Once you have selected a broker and a suitable account type, you need to move on to Forex trading. To make a profit on this, you need to learn how to analyze the market and find your trading strategy.
Starting to trade in the foreign exchange market, many traders believe that their success will be quick. And examples of rapid take-offs do exist, but most of the newcomers drain one or more of their first deposits.
For this reason, we recommend that you put on the broker's balance the amount that you can safely lose. The main task of the first half of the year in Forex is to gain experience in working with the market. At the same time, you need to make mistakes, identify them and learn not to repeat them in the future.
At the same time, the amount in the account should not be too small ($30-50). It is necessary to have a deposit that you can lose, but it is a pity. Each person has their own threshold for acceptable loss, and you can determine your amount based on your current financial situation.
To understand the principles of forex trading as quickly as possible, you need to feel 3 key emotions:
- fear of loss of funds;
- the desire to recoup after trades closed in the negative;
- the euphoria of rapid success – when several positions in a row are closed in a plus.
These are destructive emotions that lead to the loss of the deposit. You need them at the very beginning to learn how to ignore them in the future.
If you are inherently a disciplined person, then you can make larger amounts of money. For example, the amount of your income for the month. In this case, you will be able to get the experience of trading on Forex with minimal losses, if you correctly use the stop loss and choose a small share of the lot.
For example, if you put in one trade a risk of 3% of the deposit of 1000 USD, you can lose a maximum of $30. That is, your risk is moderate. If this trade is successful, then your income may exceed the potential risk. Such trading gives you the necessary experience and allows you to increase your deposit for a certain amount of time.
To get a stable profit on Forex, you need to correctly determine the entry point to the transaction and the moment of exit from it. The most tangible profit can be obtained if you open a position at the beginning of the trend and close it before the reversal.
The entry and exit points are determined using 2 types of analytics.
It is based on the study of key economic and political news. There are fundamental factors that affect the exchange rate of individual countries and entire economic regions. For example, if you are trading in the EUR/USD pair, then you need to read the news related to the EU and the US.
Various geopolitical decisions and economic processes can lead to an increase in the value of the dollar or its fall. All this will be reflected in the chart.
For the convenience of working with fundamental factors, experienced traders use the economic calendar. It displays the macroeconomic indicators. And there is an opportunity to view announcements of important events in the field of finance and economics:
- economic conferences;
- meetings of central banks, etc.
During such events, it is better not to open trades, since decisions can be made that change the direction of the asset's movement. Such news should be taken into account even by those who are focused on technical analysis.
If you do not track the fundamental data at all, you run the risk of encountering unexpected market changes leading to losses.
The essence of such analytics is the study of the price chart. Traders find various patterns on it and use them to predict the direction of movement of the instrument.
There are different methods of technical analysis and a large number of indicators. You can find many of them on our website.
One of the basic ways to identify the entry and exit points is to search for support and resistance levels. By defining them, you will be able to understand in which direction and for how long the chart of the currency pair will move.
As the practice of many traders shows, it is ineffective to use patterns separately from support/resistance levels.
There are 2 main types of indicators that are useful in technical analysis:
- Trending ones. The Moving Average is used as the base indicator. This is a classic indicator that allows you to determine the direction and strength of the trend movement.
- Oscillators. Graphical indicators that are used to identify the overbought or oversold point of a currency pair.
Both strategies can include a whole set of indicators for more accurate analysis.
If you correctly determine what price level the instrument will reach, you can "take" this movement, and then earn more on the reversal. You can also search for correction points to open a trade at the best possible price.
One of the main reasons for losing money on Forex is trading under the influence of emotions. Finding the right trading scheme is not as difficult as sticking to it every day, week, month.
The trading algorithm is needed to form the habit of acting according to the rules, while completely ignoring emotions. In addition to the features of the strategy, it prescribes the scheme of actions within the trading day:
- what time does the terminal start?;
- what part of the deposit is used for trading;
- detailed sequence of actions – what is done first, what is done later;
- the risk level used, for example, the ratio 1:3-take profit is 3 times more than the stop;
- acceptable losses for a day;
- at what minus you need to stop trading, etc.
If these steps are clearly spelled out, and you repeat them every day, you will quickly get used to acting correctly against the background of any emotions. This approach will significantly increase the profit and greatly reduce losses.
Choosing a strategy
First, you need to decide on the right tool and trading style. After that, you can test different strategies and choose the best one.
Testing is best done using trade statistics. This means that you need to record all the information on transactions in a special log. It is convenient to create it in an Excel spreadsheet.
Also, some brokers have built-in convenient services for maintaining trade statistics.
You can record the following information:
- selected currency pair;
- in which direction does the transaction open-buy or sell;
- price and opening time;
- signals that were used to enter the market;
- what strategy was used for this or that signal (three screens, Ichimoku trading, etc.);
- closing signals;
- time of exiting the market;
- the amount of profit or loss.
The signals for entering or exiting must be specified in detail. So that you can open the spreadsheet in a year, and understand exactly why you made such a deal. For example: a serious price support level was fixed, the price broke away from it, and the order was opened in the direction of a new candle. Numbers are written next to each line.
Such a log will allow you to accurately and soberly determine which strategy is suitable for you personally, and which does not work. If you do the analysis every day or every week, it is better to do it at a time when the market is closed.
Regardless of the chosen strategy, you need to be able to do the following:
- write down all points of technical and fundamental analysis;
- correctly set support/resistance levels on different instruments and timeframes (especially on daily ones);
- write down trading signals (under what conditions a trade is opened);
- detect signal confirmation;
- identify profit and risk potential;
- write down the terms of closing the trade.
Traders who consistently earn money on Forex, first of all, are distinguished by the presence of a checklist for opening and closing transactions, as well as the ability to accurately adhere to their trading strategy. On our website, you can find various strategies that have been compiled and tested by professional traders.
It will be easier for you to choose a strategy if you first determine the appropriate trading style:
- Scalping. Trades are opened mostly for a few minutes, or at most for a few hours. Price Action strategies are used, as well as indicator and technical analysis. Timeframes from M1 to M30 are used. A large number of transactions per day.
- Intraday. In this case, transactions are opened and closed within one trading day. The transfer to the next day is very rare. The main analysis used is technical. Indicators and candlestick patterns are used. Trading is conducted on the timeframes M15 – H1.
- Medium-term trading. Orders are opened significantly less frequently than in intraday trading, and they can be open for up to 1 month, sometimes more. The direction of movement of the instrument is determined using fundamental analysis. Technical analysis is needed to accurately determine the entry point and understand the power reserve. Timeframes - from H4 to D1. Weeks and months can be used to track the global trend.
- Long-term trading. Orders are opened for several months, and there may be a different number of them, depending on the trader's preferences. Such trading is often used to form an investment portfolio. Before entering the market, the timeframes W1 and MN are analyzed.
For each strategy, it is necessary to draw up risk management rules. These are the size of the stop, the conditions for its moving to breakeven, the reasons for early manual closing and partial profit taking.