7 vital things to remember, when starting out trading Forex

7 vital things to remember, when starting out trading Forex

Forex trading, like any other activity in the financial markets, is a risky enterprise. Protecting your capital should be of utmost importance, and rank far higher on your list of priorities, than becoming rich as soon as possible. You need to work out a rational and conservative approach towards markets. Below we’ve gathered some recommendations for beginners.

 1. Be moderate in your plans and trading activity

The Markets wont disappear overnight, it will still be there tomorrow, the next week and the years to come. Don’t worry that you may miss the “chance of a lifetime” when you test and practice your demo trading. Market opportunities will always be there and you will have ample chance to participate. You will lose nothing by contributing your time at first to education.

 2. Find reasons for your trade

When finally you’ve set yourself up to trade, don’t do it just because you feel you must, or you’re bored. Also don’t ever act spontaneously. Risk your money only if you see the facts support a favorable chance of success in your trade and be sure to also prepare your trading plan.

Very Important! Do not trade “for revenge”. With a significant loss or number of losses in your account, you might be tempted to trade more often and with a bigger lot size to try make up for the loss in the shortest time possible. There is nothing that says this determination may not lead to even more damage.

 3. Treat leverage just as an extra option

There is no law forcing you to conduct margin trading on each and every market you trade. The higher leverage you take, the higher risk you face. This instrument helps only if you know how to use it. To get to know it, you need time.

 4. Be careful with  an early success

To have a number of lucky trades at the very start of your carrier is quite probable. But it is just one of market’s tricks and can lead to a sense of false confidence: in the beginning we reap our rewards and become sure that we are excellent players.

People often say that freshmen are lucky, and this is particularly true for Forex. After a lucky streak traders may increase their trade size and volume of trades without any reason other than overconfidence, all on the eve of a big loss. Try to stay calm when facing either a loss or a gain.

 5. Work and think on your own

We are taught to think that each problem has its “ready-made” solution and each need is satisfied with a relevant product, medicine or service. Though sometimes we want to rely on somebody else’s trading ideas, research, system or recommendations, it is important to remember that progress most often only happens when we analyze and make decisions on our own, understanding the reasons why and what we did.

Of course, it is important that the experience gained by other people should be taken into account, and having access to ideas constitute our trading plan. But there is no short way to success. Confidence in your trading idea can only be reached once you’ve conduct all the research and understanding the concept completely on your own.

 6. If something seems too good to be true, it usually is.

Whether it be a trading system, “solid” information or an indicator – all that promises excellent returns with n0 risk – must be avoided by you at all costs. There is no trading system which can bring profits for 95% of the time, allowing you to earn enormous amounts of money that does not entail risk.

Be skeptical and find the proof for each trading idea including those you invent yourself.

 7. Conduct research and test your convictions

Work with the trading ideas which you can easily define, thoroughly research and test fully.

Vague ideas – like “buy when market is oversold or sell when you are at a good profit level” – provides uncertain results. Observations must be transformed into specific rules which you can check back on at any time you wish to review your latest trading data.

For example, what do they mean by “oversold”? That’s too vague, and it could mean anything. An example of a good rule is: when the market reaches lower Highs and lower Closes, 5 days in succession. Will this definition be a good buying signal or not – this question must be answered with the help of research and testing.

 To work out an efficient approach towards your research and testing, follow the below three rules:

1. Keep records and study results of your trades regularly.

Most of the traders, who consistently achieve good performance and results agree that studying your past experience is a must.

2. Be patient

Trading the financial markets is a profession and is not as easy as it may seem. Time is needed to acquire skills in any discipline or profession. Just consider the fact, can you manage to become a good musician, doctor or engineer in just one year? Of course not!!! So why would you expect trading to be any different?

For most private investors and traders, trading is not a profession from which they draw a “salary”, at least not at the onset. So be aware of the risk of losing all money, and don’t expect to earn returns on all your trades. Risk management is key to staying in the game!

3. Have sufficient capital

Insufficient capital is the cause of destruction of most new enterprises, and trading on the financial markets is not an exception. Be sure to have surplus capital and only risk a small percentage on each trade. Running out of money will cause you to challenge your plan and actions each second of the trading day.

Trade using a conservative amount of capital, even less than your scheduled minimum would be. Then gradually increase your volumes as you become comfortable and increase your education on how to trade the markets.

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