Six Forex Trading Tips for Newbies

Six Forex Trading Tips for Newbies
by: Gerald Njuguna


You have decided to be a trader in the forex market, and you have no idea on how to begin. Let's first start by defining what the forex market is and what it does.

The term "forex", also known as the foreign exchange is a market for the sale and purchase of all kinds of currencies. It originated in the early 1970's when floating currencies and free exchange rates were first introduced. At this time, the forex market traders were the ones who set the value of one type of currency against another.

Nowadays, the market forces determine the value of a currency against another. One unique aspect of the Forex market is that very little trading qualifications are required of anyone intending to trade therein.

Independence from external control ensures that only the market forces influence the currency prices. As the largest financial market, with trades reaching up to 1.5 trillion U.S. dollars, or USD, the money moves so fast, it’s impossible for a single investor to substantially affect the price of any major foreign currency.

In addition, unlike any stock that is rarely traded, forex traders are able to open and close any positions within seconds, because there are always a number of willing buyers and sellers.

1. The first thing you need to do is open a forex account. You will have to fill an application form which includes a margin agreement stating if the broker will be allowed to intervene with any trade when it appears too risky. Since most trades are done using the broker's money, it is only logical that he protect his interests. However, once you have established an account, you can fund it and begin trading in the forex market.

2. Adopt a trading strategy, that has proven to be successful for you. Remember that strategies will work differently for different traders, so don't try to adopt a strategy that works well for another trader. It might backfire on you. The two available approaches are either technical analysis or fundamental analysis. A combination of the two is a more preferred choice for experienced traders.

3.Understand that prices move by trends. Forex has a popular saying, “The trend is your friend.” There are certain movements that have been studied over many years in order to identify a pattern in the trend. These trends need to be understood in order to understand a good trading strategy. For small accounts that are $25,000 and under, trading with a trend may help improving your odds when compared to bi-directional trading. Most newbie’s will look to trade in any direction, when they should be trading with a trend.

4. Ensure you know which are the top five currencies pairs in the foreign exchange. These are USD/Yen, Swiss franc/USD, Euro/Yen, Euro/USD and Pound/USD.

5. For newbies, it is advisable to maintain two accounts to ensure you learn to play the trading game. Keep one real account, one that you will actually use to trade real money; and the second account should be a demo, one that you can use to test alternative moves in the trading game. You can easily use your demo account to shadow the trades in your real account so you can widen your stops to see if you are being too conservative or not.

6. Always examine the one hour, four hour and daily charts that concern your trades. Although you can trade at 15 and 30 minute time intervals, doing so requires a handful of dexterity.

source:http://newbies4rex.blogspot.com/

Great post Braveheart!

I definitely agree with all your points. Even though you're being really honest, there's no way to relay to newbies the challenge that's before them. If you don't have a friend to show the way, its like learning a new language...so frustrating at first.

In addition to the "trend is your friend" saying, I would like to bring up this one: "There are old traders. There are bold traders. But there are no old bold traders."

I think the main reason new traders lose so much, is because they are taught(by their broker) that its necessary to over leverage.

Another tip besides trading with demos is when you start trading a live account start small. Use a broker that allows specific unit pricing or at least micro lots. You can always add more money later if you're successful. But you can't get it back once its gone.

I resent the fact that you claim I am no longer Bold but realize that I am definately Old:
Abriged Bio:
First Trade 1970something
Last Trade Yesterday.

= 30 + years Trading and do quite well thankyou.
1 Year; 2 years or even 5 years IN is not impressive to me. Tell me you have been doing this Trading thing for a Decade or more & I will sit up straight and pay attention. Until then, you are Coming Along.

No slam intended.
Just as I see the environment you are thinking of stepping into.

Novice day traders often face “paralysis by analysis” because they get wrapped up in watching the candles on their screen and can’t act quickly when opportunity presents itself. If you’re disciplined and work your plan, actually placing the order should be automatic. Set a percentage of your total day trading budget which might be anywhere from 2% to 10%, depending on how much money you have and don’t allow the size of your position to exceed it. Otherwise, you may miss out on an even better opportunity in the market.

I want to discuss on your last point I mean, time frame issue! Yes, higher time frames are relatively stable than lower time frames! If you follow any trend that can be break at any time if your trend is against the high time frames like D1.

