Part 3 of 3: Starting Trading
A. Analyze the market. You can try several different methods:
Technical analysis: Technical analysis involves reviewing charts or historical data to predict how the currency will move based on past events. You can usually obtain charts from your broker or use a popular platform like Metatrader 4.
Fundamental analysis: This type of analysis involves looking at a country’s economic fundamentals and using this information to influence your trading decisions.
Sentiment analysis: This kind of analysis is largely subjective. Essentially, you try to analyze the mood of the market to figure out if it’s “bearish" or “bullish." While you can’t always put your finger on market sentiment, you can often make a good guess that can influence your trades.
B. Determine your margin. Depending on your broker’s policies, you can invest a little bit of money but still make big trades.
For example, if you want to trade 100,000 units at a margin of 1 percent, your broker will require you to put $1,000 cash in an account as security.
- Your gains and losses will either add to the account or deduct from its value. For this reason, a good general rule is to invest only 2 percent of your cash in a particular currency pair.
C. Place your order. You can place different kinds of orders:
Market orders: With a market order, you instruct your broker to execute your buy/sell at the current market rate.
Limit orders: These orders instruct your broker to execute a trade at a specific price. For instance, you can buy currency when it reaches a certain price or sell currency if it lowers to a particular price.
Stop orders: A stop order is a choice to buy currency above the current market price (in anticipation that its value will increase) or to sell currency below the current market price to cut your losses.
D. Watch your profit and loss. Above all, don’t get emotional. The forex market is volatile, and you will see a lot of ups and downs. What matters is to continue doing your research and sticking with your strategy. Eventually, you will see profits.
- Start trading forex with a demo account before you invest real capital. That way, you can get a feel for the process and decide if trading forex is for you. When you’re consistently making good trades on demo, then you can go live with a real forex account.
- Try to focus on using only about 2% of your total cash. For example, if you decide to invest $1000, try to use only $20 to invest in the currency pair. The prices in Forex are extremely volatile, and you want to make sure you have enough money to cover the down side.
- If your currency pair goes against you and you don’t have enough money to cover the duration, you will automatically canceled out of your order. Make sure you don’t make this mistake.
- Remember that losses aren’t losses unless your position is closed. If your position is still open, your losses will only count if you choose to close the order and take the losses.
- Limit your losses. Let’s say that you invested $20 in EUR/USD, and today, your total losses are $5, you wouldn’t have lost money. It is important to use only about 2% of your funds per trade, combining the stop-loss order with those 2%. Having enough capital to cover the downside will allow you to keep your position open and see profits.
- Ninety percent of day traders are unsuccessful. If you want to learn common pitfalls which will prevent you from making bad trades, consult a trusted money manager.
- Check to make sure that your broker has a physical address. If a broker doesn’t offer an address, then you should look for someone else to avoid being scammed.
This article consists of three parts:
- Learning Forex Trading Basics
- Opening an Online Forex Brokerage Account
- Starting Trading (You are on this page)
See my article documenting my own experience first hand in the Forex Trading world! See it here.
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