Learn Forex Trading

Forex Trading 101:

There are many intriguing ascpects of Forex that make traders want to learn Forex trading. Over the last several years the Forex exchange has been the market to see the most dramatic evolution; now, many independent firms offer access to the Forex market through Internet-enabled trading platforms. Individual investors are now "shoulder-to-shoulder" with the large institutional traders, tapping into the astounding profit possibilities the Forex market has to offer, with access to the same market data and tools used by the once privileged institutions, hedge funds and professional traders.

In many ways, Forex is very similar to other the other well-known and often more used financial markets. Forex trading is riddled with recognizable patterns and clearly-defined technical indicators used to make predictions just like those found in stock trading.

But the real advantages of Forex trading are obvious in the market's unique features. Forex attracts much investor interest due to the many advantages not found in other financial markets, such as:

Many companies that offer access to the Forex market also offer “training accounts”; these accounts are usually provided free-of-charge and give the trader a specified amount of money to trade. These accounts offer the novice trader a chance to test the waters without putting their money at risk. The idea is that once a novice has gotten a feel for the market, they will open and fund an account with that provider. These training accounts are great ways to look into the Forex market and sample some of the tools and indicators that help in identifying Forex movements.

What you need for Forex Trading

In order to trade Forex, all you need some tools to work with. The first thing you need is a Forex trading account with money in it and then you can enter the foreign exchange market and start trading.

Forex trading is a little bit more involved than equity trading. You need to grow from the starting point of generally having almost no knowledge of the market or its nuances, to the point where you have a solid trading plan, understand the more difficult concepts and behaviors of the Forex market, and be able to trade with a cool calm and collected head. But most of all, you have to understand that wins and losses are all part of being a Forex trader.

Many professional and amateur traders alike have spent years, if not decades, trying to understand the Forex market and its intricate movements using charting, diagrams, complicated computer algorithms and software, but anyone entering the Forex market should have at least these concepts under their belt in order to make the most out of their experience. 

Understand your place in the Forex Market

In order to do understand where you stand in the foreign exchange, think about this fish and ocean analogy. You (the trader) are a very small fish in a very big ocean (the Forex market). In the foreign exchange market, some 92% of the liquidity is coming from big banks and experienced institutional traders. These are the big fish. Remember, they didn’t get to be big fish by letting all the little guys take a bite out of them every time they trade, so keep in mind they probably know something you don’t. Learn to swim alongside these big fish and catch the same currents they do. Facing them head on just marks you as prey and sooner or later you will be eaten.
Learn to read the Forex Charts and Understand the Market.

Many beginner Forex traders believe that these big banks and institutions have access to some well-hidden secret Forex trading strategies or use a secret set of indicators not available to the regular guy; but the truth is, they look at the same data and news everyone else does, they just use that information better.

The majority of the big Forex players are using simple, but proven technical analysis techniques like horizontal support/resistance, identification of trading ranges, Fibonacci, etc. These are coupled with fundamental trading ideas and the tables are turned in their favor.

As was mentioned earlier, you have to accept that these big fish have been around a long time and are highly experienced. They make money because of that experience and by a complete understanding of the core ideas and behaviors of the market, not because they have the "secret formula."

Money Management

This concept is one of the most important and crucial that a novice trader understand. As a Forex trader the emphasis should not be on how much you can make from Forex trading but on how you manage what you have.

This is the most common downfall of all novice traders. It is not uncommon to see a beginning trader risk the majority of their account on one or two positions. Not only does this tactic put you in a position to be “eaten” quickly, but the real danger to this type of trade is if the trader profits from it!!!! That’s right, a profit from this type of move not only teaches the new trader that a large stake in one position is the right thing to do but also that it works and should be repeated. This style of trading is not sustainable and professional traders do not trade in this manner. Don’t fool yourself into thinking that the big fish make money on every trade or that you will lose on every trade. At some point in their career every trader will have a batch of bad trades; it’s the nature of the beast. The question is do you have the right money management plan in place that enables you to survive this and move forward and can you stick to that plan?

Focus on the Market

Many new Forex traders will sit at their desks open their Forex charting software and punch in the latest hot indicator or tool they heard about or stumbled upon and place their trades as per the tools recommendations. Again, while this form of trading may work occasionally it is unlikely to see much long term success and could lead to major losses.
When these indicators fail to generate the required profits, these traders typically move on to another set of indicators. The novice trader should focus on the broader Forex market and understand what the indicators say about the market at that time; this allows the trader to identify the trades which have the best probability of being winners, increasing the chances of profit.

Successful Forex traders use indicators and tools like Fibonacci, Pivot points, price channels, MACD, RSI etc. These tools by themselves do not make the Forex market, nor do they make a successful trader. There are many successful traders and unsuccessful traders who use the exact same indicators. The difference is that successful traders understands how the market behaves around the indicators, understands what the signals actually mean and how to incorporate them into a trading plan. The best way to achieve this is to stop jumping back and forth between tools and select only those that compliment your trading plan, understand how they work, and then spend time in the market experiencing them in action.

Plan your trade and trade your plan.

This is a very common concept that seems to not resonate with novice traders who need to understand this idea the most. It should be every trader's goal to make money on each trade as per their trading plan. Forex traders must treat each trade as a business decision by calculating their risk and defining their entries and exits points. Many novice traders fall victim to the two major killers in the Forex market: gut instinct and greed. Many traders will ignore what the indicators are telling them whether it’s to sell and take a profit, or sell and cut losses. Those that do not follow their plan exactly as it’s laid out open themselves to big losses when a trade goes bad.
Many novice traders seem to lack the discipline to follow a plan for each trade. Then the following typically occurs: a novice trader will see a potentially profitable move, they decide on some random amount to buy or sell with a quick guesstimate, then place the trade without analyzing any risk or having an exit strategy should the trade head south. While this way of trading can be profitable over the short term it really comes down to luck more than skill. Inevitably the luck runs out and the trader is caught asleep at the wheel and often left holding a wiped out account.

The first question novice traders tend to ask themselves is “how much will I make on this Forex trade?” The first question experience traders tend to ask themselves is “how much is my potential loss / risk?” Learning to mitigate risk should be the first strategy a novice trader masters. There is rarely a bad defensive play, no profit is better than huge losses.

Your mind is your strongest asset and weakest link.

Entire books have been dedicated to the subject of psychology and its role in trading. Reading a library wroth of these doesn’t necessarily mean it will help you, but it should be noted that the subject is not to be tossed to the side.

Many beginners are soar losers and when a bad trade occurs, they rush straight back in and try to recoup those loses with even worse results. Many don’t understand this as an all too common weakness. Bad trades will occur, get used to it, but also get into the habit of taking a break before going back to trading. This approach will give the trader time to relax so that their emotions do not affect the trading decision.

Traders must never stop learning, never think assume know it all, and therefore can put the guard down. Every day is a learning experience in some way or other and traders must be prepared to learn lessons and invest time in improving their skills and experience. The day you stop learning is the day you should stop trading.
Expect the Unexpected.

The Forex market is a very interesting place, but there is one thing every trader needs to learn. Always expect the unexpected and do not get wrapped up in past successes or failures. No matter what the charts or indicators say; there will be times when the Forex market will just do the opposite. Whatever happens in the market you must maintain an objective outlook on your strategy and the Forex market and ensure that bubbles and crashes do not derail you in the long term.