Forex trading is the process of converting one currency into another for commerce, trading, tourism, and other purposes. There is no central market where the foreign exchange takes place. Instead, currencies are traded electronically between traders around the world. Forex trading happens 24 hours a day in various financial hubs of the world, including London, New York, Tokyo, Singapore, and Sydney. Since forex trading happens continually in different time zones, the forex trading market actually never closes. It only changes continuously and is a complex market to foray into. If you are thinking of starting forex trading, here are ten things you must keep in mind.
- Always Be in the Loop of Things
If you want to make it in the forex trading industry, make sure you are always caught on what’s happening in the world. World events affect currency rates. Thus, make sure you have uninterrupted access to the latest news and world events. Only when you are clued on what’s happening in the world will you be able to make accurate decisions about anticipated fluctuations and make profits.
- Gather Knowledge and Experience
Knowledge and experience are the two most coveted traits in the forex trading world. However, when it comes to forex trading, knowledge and expertise must not be gained through real money. If you are a beginner, get a forex demo account and use virtual cash to hone your skills. Once you have developed a concrete understanding of forex trading concepts, and feel thoroughly confident, move to the real world of trading.
- Always Stick to a Trading Plan
A trading plan refers to a strict set of rules that can help one identify the correct trading behavior. These rules pertain to financial goals, risk management, entry, exit, and money management. Using backtesting, traders can test the efficiency of various trading plans. Once you are happy with a trading plan, stick to it. Within the forex trading world, trading against a trading plan is considered a bad practice. Moreover, one step against the rules set under the trading plan can completely ruin your chances of making a considerable profit.
- Keep a Tab on Your Emotions
This is one of the essential qualities you must develop as a forex trader: you must learn to be objective and not emotional in your approach. Forex trading is like any other business — highs and lows are a permanent part of it. Thus, you must learn to stay calm at all times. The best forex traders are those who can stick to their plan even when there is a lot tempting them to move away from it. Do not become greedy; go in with a goal, and once you have achieved that goal, back out.
- Do Not Gamble
A common mistake that amateur forex traders make is taking risks they can afford to take. It is not okay to gamble your mortgage money or your child’s college fund. Forex trading is a risky world. When people make money, they feel ecstatic. However, when people lose money, it hits them hard. It hits them harder when they lose money they should have never wagered. If you are planning to become a forex trader, here’s the most important tip you will ever get: trade money thinking you will lose it. This way, you will always be within your limits and better prepared for failure.
- If You Don’t Have a Handle on Your Emotions, Use the Stop-Loss Function
If you are someone who tends to gamble away more than they should, the stop-loss function is the right choice for you. This function allows traders to define the upper limit for their losses. Using this function, you can set a comfortable limit and ensure your emotions do not get the best of you. Second, you can also use this function to test your knowledge and assess how well you understand the market. You can make changes to your trading plan, risk management, fund, and strategy based on this assessment.
- Assess Your Strategy Every Week
Forex trading markets remain closed on the weekend and thus, the weekends are the best time to analyze the week that has gone by. Catch up on weekly charts and read on what the pundits are saying. Try to get an objective idea of the trends overtaking the market, and based on your research, make decisions regarding the need to attune your trading strategy.
- Take Breaks
People usually make the best decisions when they are in a calm state of mind. Sitting in front of multiple screens for long hours can leave people’s brains messed. Thus, it is essential to take breaks each day. This is especially important if you are experiencing stressful trading sessions. Walk away from the computer screens, collect your thoughts, analyze them, and come back with a fresh mind.
- Maintain Records
There are many advantages to maintaining records. First, whenever you are in a dilemma, you can refer to these records for lessons. Moreover. records allow you to understand how you react to various situations. Did you make a loss due to a hasty decision? Were you greedy? Do you panic easily? Records will allow you to understand your instinct and reflexes better and make amends, whenever necessary.
- Never Stop Learning
It does not matter how experienced or knowledgeable you are, if you have chosen forex trading as a profession, you will always be a student of the markets. Since the risks are always high, forex traders cannot ever afford to become overconfident. If you want to excel as a forex trader, never stop learning and only trades with regulated forex brokers. Keep an eye on the market at all times, learn from your failures as well as your achievements. Be ready to learn new facts each day and focus and observe markets all your life. Forex traders operate in a dynamic market that changes each day, and they too must change continually with the markets.
The Final Word
Forex trading is a highly lucrative profession. However, the steep learning curve involved can make it difficult for beginners to make it big in this market. If you are planning to foray into the forex trading world, we assure you that the tips mentioned above will help you find your footing in this complex and dynamic world.