How to trade Forex

Forex trading is the simultaneous buying of a particular currency and selling of another. Currencies are only traded in pairs and the currencies are from all over the world. The forex market is very popular and has been in existence for a fairly long time. It has more buyers and sellers and volume turnover as compared to the other different markets globally. In short, it is known to be a direct access trading for the different types of foreign currencies. A few years back, the trading was only limited to institutional traders and large banks but due to recent technological advancement, small traders and individual investors can also use the different trading platforms to trade. Although the forex market is extremely volatile and investors are prone to lose a lot of money, there are many benefits that come with this market too. Some of the outstanding attributes that offer unmatched potential making profitable trading are; high leverage, it’s a 24 hour market, it has high liquidity, low transaction costs, it is unregulated and it is an interbank market among others.

How to get started

Since forex trading can be a bit complicated for the novice traders and may require a lot of tools for one to be successful, professional help is required. The most prudent thing to do is to look for a broker with a wealth of experience in the forex market. Since the market is very volatile and you can lose a lot of money at first, you are better off finding the right broker to help you make the money you want.

Learning the basics through a forex trading course is an option that beginners should explore.

To help you get the right broker and make money, some of the important things you need to look and consider before you choose your broker are:

  • Low spreads – When comparing the brokers, it is good to choose the broker that offers you low spread as this will ultimately save you money.
  • Quality of the institution – Most forex brokers isnormally attached to large lending institutions or banks mainly because they require a large amount of money for the initial capital. You should consider the forex brokers that are regulated and backed by a reliable institution.
  • Extensive tools and research – Forex traders usually offer very many different trading platforms. The platforms often show technical analysis tools, real time charts, and real time news. Before making any commitment to a particular broker, it is important you request for free trials to test the different trading platforms. Ideally, what you want is a broker who will give you everything you need to succeed such as technical and fundamental commentaries and other research that will help you.
  • Account type – There are three different types of accounts that brokers offer their clients. There is the mini account, standard account and the premium account. Each type of account has different features but the premium account has the most advanced features and offers additional tools and services.

Short-term Forex Trading Strategies for Beginners

Trading forex or any other financial market for that matter, requires in equal parts, a certain amount fortitude, determination and skill. What strategy you have settled on using, however, needs to align with your individual trading style. Even if you are lucky enough to be given a consistently successful strategy by a professional forex trader, you will soon find that something’s amiss. This isn’t because you’ve been scammed but rather due to the fact that each trader’s psychology and reasoning is completely different. What may work successfully for someone in the long-term probably won’t work for you because of your unique personality and rationale. 

You can easily memorize an early checkmate strategy from a grandmaster but being able to force it in every game is on an entirely different level. That being said, there are some general rules in online trading that are common between all successful veterans. Most importantly, the guidelines you are going to follow have to match your endgame – your objective. Is your objective a short term cash grab or a longer-term investment that will accrue compounding returns year over year? Can your attention span handle the lower timeframes, or would you prefer a more laidback, higher-timeframe strategy? Scalping, swing-trading or position trading? 

Regardless of what you eventually pick, you need to remember that you need to start thinking about money and risk management before opening a single trade. Trading forex is a capital preservation game. If you manage not to be overcome by greed and be wary of your position sizing and use of leverage, you can be sure that results will come sooner or later.  

Scalping

You ‘ve undoubtedly heard of this one already. It’s quite popular because it might seem as the simplest forex trading method. Simple to grasp but hard to master. Scalpers aim to gain a minimal number of pips, most of the time just enough to beat the spread and then do it again and again until they hit their daily target.  

For your average forex trader, a target of 50 pips a day can be more than satisfactory. If you consider that a scalper usually opens more than 10 trades per day – with each one lasting no more than a couple of minutes – it doesn’t seem too unrealistic of an objective. Normally though, if you are evaluating yourself based on how many pips you win every day, you are trading forex the wrong way. Online trading is extremely inconsistent, and you can’t expect to hit a specific target every day. What you can expect are irrational price moves, high volatility and streaks of losses. That’s why your risk exposure and lot size should always remain within reasonable limits. If you are risking 20 pips to gain 100 that’s great but risking 200 for 200 won’t have a pleasant outcome for your account.  

If you are trading forex as a scalper, you should be on the lookout for brokers that are very competitive with their spread offering. The major pairs obviously are ideal for a scalping-minded strategy since higher liquidity means lower spreads. Also, every forex trader knows that they can find an abundance of liquidity when two markets are open at the same time. As such, trading forex when the European and American sessions overlap is a perfect time for the scalpers. The London session converges with New York’s open between 8 am and 12 pm (Eastern Standard Time).  

Finally, scalping may be a low risk strategy due to the high amount of trades with low risk exposure, but it requires high attention span and an emotionless trader. Expert advisors or trading robots are very popular with scalpers for this exact reason. 

Swing trading

Forex trading is great as a hands-on investment vehicle because of the volatility in the markets. Currency pairs can make moves reaching up to 100 pips in a single day and sometimes even more. Swing traders are aiming to identify when these movements are going to take place so they can profit from them. This strategy can vary from short-term to long-term with traders usually holding their positions from a few hours to a few days. 

Swing traders like volatility. They look for trending markets to spot pullbacks and breakouts. There are multiple suitable strategies within the swing-trading category, and you can even find it helpful using charts with either low or high timeframes. It all depends on the individual and his forex trading style.  

A popular indicator for swing-trading is the moving averages or MAs. Moving averages helps analyze the mean price on the chart for a set period of time. A short and long-term moving average indicator can be placed on the chart to predict where a swing will be established. Where the two lines of the indicators converge – it’s considered an entry signal because it predicts that the price will head towards the point where the two indicators meet.  

If you are looking to adopt a swing trading style of forex trading, you need to become familiar with price action. You need to invest a lot of time into reading charts to identify potential opportunities where the price is going to swing but it’s equally important to include strict risk-management rules with your strategy to secure your account. Always try to look at the big picture and don’t try to go against the trend. A wise forex trader never trades against the market. 

Conclusion

With the right kind of information, it is very easy to make a fortune from forex trading. You will need time and patience before you see the results that you had anticipated for initially but it will be worth it. Finding the right broker is the key to making it because they have the expertise and tools at their disposal that will make you money. So it is very wise to find the right broker and ensure the broker meets all your wants and needs to enable you to achieve your ultimate goals.