.
What is the best forex strategy of all time? ›
Three most profitable Forex trading strategies
- Scalping strategy “Bali” This strategy is quite popular, at least, you can find its description on many trading websites. ...
- Candlestick strategy “Fight the tiger” ...
- “Profit Parabolic” trading strategy based on a Moving Average.
Here are some tips to become a better and consistent Forex trader:
- 1.Utilize a demo trading account. Always utilize a demo account even if you no longer consider yourself a beginner. ...
- Keep learning. Markets are dynamic. ...
- Always use stop losses. Forex markets are highly risky. ...
- Control your emotions. ...
- Keep a trading log.
Best Currency Pairs to Trade for Beginners
- EUR/USD. Traders who are new to forex can benefit from the low spreads, low volatility and liquidity features of EUR/USD, one of the most popular currency pairs in the world. ...
- GBP/USD. ...
- USD/JPY. ...
- USD/CHF. ...
- AUD/USD.
To implement the 50 pips a day strategy, traders usually set a profit target of 50 pips and a stop loss to limit potential losses. They carefully monitor the market and open positions when they believe there is a high probability of achieving the target profit.
What is the 80 20 rule in forex? ›
The 80/20 trading strategy means that the minority of trades or market conditions can account for the majority of returns — approximately 80% of gains come from 20% of trades. This principle is about focusing on the most productive trading opportunities.
What is the 60 40 rule in forex? ›
The 60/40 Rule Explained
Forex options and futures contracts are considered IRC Section 1256 contracts for tax purposes. This means they are subject to a 60/40 tax consideration. In other words, 60% of gains or losses are counted as long-term capital gains or losses, and the remaining 40% is counted as short-term.
What is the 5-3-1 rule? ›
The big lifts: The 5/3/1 method uses the squat, deadlift, bench press and overhead press barbell moves. Weekly programme: 4 sessions a week, each session focussing on one of the lifts. Reps and sets: You'll be completing 3 sets of varying reps of 5, 3 and 1 for the chosen exercise over the 4 weeks.
What is the 3-5-7 rule in trading? ›
The 3–5–7 rule in trading is a risk management principle that suggests allocating a certain percentage of your trading capital to different trades based on their risk levels. Here's how it typically works: 3% Rule: This suggests risking no more than 3% of your trading capital on any single trade.
