Forex trading attracts millions of traders and investors around the world because of its high-profit making potential. However, people often misunderstand the level of complexity involved with forex. Forex trading is not as easy as it is generally perceived. You need to have a lot of market knowledge and expertise to trade the forex market successfully. In this piece, we share some of the most proven trading tips so you can trade forex purposefully.
1 – Select Leverage Carefully
Often brokers allow you to use their leverage offers. Some brokers offer 1:50, some allow 1:200, while some brokers make crazy offers in terms of leverages such as they might offer you 1:500. That means by investing just a little amount, you can trade big lots. With a leverage of 1:500 an investor who has invested $500 only can trade up to $250,000. Isn’t it crazy? However, this must not sound fascinating, since a high leverage offers usually leads you to end up having a negative balance in your account.
So what you need to do is to be careful while accepting a leverage offered by a broker. You must figure out what are the other conditions in place? Does your broker allow you to use a stop loss feature? Is there any safety measures in place by your broker so to prevent you from incurring negative balance in your account? If not, then it is not a wise idea to go for high leverage, instead, you can use 1:50 or 1:100 at max.
2 – Learn How To Use a Stop Loss Feature
Using a stop loss feature can help you to prevent your account from incurring severe loses, however it may not be as effective as it is supposed to be unless you don’t use it correctly. What we mean to say is that unless you don’t know how to set a stop loss, how would you ever be able to use it properly? So the best thing to use a stop loss feature is to understand how opening and closing of a position works, how much pips you wish to trade in a single lot? Etc. Stop loss help you to reduce the risk of losing your investment in all of a sudden.
Let’s understand it following a simple example. Suppose you are trading a financial instrument which is currently trading at $1500. You wish to trade a standard lot which involves 10 dollar movement in one pip. You chose if the price falls by 5 pips your position must be closed. So when your balance reaches $1450 your trade gets closed automatically. It means that you can’t lose more than $50. If there is no stop loss defined, you may keep losing your balance until the price reverts back.
3 – Develop a Sound Trading Plan
Forex trading can become quite a fun if you follow a well-planned trading strategy. Obviously, no one can overlook the importance of planning before you get involved in anything. Same goes for forex trading, a well-established trading strategy can lead you towards profits. Often traders come across different situations in forex trading that they were not prepared for, here comes a trading plan in action, you must have planned some alternative way if something comes unusual across your way. Instant reactions are often proved unsuccessful.
4 –Avoid Changing You Trading Plan
After you have developed a trading strategy, you must then follow it strictly. Changing trading strategies every now and then won’t help you to figure out what has really gone wrong. If you keep changing your trading plans, how would you ever be able to know what you needed to avoid and what you should have done, so in future you may not repeat the same mistakes? You shouldn’t go after every newly established trading strategies developed by other traders, it may well be the case that this trading strategy might have worked for the person who developed it but doesn’t work for you.
5 – Always Keep Eyes On The Size of your Forex or CFD Positions Before You Place a Trade
There have been many cases where traders open positions of the same sizes. This should be avoided, you should keep an eye on your available balance and try to place trades accordingly. For example, if you started up with $1000, you can safely place trades of $20 or $50 in the beginning, however in case your initial trades were not successful, you must reduce the size of your trading lots, else it may prove disastrous for your account since keeping the same pace you may not be able to survive for long.
6 – Don’t Run After New Trading Strategies
Don’t try to be over smart. You are not going to revolutionize the trading methodology alone. Therefore, it is always recommended to use already proven trading strategies. There is no use of trying new trading methods in hope of more profits unless new trading strategies offer you a 100% guarantee to win. Trying new trading strategies and regretting your decision after losing your investment is not a wise men job for sure.
7 – Control Your Emotions
Usually, it happens with inexperienced traders that they find it difficult to control their emotions while trading. However, you must not get carried away by your emotions in any case. It’s not like that you must always ignore your emotions since they play a vital role in keeping you motivated but what we intend to emphasize here is that don’t lose your senses.
8 – Listen To Your Heart, Try To Use Your Common Sense
It has been witnessed that many traders don’t pay any heed to analyze or evaluate the currencies or CFD markets. They sometimes even ignore the potential impact of the economic news being released, on their trading. This passive attitude won’t make you learn. You must take into account every concerned information before placing your trades. However, sometimes traders just don’t’ use their common sense and follow charts and previous trading results blindly. This is also not suggested. You must realize the situation and after considering all potential factors you must have your own opinion. Doing so still doesn’t confirm that you may not lose but at least you would know that you have tried your level best.
9 – Don’t Invest If You Can’t Afford To Lose Your Money
Since forex trading involves an inherent risk of loss, therefore the most important thing before you start trading forex is that you must not invest your money you can’t afford to lose. You might have noticed, many brokers and investment companies post a disclaimer on their website warning investors to not invest their money if they can’t lose them.
10 – Trade with Passion, Don’t Make It An Obligation
Try to be passionate while trading forex instead of being materialistic, since forex trading involves a great risk of loss of investment, therefore if you wish to become rich overnight that may not actually happen. Objectivity for the sake of becoming an expert trader is good but to become richer may encourage you to take bigger risks. You must not trade with a core objective of making profits, else you would soon start feeling less attracted towards forex trading, resultantly at some point you may quit trading and all of your efforts and time may go wasted.