Forex trading is one of the largest and certainly the most exciting retail trading market in the world. Due to the proliferation of online brokers, it is more accessible than ever. In fact, you – yes, you, reading this – can start trading within 2 minutes for as little as 10 USD. And the great thing about so many people being involved in the Forex market is that there are so many people to learn from.
So, what makes a great Forex trader? Well – education is a priority of course. You have to know what you are getting into. Before you start trading, I highly recommend opening a demo account and making as many practice trades as you need to until you feel comfortable. Alongside this, you should read and watch as much educational material as you can, you can never be overeducated when it comes to Forex trading.
It is important to remember that the Forex market can be a cruel and unforgiving place. Mistakes will cost you, but if you go in smart and cautious you can also profit greatly. These are my top tips for not getting caught out.
How to Become a Successful CFD Trader
Set a Stop Loss!
Always make sure you have a Stop Loss in place! The Forex market is a wild beast can turn on you in a fraction of second. All it can take is an unexpected turn of events in geopolitics – or even as something as simple as a slightly lower than expected employment figure from a far-flung region of the world – and the market will respond instantly.
Your carefully laid plan will be thrown into disarray and all of a sudden you are looking at a cavernous hole where your tidy profit once stood. Sometimes it is better to run and live to fight another day and a Stop Loss will allow you to do this.
Take Your Profit!
Just as important as setting a Stop Loss, you should always remember to set a Take Profit. This can also be phrased as “don’t be greedy!” Yes, your trade is doing great and the markets are still moving in your favour, and the temptation is there to keep your position open and watch your profit get larger and larger.
But, it’s not going to keep on going forever and the market WILL turn, and that will leave you kicking yourself that you didn’t get out earlier.
Don’t be that person, think about what you would be happy with before you place your trade, set your Take Profit and resist the temptation to change it.
Don’t Risk it all!
Also very important is this one. Don’t use your entire account on a single trade, don’t use your entire account on multiple trades, don’t ever use your entire account when trading. Before you trade, think carefully about what you can really afford to lose and stay under that figure.
The rule of thumb here is to never risk more than 2% of the account balance on a single trade. This prevents traders from betting the farm and burning out the account. You may have to start out small, but with careful management, small will become big.
Keep an Eye on the News
As mentioned, the markets often turn based on geopolitical events and more prosaic things such as government data releases on employment, consumer activity and the like.
Government data releases like the NFP release are scheduled well in advance and many news outlets will have analyst predictions on what to expect – keep on eye on the timing and expectations around these data releases and you won’t be caught out when the market moves in response.
Geopolitical events are slightly harder to predict of course, but if, like me, you take an interest in current events, there is often foreshadowing of larger events that you can take advantage of.
Trade What You Know!
Maybe slightly obvious is this one, but don’t start out trading the Japanese Yen/Argentine Peso pair if you don’t have very specific knowledge.
My advice is to start on the major currency pairs: Australian Dollar/US Dollar, Euro/US Dollar, Japanese Yen/US Dollar, etc. These pairs respond in mostly predictable ways to events and data releases and have huge market depth (a lot of money moving through them). And if you are familiar with commodities, then go ahead and trade them instead.
Choose Your Broker Carefully!
As I mentioned at the top of this article, there has been an explosion in the number of online Forex brokers over the past few years, and not all broker are created equal.
- How well regulated do you want your broker to be?
- Do you want a market maker broker or an ECN/STP broker?
- Do you want customer support on the weekends?
- Do you want an unlimited demo account?
- Do you want personal educational support?
- What kind of platform do you want to use?
- Do you want daily analysis?
Finding the right broker is of utmost importance and will shape your trading experience in many ways – make sure you get it right. There are websites that help traders understand the differences between the brokers and help narrow the field.
Copy Successful Traders!
Many trading platforms these days allow you to copy other traders, often for a fee and will have a continually updated list the best performing traders. Take advantage of this, especially when you are starting out.
Yes, you lose the autonomy of trading on your own steam but these are also great learning experiences too. Educate yourself and make money at the same time – it’s a win/win!
Remember, Forex trading is fun and exciting, but can become stressful and decidedly not fun if you don’t stay smart and cautious. Before you jump in, learn as much as you can and use that demo account.
Don’t be afraid to reach out to them to the trading community – you will find that most traders are happy to offer tips and tricks and, in my experience, are a very welcoming and friendly bunch. Otherwise, just follow my advice above and you will be turning a tidy profit in no time at all.