Any beginner’s guide to Forex trading should start with a warning. Trading is one of those things that appears simple but is not easy. It is very easy to lose a lot of money in a very short space of time. That being said it is definitely a way to make money online that you do not need any qualifications to do. If you take the time to learn the important basics then you can make money Forex trading.
Perhaps you think you don’t know anything about trading on the Forex markets. Well if you have ever been on a foreign holiday you may well have experienced it in action without realizing it.
If you exchange money at a currency exchange counter then effectively you are engaged in foreign exchange. When you go to the counter and exchange US dollars (USD) for Euros (EUR) the amount you get will depend on the exchange rate on that day.
If you immediately change that currency back the amount of dollars you get will be less than you had before. This difference is down to the margin that the company sets to make a profit.
The global Forex market works in the same way by comparing the perceived value of one currency against another. When these values change in real time you can make money with Forex trading by buying and selling at the right time. As with any transaction you want to buy low and sell high.
Any beginner’s guide to Forex trading should include more than just explaining how to place a trade. That you can learn from the trading platform help section. A good beginner’s guide to Forex trading will explain what moves the markets, how to interpret charts, the mindset you need to be successful and the systems you can choose from.
What factors move the Forex market?
The markets really move based on sentiment as to what the value of each currency is when compared to another. Currencies are always traded in pairs, one currency vs another. The movements can be extremely volatile especially when a major piece of economic news is released or there is a natural disaster.
Natural disasters are by their very nature unpredictable. These can be anything from a Tsunami occurring, a pandemic being declared to a country declaring war.
There are set dates each month when economic results are announced. You can see this on a calendar on the Forex Factory website. The events that are most likely to move the markets are flagged in red. These include the release of interest rate decisions, unemployment figures, retail sales numbers and inflation figures. The Forex Factory website will show the predicted figures and then, as soon as the announcement is made, the actual figures.
Psychology of successful Forex traders
You may be worried that Forex requires a very advanced education in economics. The truth is that just about anyone can learn how to trade and make money from the Forex market. If you want to learn how to trade Forex, you will find that there are plenty of tutorials that can help you get started. There are many places online to find a beginners guide to Forex trading which will explain the basic principles.
In fact some of the top traders are not economic experts but psychologists. This is because one of the major factors moving the markets is human emotions. Apart from the economic figures the factors that drive the movements the most are greed, fear and hope.
Stay in control of your emotions
One of the most important deciders as to whether you will make money in Forex trading is your ability to control your emotions. Some traders are too greedy and hang on to a position for too long while others get out too soon. What goes up must come down… but will often go straight back up after a small pullback.
Hanging on to a losing position in the blind hope that it will come good is also a bad idea. One of the most important things to understand is that every trader will lose money on a trade sometimes. The important thing is to minimize those losses.
The most important point in any beginner’s guide to Forex trading is NEVER open a position without a stop loss in place. This will eliminate a lot of the fear because you know at the start what the worst case scenario is.
You should never risk more than a predetermined percentage of your account. The percentage may vary slightly depending on your attitude to risk and account size but should not be more than 1-2% as a beginner trader.
How do you learn to trade Forex?
Many of the best trading companies have education programs attached. You need to register with a trading platform in order to place Forex trades. When you are deciding which is the best trading platform for your needs there are factors you should consider. Some companies have a much tighter spread than others. This is the difference between the buy and sell point and although it seems small can have a great effect on your profits when you start to scale up.
Many of the popular trading platforms actually lag behind the market and are not actually displaying the real time action. This becomes important especially when you are trading on short time frames.
Paid platforms exist that actually show the price in real time. This is definitely worth considering if you have chosen to scalp the markets using short time frames.
You can also join online trading forums to ask other traders for recommendations of online courses to learn Forex trading. Take advice from those who are already successful as they may know the best beginner’s guide to Forex trading. Beware of those who are trying to sell you a system.
Open a demo account
However you study trading systems there is no better way to learn than to practice. But you don’t want to risk money before you have mastered the art. You want to open a demo account where you can trade with practice money to see how successful you are.
Do not move to trading real money until you are profitable in the demo account. Bear in mind that when you have real money at risk it will increase your stress levels. this is when trading psychology becomes really important.
Once you are trading real money and making profit let your account grow. The power of compounding will enable you to make significant gains as you will be able to increase your pound per point to reflect your larger account size.
