The world of foreign exchange, or ‘forex’, trading can seem daunting for anyone who is just starting out in it. Perhaps it’s because you are betting on entire countries’ economies that leads to many traders simply feeling overwhelmed when it comes to forex trading.
However, the magnitude of the subject shouldn’t put you off. Here are some tips and bits of advice for anyone thinking about starting up a career, or side-career, in forex trading.
1. Do your research
It may sound obvious, but forex trading is not something you can jump straight into and learn as you go along (unless you’re willing to lose a significant amount of money). Buy the books, subscribe to the blogs, and generally immerse yourself in the world of forex trading before you even start committing yourself to it.
Forex trading is at times a complex world which is heavily influenced by global events, so do your homework to make sure you know what to look out for when you start. You should also be closely following news around the markets you are interested in trading in.
2. Start small
If you’re just starting out in forex trading, then it makes sense to start with small sums and slowly build your way up. We’d also suggest starting out by focusing on only one currency pairing, before branching out into new pairings once you feel more confident.
Also, the first few currency pairings you decide to trade in should be ones you have a good understanding of already. If you mostly follow news items about the Euro or the US Dollar, don’t start by trying to trade in the Japanese Yen and the South African Rand!
3. Learn the patterns
A huge part of finding success in forex trading is being able to identify chart patterns in order to predict what might happen next in certain currency pairings. People with a vague understanding of forex trading might be familiar with terms such as a Head and Shoulders pattern, or the Rising Wedge, but you need to understand every common chart pattern and why they occur. They might seem a bit complex, but once you know what to look out for, knowing about forex trading chart patterns will be an invaluable asset in your forex trading career.
There are a few online tools that can help you learn about the most common patterns, including the DailyFX forex trading patterns piece. Make sure you learn about the factors that lead up to each pattern as well, so you can take advantage of them early.
4. Know your limits
As with any type of trading, you should always have a rigid exit strategy which you should stick to, no matter what. Only ever commit money to trading that you are comfortable losing, and within this, be aware of how risky you are willing to be. To effectively trade within forex you need to know yourself very well, and part of this means understanding just how risky you are willing to be with your trades, and how much you are able to put on the line.
5. Learn from your successes (and failures)
Forex trading involves risk. How much risk involved is entirely up to you, but you will need to take some chances, and you will inevitably make some losses along the way. Don’t be disheartened, but rather see what you can learn from these losses. Did you make a mistake? Were you over-confident in your prediction? Did you put too much money on the line? You need to ask yourself these questions so you can develop a sound strategy and hopefully never make the same mistake twice.
Similarly, when you find success don’t simply pat yourself on the back and forget about it. Look at what you did and why it worked. Was your timing impeccable? Did you read something in the news and then correctly guess how it would impact a specific currency pairing? You need to take note of your actions that lead to success in forex trading, making sure you are always learning.
It’s also important to remember that no one can ever fully predict the future when it comes to forex trading – otherwise they would be very rich! Don’t expect a repeated set of circumstances to have the same outcome as last time, but rather use your learnings to give yourself as much chance as possible to predict the next currency move accurately.