Helen Hayes, a legendary American actress, once said, “The expert at anything was once a beginner.” Becoming world-class in any endeavour starts with small steps. Every day, more and more people are getting introduced to the world of online trading, with FX often being the go-to option.
It’s the most accessible financial instrument compared to stocks and commodities. Still, the tale of more than 90% of investors losing money in this industry continues. Many beginners eagerly jump into the markets without practical tips on trading Forex.
Fortunately, we’ve covered you with 10 simple but valuable pointers to help you in your journey.
Tips on trading Forex #1: Understand that trading is not a get-rich quick scheme
Who doesn’t like to make money? For most beginners, the FX market is alluring. However, being fixated on the potential riches can lead investors down a destructive path of losses. Appreciating that this is not a get-rich-quick scheme is probably number one among the best tips in Forex trading.
A commonly cited statistic is that at least 70% of traders cannot maintain a profitable long-term career in the markets. Of course, this is due to several reasons, much of which involve a lack of expertise.
Still, an investor’s perception of the possibilities in Forex also plays a massive role in their success. Unfortunately, some aspects of FX, such as education provision, are not properly supervised.
This lack of regulation has allowed many con artists or deceptive marketers to paint a picture of Forex being an easy moneymaker. In gaining the best tips to trade Forex, you should understand that this is a skill.
Like any field, overnight success is not possible. It can take several years to reach a point of mastery where you can start earning five or six-figure profits.
Ultimately, no shortcuts exist; you have to take the stairs. There is no substitute for hard work, tons of practice, and persistence.
Tips on trading Forex #2: Think in probabilities, not certainties
A Forex trading tip that’s often understated is how every investor loses money at some point in their career. Any financial market is an environment of probabilities, not certainties. This means that even with an edge (covered later), you will never know the outcome of an individual position.
Technically, it is random. What matters is your performance over the long term. It is impossible to predict what will happen to the price of a Forex pair in the next few seconds, a few minutes, or even a few hours, but that doesn’t matter.
Let’s assume a green marble represents a win while a red one reflects a loss. When you have your hand in the jar five times, you may:
- Pull out five reds in a row
- Pull out red, green, green, green, green
- Pull out green, green, red, red, red
Notice that the pattern is random. Your job is to find a way where you can draw out more greens than reds in the long run.
Understanding the law of large numbers is a fundamental component of tips for trading Forex effectively.
When trading or testing a strategy, you need an expansive sample of positions to see its effectiveness and whether it has a positive expectancy. Struggling traders often over-emphasize the result of one position, which is irrelevant in the grand scheme of things.
Tips on trading Forex #3: Become a risk manager
All traders study how to trade Forex successfully to make money. However, the skill is also about managing your downside. Some level of risk is involved, whether you have a position open for a split second or a few hours.
When speaking of probabilities over certainties, we should understand that not knowing the outcome can result in a monetary loss. How you manage these moments differentiates the pros from the amateurs.
George Soros once said, “It’s not whether you’re right or wrong, but how much money you make when you’re right and how much you lose when you’re wrong.”
The point is that when you lose on a trade, it should never hurt much. On the other side, it’s also ensuring that your wins are larger than your losses. Here are four key risk management tips on Forex trading.
- Understand position sizing: As a beginner, you should always use a position size calculator. There are plenty of these online, and, best of all, they are free. Below is an example of a position size calculator from Myfxbook:
But why use this tool? You will not know the monetary amount at risk without correct position sizing. This means you will likely apply a far larger trade relative to your account balance, which can lead to a blow-up.
- Risk small: You’ve seen this before when people talk about tips on Forex trading. Experts generally recommend not risking above 3% of your balance per trade. One quick way to a margin call or completely ‘losing your shirt’ is allocating too much of your equity to one position.
Again, it goes back to not investing your emotions in an individual outcome. By risking small, you leave room for error to weather storms down the road.
- Use a stop loss: The simplest way to prevent your losses from getting out of hand is with a stop loss order. Losing traders tend to overlook this element. If we combine it with a lack of proper position sizing, they miss the fundamental tips to trade Forex profitably.
- Implement risk to reward: Risk management goes hand in hand with maximizing your profit potential. As part of your trading plan, always aim for a minimum target (at least twice your risk amount). The higher it is, the more profitable you become.
Tips on trading Forex #4: Get educated
In anything you do, being well-educated is crucial. This may seem obvious in learning how to trade successfully in forex. However, beginners should remember that there is no central, go-to institution to learn about the FX market.
It’s not like being a doctor and attending one of a handful of prestigious universities to practice medicine. Trading FX is not a formal job, and various levels of interpreting information exist.
One major problem with Forex is that no official education framework exists, even if you have experience in fields like economics, mathematics, or finance.
While this expertise is useful, it doesn’t guarantee you’ll be a skilled trader. Information about this market is everywhere. However, not all of it is beneficial. So, it’s not just about the knowledge but finding the right amounts of it that is the difference-maker.
Traders are naturally curious people who love the process of research, spending hours looking at charts and going through many trial-and-error experiments. This is necessary for education in this market, given that you have to fish for what works and ditch the rest.
The barebones of any traded market are to buy when something is going up or sell when it’s going down. However, a lot more study goes into making this seemingly simple decision. Ultimately, being well-educated is one of the best Forex tips and tricks.
Tips on trading Forex #5: Have an edge
If you googled trading Forex tips, you’ll find countless different strategies. FX is a game of strategy. But the most important thing is to have an edge. This element sets you apart from the rest of the market participants.
An edge is a technique, trick, or observation you capitalise on to gain a strategic advantage. It doesn’t have to be secret but should be an area of knowledge not publicly or easily available.