Thanks a lot for this informative thread! Yes, having a particular trading strategy is very much important for being a successful Forex trader! But, it’s not easy job to make a profitable trading strategy or system! I see, successful traders invested enough number of sessions on profitable trading system! By the way, in my live trading I use both kind of analysis! On the other hand, I follow money management and risk management policies in my live trading.

If you have most powerful analyzing strategy with no money management, then it will be useless. That’s why we have to emphasis on money managing approach first of all if we want to get maximal result by our strategies.

Nice post. Good trading approach + Good money management = the maximal result. But before live , you should use it in demo to see the performance how it works.

I think that the most useful tips are:
1. Good risk-management
2. Follow the trading strategy
3. Dont trade against trends.
lmho

No 3 ,
is a common trading attitude for the newcomers. they trade again and again. They try to take revenge from here by over trading and ultimately they become loser.

What you think about Good risk management? I think there is no good risk management because everything is uncertain in here

Yes, these points are important! I see maximum traders lose their money because they can’t follow the proper way of money management! In my trading I use a fixed risk-reward ratio and that’s my way of following money management policies in my trading!

So true Money Management is one of the keys to success

Hi iamvolosha,

Let me comment a little bit Your tips from my perspective:

1. Good risk management is always fine, but not always simple. If you take one trade at a time only it is quite easy to calculate risk-reward ratio. However for different forex strategies completely different ratios will work. Other thing is when You trades dozens of trades at the same time and on different timeframes and pairs. Then money management is more intuitive than strict and requires different approach.

2. Follow the trading strategy - yes, but if it is a bad strategy (many of them I;ve seen on FF) You should know when to drop it.

3. Don't trade against trends ?? Yes but only if You specialize in trending strategies. If You specialize in scalping / counter trend / no-trend trading, then this is rather bad tip.

Cheers!

Hi to all:
I have a question about Money Management in gerneral:

1)
Is: 1 news = 1 position? (e.g. 1% of the available margin)
Even when I trade this news with 3 currency-Pairs?
or would it be better to calculate:
1news = 3 positions (3 currency-Pairs) / respectively 6 position including hedging?
3 positions = 1% of the available margin

2)
when I trade GBP news with 3 positions and USD with 6 positions:
should I trade each position about the same amount? => GBP 1% of the available margin / USD 3% of the available margin
So a USD trade has double risk and destroys all wins on GBP?
Or would it be better to trade each news about the same amount?
So each news are equal but my trading amount of each currency pair in GBP is as double high (1%) as in USD (0.5%)?

How do you handle it?
I´m looking foreword to hear of your experienes
Chris

I agree with your 1st and 3rd point straightly! By the way, I see many traders start to follow their trading strategy without enough experiment! Even, they try to experiment their trading systems in the live account! That’s too much dangerous! If you are trading with a profitable strategy only then you can follow it otherwise not.

Receive a trading system, that has ended up being effective for you. Keep in mind that procedures will work differently for various traders, so don't endeavor to receive a system that functions admirably for another broker. It may reverse discharge on you. The two accessible methodologies are either specialized examination or central investigation. A blend of the two is a more favored decision for experienced traders.

Good tips. The biggest mistake newbie does is they treat trading as a gambling. They come here to get rich overnight. But they are unwilling to learn by themselves. But the reality is- you have to be skilled in order to make money consistently. If you can't invest your time in learning, do Not invest in the market.

I agree. People who do that not only don't get rich overnight, they lose their entire accounts overnight.

NONSENSE !! I "over leverage" by a lot more than its established here (in this forum and the internet lol) as the standar that you should risk and i end positive every month..

Noobs and every single trader that its losing its because of 3 things:

1.- Proper strategy or "aproach" for whatever you are trading; and that means clear rules for location of trade zones, the trigger pattern/setup, sl/tp targets (IF the strategy its not mechanical then ITS NOT repetable and therefore ITS NOT consistent, plain and simple)

2.- Proper money management and the lack of understanding between win rate and % per trade (and the stupid myth between a small sl and a "huge" targets lol)

3.- The discipine to develop the 2 above and stick with it and getting rid of the "fear" or "pussines" of risking money and getting a small chance of losing it (lol)


Fail one of this 3 and you "NEVER EVA EVA EVA" going to be profitable, period !!!