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Chapter 5: Forex Trading Tips for the Beginner
Forex Trading Tips for the Beginner
• Be aware of scams – Unfortunately there are many charlatans looking to take your money in the forex world. Be wary of the many eBooks and forex trading robots out there claiming to make you rich if you simply buy their product. The bottom-line is there is no easy way to get rich in this world unless you win the lottery or are born with a silver spoon. Forex trading creates the illusion of getting rich quick because it is possible to risk too much or trade too much and get lucky and make a lot of money really fast. However, by doing this you are only setting yourself up for a huge trading account blowout because you are reinforcing bad trading habits. Take the logical approach to trade forex and learn a simple yet effective method while effectively managing your risk and learning to think in probabilities and you will be able to make consistent stress-free profits over time.
• Trade with the trend – You’ve probably heard the phrase “the trend is your friend”; there is good reason for this. Beginning traders especially should only trade with the dominant daily and weekly trends when starting out in forex. This is because the “trend” is the path of least resistance for any given currency pair, and as a result any trade you take with the trend direction will have a higher probability of working out than a counter-trend trade. There are many variables involved in this, but the biggest one is that there is usually a fundamental underlying reason for a trend. Economic principals drive trends and therefore should not be fought. Many traders have lost large amounts of money by trying to pick tops and bottoms in strongly trend markets. Trade with the trend until it ends and you will be far more profitable than those traders who try to become heroes by picking tops and bottoms.
• When in doubt – stay out – Being flat the market, or not in a trade, is indeed a position and can be a very profitable one compared to losing money. If the market is whipsawing and it is unclear where the market might move, don’t trade. In this case sitting on your hands and preserving your present capital is a much better choice than taking unnecessary risks and losing money. You must learn to sit on your hands so that you have more money to trade with when the market provides you with quality trading signals. It will seem counter-intuitive at first, but the way to making money fast in forex is by trading less.
• ALWAYS use a stop loss – Many forex traders fall into the trap of hoping the market will turn around in their favor after it moves against them. They then commit the most cardinal of all trading sins; removing their stop, moving it further away from their entry point, or not using one at all. By moving a stop loss further from their entry a trader increases their chances of ending up with a much bigger loss. It is always better to take a smaller loss than a bigger one and you must learn that losses are part of the forex trading game. Learn to love taking small losses and you will grow your trading account much faster than the emotional trader who refuses to take a small loss and instead lets it turn into an account-destroying monster loss.
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