What was once the preserve of big banks, professionals and investment houses, has become a $3 trillion a day industry performed by people of all walks of life. Anyone with a small amount of money to deposit and an internet connection can trade the forex markets. Anyone can trade forex, but only a very small percentage of everyday traders actually make money trading forex. There isn’t some super secret to successfully trade forex, but if you follow these five golden rules, you give yourself the best chance to success in forex trading.
Before you make any trades, it is vital that you decide exactly how much time you are willing to allocate to trading. Be honest with yourself and choose the hours you can and will trade. This is important because a) you have a timetable you can commit to making planning trades a simpler task. b) you can customize a strategy to suit your hours. Once you have a timetable in place it is imperative that you stick to it. Missing out on trading time could mean the difference between a profit and a loss. Keep yourself dedicated to your trading times and above all use your time wisely. If you only have a few hours, stay focused and don’t get distracted from your tasks.
Know Thy Asset
There is a veritable wealth of assets you can trade, but you can’t trade them all. The best strategy is to focus on 1 or 2 assets, 3 at most. The reason for this is because in order to be able to predict an assets’ movements, you have to know every little nuance possible about that asset. If you are a part-time trader, you won’t have the time to swot up on loads of assets. Better to focus your time and energy on just a few assets so you give yourself the best opportunity to master those assets. Knowledge is power when it comes to trading and if you can understand why an asset is trading as it, you should be able to profit from its next move.
Two good assets for beginners are the EUR/USD and Gold. Both have very low volatility, but are liquid enough that there are profitable movements. Also, there is a lot of information available for both assets, making it easier to understand why it they are moving in the direction they are and what the direction will be next.
Read the News
Whilst you are not expected to know every single economic release of global event affecting the markets, it is vital to stay on top of what is happening, both overall and regarding your chosen assets. There are plenty of free financial news sites offering all the latest news and charts, which can be accessed through a phone. Make sure as part of your allocated timetable you dedicate a bit of time to reading the news and getting a grasp of what is happening of the markets overall. An example is if you are trading Oil, make sure you are abreast of events in the oil producing countries such as Iran and Venezuela.
Keep Your Emotions Out of Forex Trading
Keeping your emotions out of forex trading is a lot harder than it seems. The biggest problem for a lot of people is that they become emotionally attached to their trades. When it comes to money, emotions run high and we don’t like to lose. The fear of losing can see us making rash trading decisions, especially when we try and trade our way out of a losing streak. Another problem is that when some people are winning they have a habit of thinking they are invincible and make trades they wouldn’t normally make or have done the research for. It is important to keep a clear at all times, through the good and through the bad.
Study the Charts
Lastly and most importantly, you need to have a grasp of technical analysis. If you want to be a consistently successful forex trader you cannot rely on fundamental analysis (the study of macro and micro events) alone. You have to be able to know your way around the charts, know the indicators and be able to understand how basic strategies are applied to the charts. Remember, in forex trading, the charts are your friends and they can be used to formulate any number of different strategies. Candlesticks are the preferred choice for beginners. As forex prices can sometimes fluctuate by large amounts in just a small amount of time, the candlestick charts present the best overall picture of an asset’s direction. Be sure to experiment with different timeframes within the charts so you can get a clear picture of the asset’s short and long term movement.
Follow these 5 golden rules and you are on the right path to success in forex trading. It is worth noting that just missing out on the top 5 was Practice. As the saying goes, practice makes perfect and the more you practice your strategies, the easier and quicker you can perfect them. Most forex brokers offer a free demo. Although trading with pretend money is never the same as trading with real money, demo accounts are a great way to hone your skills and familiarize yourself with the platform and trading in general. Remember, forex trading is not rocket science. A bit of study, a bit of practice, a bit of discipline and a bit of luck, will go a long way.