As a beginner, you’ve taken your first steps towards learning the basics of forex trading.
But it only gets harder from here. Just like learning how to walk, you have to take baby steps, and in between, you will fall, but you get back up and press forward.
If you’re trying your hand at forex trading for the first time, know that most beginner traders are best served by keeping things simple.
Here are some trading tips every trader should keep in mind before trading currencies.
1. Educate Yourself
We can’t emphasize enough the importance of educating yourself and learning as much as you can about the forex market.
Find quality forex education sources like our The School of Pipsology.
Before risking real money, make sure to study the different currency pairs and understand what makes their prices go up and down.
2. Create a Plan and Stick to the Plan
You are the most rational before placing a trade and most irrational during your trade.
This is why you need to always have a plan prior to opening a position.Creating a trading plan is a critical component of successful trading.
A trading plan is an organized approach to executing a trading system that you’ve developed based on your market analysis and outlook while factoring in risk management and personal psychology.
With a trading plan, you’re able to know if you’re headed in the right direction. You’ll have a framework to measure your trading performance, which you’ll be able to monitor continually.
This allows you to trade with less emotion and stress.
In real life, you may have a plan to drive from Point A to Point B if you don’t know how to drive the car that’ll get you there, then your plan is futile.
The same applies to your trading plan. You should “test drive” your trading plan first until you become proficient in executing the plan.
It’s important to learn how to use the features of a trading platform before you start trading on it.
Fortunately, traders can test out each platform using a demo account, which means no real money is at risk.
A demo account allows you to put your trading plan to the test in real-market conditions, without risking any real money.
4. Keep It Slow and Steady
One key to trading is consistency.All traders have lost money, but if you maintain a positive edge, you have a better chance of staying profitable.
Educating yourself and creating a trading plan is good, but the real test is sticking to that plan through hardcore discipline.
A trading plan is only effective if it’s followed. You have to stick with it.
5. Know Your Limits
As a new trader, you have to know your limits.
First of all, do you have enough money to trade? Forex will not make you rich quickly! So make sure that the money you’ll be putting at risk (called “risk capital“) is money that you can actually lose.
If you need that money to pay the bills, then you should think twice about trading.
If you do have the money, then you need to know how much you’re willing to risk on each trade, sticking with leverage ratios within those risk limits, and never opening a position size that’s so big that it could blow your account.
6. Keep Your Emotions in Check
To become consistently profitable, you have to stay rational and emotionally detached.Many novice traders ride an emotional rollercoaster, feeling on top of the world after a win, but down in the dumps after a loss.
In contrast, most experienced traders stay calm and relaxed even after a series of losses. They don’t let the natural ups and downs of trading affect them emotionally.
Don’t fall prey to the most dangerous emotion in trading.
Emotional stability, matched with proper risk management, is the name of the game.
7. Stay Open-Minded
While having discipline is a very important trait for a trader, you also have to be wary that if you’re too stuck in your ways, you’ll end up imposing our ideas on what the market should do, instead of reacting to what is actually happening.
Constantly question the market and your trading plan.Asking questions enables you to look at different perspectives of the market that you initially may not be aware of.
This practice will make you think of other potential scenarios that may emerge and enable you to become a better “listener” of the markets, rather an “imposer” of your own thoughts and views that in reality, may not mean zilch to the market.