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Forex for beginners: 10 useful tips

This is a small instruction for beginners in the Forex market, I hope it will be useful for professional traders too. If you follow 10 presented pieces of advice, you will increase chances of successful trade and if you are an experienced trader, just compare your trading with these recommendations and maybe you will find something useful.

1. Increase used time frame – if you are the beginner, you have to trade on an interval not shorter, than 60 minutes. A random of Forex transactions on small time frames distort an overall picture and can mislead you. Use longer periods of time, such as 60-minute, 4-hour and even daily, planning your trade.

2. For each trade use about 5-20% of your general capital, trading with larger sums are too risky. The high leverage can increase profits in Forex, but very often it can lead to catastrophic losses. In stock markets, the leverage bigger than 1 to 4-10 is forbidden, and on Forex it reaches 1 to 100 and even higher. It leads the beginners into the trap where they lose all their capital. You shouldn't lose all your means too fast because you should have opportunity to adapt to quickly changing Forex market.

3. Give your strategy the chance to survive price fluctuations. You have to consider large price fluctuations and if you define the main price trend, don't allow the market to throw you out from the transaction using small price fluctuation against you. For example, 30 pips for a stop-loss will close your transaction at a loss too often, meanwhile the price, after small fluctuations again can continue the movement in the direction defined earlier.

4. Reduce your dependence on technical indicators. The indicators provide information on the basis of the last events and can't authentically predict the behavior of the price in the future. Don't refuse absolutely from the technical analysis, but don't rely entirely only on these data. An advice to the traders beginners: define the main trend (for example, simple moving averages will show you it) and trade in this direction. Successful traders, in contrast to beginners, rely on technical indicators in taking decisions only for 25%.

5. Use one or two currency pairs in the trade. Also stick to the main pairs, but not derivatives. Currency prices, first of all, represent fundamental data and to predict the behavior of a pair in the future, it is necessary to watch events in the countries of these currencies. If you trade too many pairs, it will be difficult for you to follow all events and to draw the correct conclusions. Over time, when you will become more skilled, you will be able to trade bigger quantity of currency pairs.

6. If on your deposit is less than $50 000 ask your broker to include your opportunity to trade with a mini-lot. If the broker doesn't offer such opportunity choose another broker company, trade in mini-lots is very important if you haven't enough money on the account.

7. Watch news on the chosen currency pair. Pay special attention to the important news which can considerably affect the exchange rate. The best strategy consists in closing the open transaction on currency before an exit of important news. In the Forex market, it is difficult for beginners draw the correct conclusion on the news basis. After a news exit, the quotes can move in the most unpredictable way, often against your expectations, and there is an opportunity to lose a lot of money.

8. Define the trend direction and trade in it. For beginners, the safest way of trading is trading in the trend direction. Using, for example, simple moving averages, define the direction of a trend, wait for the pullback and enter the market. Be careful at entrance if the price reached a price maximum or a minimum (use lines of support and resistance, try to use the RSI indicator) as in this case appears an opportunity that the tendency of the price movement (trend) can change the direction.

9. Surely use stop-loss (protection of open positions). Very often, traders beginners don't even think that positions have to be protected. Advice for beginners: don't put stop too close to the price, for example, define an average fluctuation of the price for the last bars of your period (use the ATR indicator) and put a protective stop at distance 2 * ATR from an extremum of the previous bar. And further it is possible to start moving the stop, counting it on the same formula.

10. Stop listening to the "gurus" declaring that the precisely know how the price will move in the future, don't trust unconditionally Forex forecasts. The nature of the Forex market guarantees that nobody has 100% reliable information about future price movements. There are a lot of factors influencing currency quotes so that the advice of ”professionals” is just their opinion. The saved-up experience, the acquired knowledge, and your intuition will lead you to your purpose and you have to trust it.

Good luck in trading! 



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Number of comments: 2
  • Crisnew
    • #

    These tips are useful not only for beginners, but for the professional, because sometimes you lose the perception of reality and do not manage to keep the deposit.

  • Stacey
    • #

    Very useful tips, when I was a beginner nobody told some crucial things about trading. If I had such a list when I just started, I would have made less painful mistakes.