Forex trading is a profession in itself, and as for all traders in the world, you must first learn.
Many beginners think that it is enough to open a trading account and to read some daily analyzes to have in the hands the keys to success. Unfortunately, Forex Trading is not that simple.
A frequent mistake is the desire to start quickly, without having taken the trouble to train or, at least, to learn.
To put a remedy to this, you will find many specialized books and training in trading
, essential step for all those who wish to trade on the forex market. You can also attend some Forex Seminars
that will ease you into this exciting world.
There are certain rules and knowledge in Forex trading that can only be acquired by training with a professional. To neglect this stage is like going to go around the world with a flat tire. We can move a little, but it will not last long.
1. Set realistic goals
Due to lack of market knowledge, beginners in Forex trading often seek unrealistic and in-achievable performa
nce. To start, a beginner must set a single goal: do not lose.
Then, if you make 30% per year, you will be more successful than Warren Buffet who achieves an average performance of 23% per year.
What makes the results of the billionaire cited above, is that it owes its popularity more to the stability of its results than to their level of performance, since it obtained an average of 23% years.
We would not be talking about Warren Buffet today if he had targeted or announced a monthly performance of 20% over the last three months.
So at first, try not to lose. Then, if you get there, try to aim for a small goal.
If you can reach it, then you can try to aim for a bigger performance. Success is in the stability.
2. Choose the right Leverage
The leverage in Forex trading multiples offered by forex brokers are up to 500 to 1
The use of leverage in Forex trading is certainly one of the most interesting aspects of the currency market, but it is necessary to know how to use it sparingly.
I have sometimes heard that 50: 1 or 100: 1 was not enough because other brokers offer more.
Even if there's a theory that having more cartridges in your rifle is better, remember that using a 10: 1 leverage exposes your account to a 15-fold risk of daily loss. % if volatility reaches 1.5% in the day. At this rate, four or five consecutive losing trades can wipe out your entire trading account
. It is therefore strongly recommended not to use high leverage when starting.
After a few months of practice and greater ease, it is advisable not to exceed 50: 1 leverage, which seems to me already huge.
3. Currency pairs: Do not try to overachieve with them
Diversification can be a good thing when you're a conservative investor in Forex Trading. As the saying goes, "do not put all your eggs in one basket"
But when one starts trading in forex, it is impossible to be able to correctly track all currency pairs and news related to each of them. Each currency pair reacts according to its own parameters.
In the same scenario, two currency pairs will not behave in the same way. To avoid getting lost, it's best to start by focusing on one and only one currency pair, with a maximum number of 3.
4. Use the stop loss
Placing a stop loss correctly is not easy, especially for beginners.
As a result, even if the novice trader has taken a position in the good direction of the market, he will lose money on the execution of a misplaced stop loss. The logical next step for the beginner, out of fear, is to abandon the use of the stop loss. Do not give up. Use them carefully to protect your funds, and not too tight to allow the market its natural waves.
But sooner or later, trader without stop loss will probably generate significant loss. This is a very common mistake in Forex Trading that causes the closure of many accounts by the margin call. It is therefore imperative
to put a stop loss on each position entered on the market.
If you do not know how to place a stop loss, there is a lot of training (free and paid) to help you better understand how to do it.
5. Do not risk more than 1 or 2% per trade.
Some beginners are not shocked by jeopardizing 15 or 20% of the capital on a transaction.
The master rule of money management in Forex trading is simple. You should never
risk more than 1 or 2% of your account on a transaction.
We can have an excellent trading strategy, but if we do not respect the rules of prudence in risk management, we increase exponentially the risk of bankruptcy.
Make small losses often, and a big profit once in a while is a good vision of what someone should do to properly manage their capital.
6. Cut your losses early
A common mistake is to accumulate losing positions without wanting to cut them. Because to cut a loss is to admit that we were wrong. And it's not easy.
Sometimes, we hear that as long as the position is open the loss does not exist (the famous saying "not sold not lost
"). Yet a latent loss is beautiful and a very real loss at the moment.
It is usually best to cut a losing position, and the sooner it is, the better. Because the greater the loss, the more difficult it will be to close the deal.
If this can help you, remember that: one does not intervene on the forex trading to be right but to earn money.
7. Careful with Doubling Up
This is one of the most common mistakes and one of the worst things to do. It may seem logical when the market drops sharply to double its position
to lower the cost price.
There is a certain mathematical logic in this reasoning, and yet, the trader who goes down average commits two errors: he hopes that an unfavorable situation becomes favorable again, and he will think that a price level that has been reached in the past will inevitably be reached again soon.
Put yourself in the place of those who bought EUR / USD at 1.60 thinking (like a lot then) that the next goal would be at 1.80 then 2.00. Have they averaged down to 1.55? Now look at a EUR / USD curve.
The 1.60 level may be reached in the future, but when? Will traders have enough margin to support such losses
8. Average your high Profits
After a period of loss, and with all the stress that this can generate, some will cut their profit too early, as minimal as it is.
As soon as the balance is positive, the transaction will be closed.
So we see novice traders let losses run of € 800 and as soon as the position becomes a winner of € 5, they close the transaction, relieved not to be in a negative situation. We must try to win at least 3 to 2 risky.
9. Take the Spread into consideration
We can think that 1 pip more or less on the spread will not change anything.
This may be true on one or two transactions in Forex trading.
But you spend two transactions a day on a year, the difference will be 520 pips or about 26% if you are using 5: 1 leverage.
A strategy can therefore generate profits with a spread of 1.5 but be a loser with a spread of 2.5.
Do not neglect any detail.
10. Kill your Impatience
When trading, you sometimes have to be patient because you have to look for the right opportunity, wait for the market conditions to be favorable to the strategy you apply, and so on.
However, beginners in Forex trading will often make the mistake of taking a position without respecting the plans or strategies previously put in place because it is more exciting to be in the market than to follow its evolution.
Be strict with yourself in respect of your trading plan. And never get ahead of yourself. Greed and Impatience will doom you!!
11. There are NO miracle methods
There is unfortunately no miracle method or infallible martingale in Forex trading.
Many beginners in Forex trading get into the market looking for a way to generate profits with ease, from home and without effort.
While it is obviously possible to perform very well in the currency market, there is no easy way to make money on the financial markets, in the same way that the golden egg hen 'does not exist. Being successful in the forex market (or anywhere at anything), takes TIME, PATIENCE, PERSEVERANCE, HARD WORK. Do not believe those who sell you cheap miracles, it will become expensive.
These few lines can help you get started right in Forex trading, and avoid making the biggest mistakes. But rest assured, you will make some mistakes because it's also part of learning.