Forex trading is fast becoming a popular way to make a bit of money on the side. The allure of being your own boss, working from home and making money when it suits you is more than enough motivation for anyone to consider a career in trading.
For all of its numbers, charts and ratios, FX trading is more art than science. Talent is key, but at the end of the day it will only get you so far. Top traders develop their skills through practice, discipline and self-analysis. But to get you stated we’ve compiled a list of 7 top tips for any rookie trading forex.
1. Define your risk tolerance and understand your needs
To get the most out of your trading career, it’s important to make sure you know your risk tolerance. To start with, it’s essential to ensure that your tolerance for risk and allocation of funds are neither overly liberal nor overly conservative. It’s wise to carefully determine your personal goals and proceed accordingly when starting out.
2. Growing your account with organic gains, not greater deposits
A top tip for a novice trading forex is to begin with small sums and low leverage to generate profits and start growing your account. Growing your account through your trading choices is the way to go, if growth isn’t happening organically then there’s no logic behind pumping money through your account.
3. Focus on a single currency pair, expand as you better your skills
Currency trading is extremely complicated, this paired with the chaotic nature of forex markets can take its toll. Mastering all aspects of the financial market is near on impossible, so focusing on a single currency pair is a wise move to start. Beginning with trading the currency of your nation is often a good starting position, otherwise sticking to the most liquid, and most commonly traded pairs is also a smart choice for a beginner.
4. Stick to what you understand
Failure to abide by this principle has been the downfall of many traders. In general, if you’re unsure that you know what you’re doing, or you don’t feel you can fully justify any decision you’re making, do not make that trade. It’s also wise to avoid trading on the basis of hearsay or rumors and ensuring you understand both the positive and negatives of any trade you place.
5. Never add to a losing position
While this seems to be common sense, ignorance of this principle has spelt disaster for many traders. However tempting it may be to take risks to try and reap the rewards, this is never a good idea. Effectively gambling your money is never wise, you should only trade when you believe you will benefit from taking that position.
6. Restraining emotions
Greed, excitement, panic and fear are all normal instinctive reactions to certain situations, but these have no place in traders’ calculations. Finding a way to control your emotions and minimizing their effect on your decision making, will inevitably result in better trading. Having a logical approach, and reducing your emotional intensity is the best formula for success.
7. Keep it simple
Forex trading is not rocket science however it is often overcomplicated. You needn’t be a maths genius or economics wiz to be successful. Clarity of vision, and well-defined goals offer the best path to a good career. You must resist the lure of over-analysing, over-thinking and rationalizing your failures. A failure is a failure and a loss is a loss, regardless of the circumstances.
The key to success is positioning yourself so that losses are to a minimum and harmless, whilst profits are maximised and frequent. Success boils down to being humble and patient, cutting your losses short, and letting your profits ride. The steps above will help you to develop a structured and logical approach to achieve these goals and develop you into a more refined trader.