To make a successful forex trader, you need to have proper knowledge of trading and a thorough understanding of how forex platform trading strategies work. Trading currencies may seem daunting and intimidating at first but when you are armed with the right kind of information, the entire process becomes much more simple.
Trading in any market could be tricky at first and so we’re breaking forex trading down into some easy-to-follow steps. To get started, you need to open a Forex account. But before you begin to trade, here are a few steps that you should follow.
SELECT A CURRENCY PAIR
Forex trading is essentially the act of exchanging the value of one currency for another. To put it simply, you would have to buy one currency and sell another at the same time. This happens because currencies are always traded in pairs. Typically, new traders tend to begin trading popular pairs of major currencies, but you are free to trade forex any currency pair as long as there is enough balance in your account to fund the trade. For the sake of simplicity, we will be looking at the EUR/USD (Euro/ U.S. Dollar) pair in this article.
ANALYZE THE MARKET
Research and analysis must be the building blocks of your trading journey. If these are not in place, you are going to trade largely on emotions and that does work well. At the beginning of your research, you’ll come across a plethora of forex resources that could be overwhelming. But when you narrow down your research to a particular currency, you’ll come across valuable resources that are a class apart. You should keep checking the current and historical charts from time to time, track the news for economic announcements, consult indicators and conduct other relevant analyses.
OPEN THE CHART & ADD INDICATORS
Select a currency pair and open a chart. Choose a timeframe. Every candlestick on the chart depicts that timeframe. Add indicators to the chart and use technical indicators for trading forex. They can be useful in the decision-making process.
For example:
For instance, we add MACD and a 200 exponential moving average. The key rule for using the 200 EMA is if the price is above the line, it will keep going higher but if the price is below the line, the downward trend would continue.
Remember that if we trade AUD/JPY, we’re essentially buying Japanese yen and selling the Australian dollar. Hence, we should consider the strength of JPY and/or AUD’s weaknesses.
The MACD indicator will help us deduce when the price is about to fall again. The MACD may not always be reliable on its own, but when used as part of a greater trading system, it could direct you to the exact turning point. The price may be fighting the downtrend for a while now so you should look for the MACD lines to cross and head down before you start trading.
PICK YOUR POSITION
If you are familiar with trading and have previously traded stocks, bonds, or other financial products, you may be aware that speculation is typically only upwards. Forex trading operates a bit differently since you buy a currency and sell another. Thus, you can speculate on both upward and downward trends.
WITH A BUY POSITION, you assume that the value of the base currency will increase in comparison to the quote currency. If you’re putting your money on the EUR/USD pair, you are doing so because you are of the opinion that the value of the euro will strengthen against the dollar. In other words, you think that the Euro is bullish (and that the US dollar is bearish).
WITH A SELL POSITION, you assume that the price of the base currency will decrease in comparison to the quote currency. If you wish to sell EUR/USD, you do so because you expect the price of the euro to weaken against the dollar. In other words, you think the Euro is bearish (and that the US dollar is bullish).
SET STOP LOSS & TAKE PROFIT
The next step is to set your stop loss and take profit levels. Though optional, this step is highly recommended and is one of the greatest risk management tools you will come across.
Experienced traders have concluded that setting a stop loss at half the pip amount or less than your take profit level could be a recipe for your long-term success. This happens because you can be right less than half the time and still make a profit at the end of the week, month, and the year ahead if the risk-reward ratio is in your favor.
A stop-loss order will limit your losses in case the market moves in the opposite direction of your expectation. Setting the take-profit level ensures that you come out of trade forex once you’ve made a profit and a downward market move is around the corner. Leveraging these levels when you place the trade can be beneficial and also easy before the trade is live. The market pressure later could hamper decision-making.
ORDER CONFIRMATION
Place and submit your order and wait for the confirmation screen. Getting a confirmation is necessary as is the ticket number because you might have to use the ticket number as a reference in case you have to reach out to your broker. Since you don’t want anything wrong to happen with the execution of your trade, even the slightest mistake in execution on the part of your broker would require your confirmation and ticket number so the corrections are made.
THE WAIT
The waiting period can make one quite anxious and it’s one of the hardest to understand forex trading concepts. Some traders prefer to take a break from the screen and move away from the market once they’ve entered trade forex so they’re not constantly checking the market moves. In any way, it is best to adhere to your risk-reward ratio, irrespective of whether your stop or take profit order gets hit.
BOTTOM LINE
Forex trading is risky, no matter what the advertisements try to tell you. But you can limit your risk by learning the basic information, such as industry terms, economic conditions of the countries, and political conditions of various economies to be able to make favorable decisions.