A beginner’s guide to Forex trading will explain trading systems
There are two main ways to trade Forex and they vary depending on the time frame you choose to trade. Which way of trading is best for you depends to a large extent on your personality and when and for how long you can trade.
Scalping techniques are where you look for trades on the short time frame charts. The Forex market is very volatile and there can be huge swings from one minute to the next. If you are going to try and scalp on the 5 minute charts then it can be very stressful. You also have to be available to sit and watch the markets.
A far less stressful method is swing trading which is done on much longer time frames. Most swing traders will trade either a 4 hour chart or a day chart. If you have a full time job then day swing trading could suit you as you can study the markets and place trades at the end of the trading day for the pair you are interested in.
Trading in this measured way is good if you know you have the sort of personality to get excited and place too many trades. Done well trading can be quite boring, don’t act like you are in a casino.
Day trading makes it far easier to avoid getting sucked in to acting on impulse and committing cardinal sins like moving stop losses to avoid being taken out of a losing trade. This is something that many beginner traders are tempted to do in the hope the market will turn soon.
Obey the rules
However a good beginner’s guide to Forex trading will tell you to move your stop loss when you are in profit.
Warren Buffet said:
'There are only two rules for trading. Rule 1 is don't lose money. Rule 2 is don't forget Rule 1'Click To Tweet
When you have reached the first target you have identified as acceptable, you should move your stop loss up to the entry point. This puts you in a no lose position. You can then let the trade run to your next target level.
Another widely accepted rule of trading is
“Let your winners run but cut your losers short”
Although it is a good idea to move the stop loss to lock in profits you don’t want to do this too soon. It is not unusual for the markets to pull back and consolidate before moving in the original direction. Therefore you need to give your trades some breathing room to avoid being taken out by these fake outs.
You don’t need to win all your trades in order to profit. When you analyze your trades you want to place trades where if you are correct you will make a profit which is at least twice, but preferably three times your potential loss. You can lose more trades than you win and yet not lose money in the long term.
This is one of the things you should master while you are trading in the demo or simulator account. A lot of money is lost by trader’s who don’t follow their own rules.
Fundamental analysis vs technical analysis
If you are going to trade using fundamental analysis you will study the economic factors we discussed earlier like interest rates and try to predict how the markets are going to move. This is not easy. Even when there are surprises in the results this will often have already been factored in by professional traders who move the market with the weight of their money. They know they will tempt a lot of novice traders in to making bad trades.
A good beginner’s guide to Forex trading will usually advise that you trade what you see and not what you think will happen. You can use technical indicators to help you spot trends. Bear in mind that most of these indicators are lagging and show you what the market has already done.
Beware of adding too many indicators to your charts as you can end up with information overload. The best way of trading is Price Action trading. This relies on the actual price relevant to previous turning points in the markets.
The very best Price Action traders do not put indicators on their charts. They watch where the market has turned in the past. There are psychological levels where a market will be likely to turn just because it has done so in the past. These levels act as ceilings when the price is rising and floors when it is falling.
Automated Forex trading systems
It is possible to buy automated trading systems that work in one of two ways. Some will give alerts when potential trades are identified for you to make a decision on. Others will actually place trades on your behalf.
Another option you have is to fund an account with a fund manager who will place trades on your behalf. Some of these will promise you a certain percentage gain each month. If you are tempted by this then do your due diligence and examine their past performance. Make sure this has been reported to a reputable third party tracking service so you know it is genuine.
So can a beginner make money with Forex trading?
It is certainly possible to earn money from home by trading the Forex markets. You should not rush headlong in to it and treat it like a casino. Your success in trading should be down to sound analysis and not luck.
To summarise the key points are:
- Learn the basics of Forex trading before you begin
- Practice on a demo account until you are profitable
- Never trade with money you can’t afford to lose
- Do not risk more than 2% of your account on any one trade
- Work out your take profit levels and potential loss before you place the trade
- Accept you won’t win all trades
- Never chase your losses
- Let your winners run, cut your losers short
- Allow your account to grow and use the power of compounding
Hopefully this beginner’s guide to Forex trading has helped you decide whether it is something you want to learn. Once you understand the basics of trading in the Forex market, it’s really just a matter of having patience and following the signals given to you by the market itself. There are many people making money as Forex traders. Age is no barrier; whether you are a teenager just out of college or a Granny you could make money from home by trading Forex.