Forex trading tips: 6 most crucial tips to get you started
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Skilling Writers Team
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- Finance
- Trading
Forex trading tips
Forex trading is carried out across the planet, allowing traders to buy and sell currencies in a huge, highly liquid marketplace. This is one of the most active financial markets, with an average daily trading volume of $5 trillion. What forex tips do you need to know to get started in this area?
First steps when forex trading
The first thing you need to do to trade currencies is to open an account with a trading site that has a forex option. Internet trading now makes it far easier for anyone to get started, so you just need to look for a professional site where everything you need to know is clearly explained. Signing up to a site where you can try a free demo account is a smart move, as this lets you test your skills and try out different approaches before you start trading with real cash.
The next big decision is around the currency pairs you want to trade. Each transaction includes two currencies, which are shown as three-letter codes such as USD (US dollar), EUR (Euro) and GBP (British Sterling pound). These currencies are generally divided into the following categories:
- Major currencies pairs are the most widely-traded and include the likes of EUR/USD and GBP/USD. The USD is always included as one of the currencies, and you will find news and forex daily trading tips for these combinations easily.
- Minor currency pairs have stable currencies from major economies but don’t include the US dollar. They can be for pairs such as GBP/EUR, EUR/CHF and so on.
- Exotic pairs combine a popular, heavily-traded currency such as the USD or EUR, together with a less common choice. The RUB (Russian ruble) and TRY (Turkish lira) are examples of such currencies that can be used in these types of pairs.
The exact currencies that you trade will depend upon your trading style, as well as your knowledge and interests. If you choose more stable currencies, you should see smaller price swings, while exotic pairs can move in a wide price range in a short period of time.
Different trading styles when using forex trading
What trading style will you use once you get started? There are a few different methods, with each of the main strategies having its own set of advantages and drawbacks for you to consider:
- Day trading
- A day trader buys and sells their positions in the same day, looking to take advantage of small price movements.
- This approach means that you can find lots of trading opportunities.
- This type of trading requires a lot of time and a good understanding of technical analysis.
- Day trading is a high-risk activity, as the majority of day traders lose money; however, for those who succeed, it can be lucrative.
- Range trading
- This is another strategy that produces a large number of trading opportunities.
- With range trading, you identify the key prices, such as resistance and support levels, buying and selling at these points to maximize the profit potential.
- This style of trading is focused on maintaining an acceptable risk to reward ratio.
- Technical analysis and time are needed to make this strategy work.
- The time that you hold each position will vary, depending upon how long it takes to reach the top or bottom of the range.
- Precise market timing is a significant risk of range trading; understanding when and for how long the investment may trade between two prices is critical.
- Scalping
- You can find plenty of scalping opportunities on any given day.
- This approach is about opening and closing various trades quickly during the day, as you look to get small profits regularly.
- A lot of time needs to be spent on it during the day for this trading style to be effective.
- The risk to reward ratio is relatively low, when compared to other strategies.
- Swing trading
- This is a medium-term forex trading style where you hold the position for long enough to benefit from a price swing.
- Swing trading requires less of your time than other forex strategies like day trading.
- There is the risk of price movement overnight and at the weekend that could affect your profits.
- Different types of analysis, as well as a stop-loss mechanism, can be used.
- Understand your needs and abilities.
- Take some time to consider your level of experience, your risk tolerance, and the other major factors that will determine which type of trading suits you best.
- Set objectives.
- What would you view as being a success in your forex trading? You could set a tough but achievable objective for the first month, the first year, or for whatever time period you have in mind.
- Start off gently.
- The use of leverage in forex means that although you can increase your exposure massively for bigger profits, there are also higher risks associated with bigger losses. It makes sense to start off gently with relatively small trades until you become more confident.
- Choose a single currency pair to begin with.
- With so many currency pairs to choose from, it is a good idea to concentrate on just one at the beginning. Look for a pair that you know enough about, that you feel comfortable with and that may be easy to research. It should also tie in with the trading style you choose, in terms of volatility and price ranges.
- Track your performance.
- Keep good records of your trades and how much of a profit or loss you have made on them. This will allow you to get a better understanding of what is working and what isn’t.
- Don’t let your emotions take over.
- You need to be careful to keep your emotions in check, otherwise this can lead to bad decisions being made in the heat of the moment. Have a plan and stick to it even when you feel the excitement or the nerves rising.
Forex trading tips
Getting started is not so hard, as we have seen in this forex trading guide, but what tips for trading forex do you need to seize potential trading opportunities? The following are some crucial pieces of advice that you may want to remember when looking for forex trading ideas.
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Tips from well-known traders
- George Soros is known as the man who broke the Bank of England after he made $2 billion from a single trade. His reputation is built on making speculative trades with huge levels of leverage, meaning that they can result in enormous profits or losses.
“It's not whether you're right or wrong, but how much money you make when you're right and how much you lose when you're wrong.”
– George Soros
- Van K.Tharp is a well-known trading coach and consultant who founded the Van Tharp Institute. He has written four books on the subject and has introduced the concept of trading psychology techniques.
“A peak performance trader is totally committed to being the best and doing whatever it takes to be the best.”
– Van K.Tharp
- Victor Sperandeo is a highly-successful trader, who has invested in various types of financial instruments over the years. He is best-known for making a reported profit of 300% on the stock market crash in 1987.
“The key to trading success is emotional discipline.”
– Victor Sperandeo
Next steps and additional resources
Now that you have some of the top forex trading tips in mind, it is time to take the next steps and look for additional resources.
- Start researching the currencies you are interested in trading.
- Look for trends and breaking news in the currency market.
- The Metatrader 4 platform is particularly popular with forex traders.
- Skilling cTrader is suitable for more experienced users looking for a highly advanced platform.
Not investment advice. Past performance does not guarantee or predict future performance.
