The Basics Of Forex Trading For Beginners
If you\’re just getting started in the currency markets, you should make sure that you know the basics of Forex trading before you consider risking your hard earned money. Otherwise, you can be sure that you will blow out your account very, very quickly. Many of the so called Forex \”Gurus\” out there will cover one or two off these basics adequately, but you need to have all three in place to truly be prepared for the challenges of trading Forex for a profit.
The basics of Forex
trading I\’m talking about are Method, Mindset and Money Management. These 3 Ms form the foundation of every successful trading operation, ignore one or more and you are guaranteed to lose money. The first of these, your Method, covers how you analyze the market, make your trading decisions, and manage your trades. The second of these, your Mindset, has to do with whether you are disciplined and consistent in your trading, and if you are in control of your trading or if it is control of you. Finally, your Money Management strategy is a crucial and often overlooked component of successful trading. Without the proper money management strategy, you are always at risk of blowing out your account, and you will find it very hard to hold on to your profits.
Here\’s how to master these 3 essential basics of Forex trading:The Basics Of Forex Trading #1: Method
Without a proven Method for consistently extracting profits from the market, you are essentially gambling every time you enter a trade. A successful method covers not just your trade entry, but the entire process from analyzing the markets, identifying trade opportunities, entering and exiting your trades, and setting your stop loss and target profit zones. You should also have a solid underlying concept, be it trend following, range trading, breakout trading or targeting the overbought/oversold areas.
So how do you put a successful Method together? First and foremost, you begin by studying the historical prices of the currency pair that you want to trade. If you\’re just starting out, you\’re better of focusing on just one pair and getting really familiar with the market behavior of that particular pair, instead of spreading yourself too thin over multiple currency pairs. As you observe how the prices fluctuate over time, take note of the opportunities that exist within the market. You can then begin to quantify your potential entries, exits, stop and profit points and test them to find the optimal combination. Alternatively, you can invest in someone else\’s strategy or system, and adjust it to suit your own observations and research.The Basics Of Forex Trading #2: Mindset
One of the basics of Forex
trading that is often overlooked by beginners especially is the importance of the right Mindset. It may surprise you to discover that most people don\’t lose money in Forex because they don\’t have a profitable method. They lose money because of trading mistakes that stem from a lack of emotional control and poor application of discipline. Even if you have the best method in the world, but your poor Mindset prevents you from applying it correctly, you are going to lose money.
When you first start trading your system, you should do it on a mini or micro lot account on the lowest possible size. That way, you eliminate the emotional part of trading that is related to winning and losing money, and instead allow yourself to concentrate on applying your Method correctly. After 2-3 months of consistent performance and strict adherence to the rules of your system, you can progress to trading a full account. Don\’t get complacent when you increase your account size though, continue to be cautious and focus on trading well, not the monetary results of your trading.The Basics Of Forex Trading #3: Money Management
Last but not least of the basics of Forex
trading is Money Management. Good Money Management will allow you to grow your capital optimally, while minimizing your risk of drawdown due to a bad streak of losing trades. You may have heard of the 2% rule of money management in Forex, which means that you can only risk 2% of your capital on any given trade. For example, if you have $10,000 in your trading account as risk capital, you can risk up to $200 on one trade. Let\’s say that you have a trade with a stop loss of 20 pips away from your entry, meaning that your worst case loss is 20 pips. Therefore, your maximum position size is 1 full lot, which puts your risk on the trade at $200.
Whenever you\’re not doing well in your trading, it\’s probably down to the failure to adhere to one or more of these basics of Forex trading. To improve your performance, you should work on these fundamentals, and you\’ll have a firm foundation to build on in your pursuit of Forex trading profits. Divisa Capital
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