Forex Fx Trading

Online Trading Guide - Forex Fx Trading

It is quite possible to make an average of over a hundred pounds a day with an account balance of less than £1,000. And obviously with a larger account, the daily average would also increase. We cannot teach you all the analytical skills required to maintain that level of profit, as you need to do your homework, and besides, what you will soon learn is that to become a successful trader you need to develop an arsenal of trading strategies, as what works well one day may prove disastrous the next as changing market conditions require changing strategies.

What we recommend, and this is what any trader worth their salt will tell you, you should start off by reading up on forex trading, and by this we mean BUY A BOOK! We are not here to sell books, but we do recommend that you go to the Forex Trading book search on amazon.co.uk.

The best way to get to grips with strategies and terminology is by poring over a decent trading book. Of course there is always advice available on forums, but, if you have not got the necessary basic understanding you will struggle to understand what they are talking about. You will find yourself asking a series of unecessary questions, and you will be stuck waiting for answers before you can move on. Do yourself a favour and buy a book - it will save you a lot of time and probably money in the long term.

So What Trading Guidance Are We Giving Here?

Below is advice on many of the elements that contribute to an overall balanced approach to trading. In short, if you want to be profitable in the long term as a forex trader, you need to be more of a trader, and less of a gambler. You need to develop your own trading rules, and you need to stick to them! Read On!

Don't Get Lucky - Get Smart

We've all felt lucky and that can be a problem. The dangerous word here is not 'lucky', it is 'feel' - feelings are a trader's enemy, emotion is a killer and should be reined in. Always detach yourself before trading, take a deep breath, count to ten and ask yourself why you are placing a trade, is it an emotional repsonse to previous trades, or is it well considered move?

Trading Demo Caveat

Using a demo account is advisable if only for the purpose of familiarising yourself with the broker's software, and comparing it with other platforms. However, if you have managed to trade successfully on a demo account, do not assume that your performance will be automatically repeated on a live account. For example, with a virtual account you will be more tempted to leave a trade open over the weekend, whereas you may not in a live account - your 'bottle' may go, or in trading terms your 'risk appetite' may decrease. So ask yourself when placing a demo trade "Would I do this with a live account?".

The transition from a demo to live account can be tricky in this sense as a lot of people who do well in the demo collapse in the live account, the reason for this being that they are not aware of the psychological issues involved in the transition. The worst case scenario in this context is that having traded well in a demo, a new user will go live and up their risk levels / cash under the assumption that they have 'learnt the ropes', and are ready to make 'big cash' - it doesn't work like that - it takes time. (Having said that, there will be exceptions, but when you hear of them, just bear in mind that they are generally exceptions). In this sense it is a contentious point as to the value of demo accounts. It may even be appropriate just to open a demo to get used to the software, and go straight into live trading - although with minimum stakes.

Forex Leverage Guidance

If you have a 10,000 lot size account each point move of a currency is equal to $1. If you open a trade with $50 at a leverage of 200:1 and it moved 50 points in the wrong direction it would be closed because your margin would be gone (dependent on your broker the trade may be closed before you have used all your margin).

It may be better to open a trade with $200 (margin) at a leverage of 50:1 (50 x 200 = 10,000) - as long as you have placed a well considered stop loss. This way if your trade moves more than 50 points in the wrong direction your trade will not be closed before your currency can swing around back in the right direction. The margin and leverage size will not alter your winnings, however higher leverage allows you to trade with less money (margin). Note: the example of a $50 margin is based on a platform where the margin is calculated based on the level of 'stake' you wish to use. On some platforms it is done the other way around; margin is calculated as a percentage of the amount of units of the base currency you wish to trade on.

Get Used To Losing Trades on Forex

This is partly a repetition of a previous point, but, it does need repeating. You need to get used to losing on Forex, it is inevitable. If you do have a winning streak, then it is probably just that, a streak. Don't increase your risk until you have have trully tested your trading abilities over a period of time (you'll know when the time is right). Secondly losing in the early stages is essential as you need to assess your response to losing, and if necessary act on it.

How do you feel after losing - do you feel at all? The best position is not to have any feelings, anger, dissapointment, revenge and other feelings will only cloud your judgement on the placing of future trades. Similarly feelings such as joy, superiority and invincibility following winning trades are also problematic. In either case your response should be one of clear objective assessment, and if you do find emotions arising, step back and give trading a miss for a day.

Use A Stop Loss And Stick To It

Always use a stop loss - you never know what is going to happen while you are away from your PC. Consider your stop loss; if it's too near, will your trade be closed down prematurely? If its too far, does it conflict with your money management policy? Options are available to adjust your stop loss mid trade with a few broker platforms, but you should have a very good reason for adjusting it, remember, you decided on the initial level of stop loss for a reason.

Trading Strategy - Use Your Own

Develop your own trading strategy. If you think you have found a guaranteed trading strategy, or you have that magic formula or software that everyone is looking for, then think again! There are strategies out here which appear to work (for a while), but even then they are not made to fit everyone. Everyone has different levels of risk appetite, and discipline, available cash etc. - so even in best case scenario, the best system is not going to suit all. Choose a currency pair and from there develop a strategy that suits you and conforms to your money management system.

Leverage Is A Double Edged Sword

If you think that you are doing well enough to up your leverage to 400:1, think again! The higher the leverage you use the less margin you have to lay enabling you to keep more trades open concurrently. But, your trades may be closed down a lot quicker with higher leverage. If you are sure you want to increase your leverage make sure that your money management is spot on.

Read Your Charts

Don't open trades based on Forex Signals or other sources of prediction without having a look at the charts yourself. Familiarise yourself with the charts, and if they come with overlays, get to know what these overlays mean. Do your homework, learn about candlesticks, EMA etc.

Is There A Trend?

Follow the trend - if there is one. If there doesn't appear to be a trend, either it is because there isn't one, or you are looking at you chart in the wrong timeframe. Alter the timeframe and see what the picture is now. If you can't see anything, and you are unsure, give it a miss, or take out a paper trade.

Start Small - Stay In The Game

Use your intial trading experience as a form of education. Keep your trading amounts low enough for you to stay in the game long enough to get to know your trade. Some people do get lucky, but to keep trading long term, you need a lot more than luck, and to develop the necessary skills and knowledge you need to be able to keep out of the 'red' for a while.

Ignore Details At Your Peril

When you are confronted with your trade confirmation screen double check all the risk management options. Details are paramount when trading - double check everything, including the small print when you sign up with a broker. For broker details see our Forex broker comprison table.

Home · Forex Trading Guide · Online Trading Guidance · Compare Forex Brokers · Glossary
About · Offers · Videos · Contact

Privacy, Terms And Conditions Of Site · Disclaimer · Risk Warning · Forex Fx Trading © 2009-2009

Disclaimer: Trading Forex can involve the risk of loss of all the money invested. Please read the full site disclaimer and risk warning. Forex is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.