However, if you acquire unique expertise or use the existing information in a different way, that’s your edge. Most importantly, you need to prove beyond reasonable doubt that repeating this edge will make you profitable at some point.
Many beginners never find their edge in learning how to successfully trade Forex. They simply follow the herd or copy other people’s systems. There is nothing wrong with using existing proven techniques.
The key is that you need to know what you’re doing. Also, when you learn something new to enhance your skills, always test it for as long as possible in different conditions.
Overall, the point is you need to know your ‘game plan’ inside out and have a proven track record that it works.
Tips on trading Forex #6: Know your trading style
|–||Scalping||Day trading||Swing trading||Position trading|
|Time-frame references||1M, 5M, 15M||1M to 1HR||30M to weekly||4HR to monthly|
|Time for holding trades||Few seconds to a few minutes||A few hours (but not beyond overnight)||A few days to a few weeks||Few months or longer|
|Best traded markets||Major pairs||Major, minor pairs||All pairs||All pairs|
|Trading strategies||Trend, reversal, breakouts, range, news, EAs||Trend, reversal, breakouts, range, news, EAs||Trend, reversal, breakouts, range||Trend, reversal, breakouts, range, news, EAs|
The table above is to demonstrate the main trading approaches to appreciate how to trade Forex successfully. Everyone is unique and has different goals. If you give a price chart to 10 people, you will get 10 varying interpretations, even if everyone views the same information.
Knowing your style keeps you focused and gives you purpose as a participant in Forex. It affects how you conduct yourself, like your daily routine, and how often you check your charts.
Some people are less suited to day trading, either because they lead a busy lifestyle or have more patience. On the other hand, someone that has more time on their hands and is less patient will prefer scalping.
It’s perfectly fine to experiment with different approaches, particularly early on, until you find something that resonates with you.
However, the main takeaway in this Forex trading tip is not to compare yourself with another investor.
Tips on trading Forex #7: Avoid the ‘Four Horsemen’ of emotions
Long-time traders are all too familiar with the emotional aspect of Forex. Mastering the technical side is already an uphill battle. However, it is further compounded when you don’t possess the right mindset or psychology.
People can feel a range of emotions. Yet, the following four are the most prominent and should be avoided at all times:
- Greed: When you are greedy, you will employ irresponsible money management, typically by risking too much or ‘scaling in’ unnecessarily. Also, greed comes in the form of having unrealistic expectations of how price can travel or about being profitable generally.
- Fear: In grasping how to trade forex successfully, fear can be both good and bad. It’s positive because it makes one think carefully before opening a trade to prevent monetary loss.
However, fear is not conducive when you understand the probabilistic nature of trading. Recency bias, analysis paralysis, and seeking perfection are the biggest drawbacks of having this emotion.
- Hope: It may seem unusual to think that hope is counter-productive. But traders will know it shouldn’t apply in the charts. Hope is intertwined with greed. By hoping, you can easily emphasise a strong desire for something to occur that ends up not happening. A ‘fingers crossed’ approach in Forex is for amateurs, not professionals.
- Regret: This can occur in a number of ways, e.g., fretting over a missed opportunity. When one set-up fades, another one is usually around the corner. Price is always moving; you never want to chase if you’ve missed it.
Also, regret happens when a trader cannot take a loss, resulting in ‘revenge trading’ or overtrading.
Tips on trading Forex #8: Stay a while in the training ground
As a beginner, a simple Forex trading tip is to practice on a demo account. Consider this your training ground. We’ve all heard that it takes 10 000 hours to master a skill. Mathematically, that works out to 1.14 years.
Of course, it isn’t possible to dedicate this amount of time without daily life distractions. So, in reality, it may take at least two years. The main takeaway is to spend sufficient time in the demo stage before committing to a live account.
One obstacle preventing many traders from mastering how to trade successfully in Forex is entering the live markets too soon. At some point, you will need to transition away from the demo stage into a real account, but only after:
- You have a well-defined plan
- You have a profitable track record of at least one year
- You have disposable income (let’s talk about this one next)
Tips on trading Forex #9: Trade with truly disposable funds
We’ve all heard that it takes money to make money, and this applies very much for the best tips in Forex trading. It is possible to grow a small balance into an astronomical sum over time. However, if you want to fast-track this progress, your own capital is necessary.
Yet, this is where many traders get it wrong when they invest money they cannot afford to lose. Disposable income refers to funds separate from your savings and living expenses.
It’s clearly not a good idea to trade with money you need to pay your bills. Any funds you invest in Forex should have zero emotional attachment. This allows the trader a clear mind that won’t see them committing silly mistakes like over-leveraging.
Tips on trading Forex #10: Have a life outside of trading
For our last Forex trading tip, investors must never treat Forex like a job. Uninformed people can easily view the markets as a guaranteed income source, which isn’t. It’s best to regard Forex as being a waiter who only earns tips without a basic salary.
On some nights, they may not earn anything. They may only make enough on another day to catch the bus home. When the stars are aligned, you end up with a handsome profit on a different month.
So, keeping yourself busy with something else is necessary during these uncertain periods. The investors who master how to trade Forex successfully have other engagements on the side, like jobs and businesses.
It’s easy to get addicted to the charts. However, more time spent doesn’t translate to more profits; often, it can be the opposite.
Theoretically, a trader’s potential earnings are unlimited. However, it can take a massive investment and many years to reach a level where you can outpace the average yearly salary.
A bonus in our trading Forex tips is to keep it simple, stupid! As the great da Vinci once said, simplicity is the ultimate sophistication. Beginners can easily be overwhelmed when they look at the charts.
However, over time, the aim is to be minimalistic and strip down everything to the bare essentials.
Fortunately, there is another way that doesn’t need you to spend hours looking at charts. Check out Galileo FX to learn about the “Trading Bot Of The Year 2022.”