Currencies constantly rise and fall in value, making forex a highly volatile market. The high level of risk causes many beginners to face unnecessary losses.
Naturally, every forex trader will lose at some point, but there are various strategies to implement to minimise these losses. With this in mind, we look at five things that every beginner forex trader should know.
1. Have a trading plan and strategy
There is a lot of logical estimation when it comes to trading forex, but that doesn’t mean trades are won with a shot in the dark. To improve your odds of making a profit, you will need to research the various trading strategies, including swing trading, trend trading, day trading, and scalping. This is a key part of forex trading for beginners.
The strategy you choose will be intrinsically linked to your overall goals and the current market activity.
You will also need to devise a trading plan, which will allow you to pick your pay from an objective stance. Having a solid trading plan in place will make sure your goals are always considered before buying and selling forex.
2. Learn about leverage
Forex is volatile enough as it is, and that’s before you throw in leverage, which is the industry word for borrowed money. Leverage has the potential to grant access to large-volume trades at times when your liquidity is low. However, if you lose a profit on leveraged trades, you still have to pay back the borrowed money. If you lose too much leverage and hit a losing streak, you’re going to be in serious financial trouble.
3. Familiarise yourself with trading pairs
Currency is always traded in pairs, so anyone dabbling in forex trading for the first time will value learning about how various pairs act within the market. As well as having a watchful eye on trading charts, you need to understand what’s recently happened, what is happening, and what may happen within the market backing the currencies within a pair.
4. Removing your biases and emotions
Wherever there’s money involved, it’s a safe bet that emotions aren’t far behind. However, you need to learn how to trade without emotions, as they’ll only force you to make rash decisions. As well as this, you need to figure out how to put aside any biases, and only make trades based on research and winning potential.
5. Explore trading tools
To help improve your trading game, there’s a plethora of online resources you can use. For example, an online trading tool will help you to view all potential trades, follow in the footsteps of successful traders, set stop/limit orders, and so much more. When choosing a trading platform, you can usually try the features out on a dummy account, which involves zero risk.
Whether you’ve made your first trade or not, keep these tips in the back of your mind to start walking in the right direction. Forex is a volatile machine, so constant observation will be needed. Remember, a solid strategy and trading plan will help you to mitigate losses.