Foreign Exchange Trading, commonly known as forex trading, is the practice of buying and selling currency values with the aim of making a profit. As a global market, forex trading is conducted throughout the world, with the largest markets located in major financial centers including New York, London, Tokyo and Hong Kong. Forex trading for beginners is a vast market and consists of countless entities including banks, financial/business institutions and brokers, all speculating on the movement of currency pairs.
The following are tips on forex trading-
- Define trading style and goals-
It is necessary to have some idea of your destination and how you will get there. Hence, it is necessary to have clear goals in mind, and then ensure your trading method is capable of achieving these goals. Every trading style has a different risk profile, which requires a certain approach and attitude. For example- if you can’t handle an open position in the market, then go for day trading. While, if you have funds you think will benefit from the appreciation of a trade over a period of some months, you should become the position leader. Your personality should match your trading style.
- Trading and Broking platform-
Choose a reputable broker and spend time studying the differences between brokers. You should know each broker’s policies and how they go about making a market. For example- trading in over-the counter market or spot market is different from trading the exchange-driven markets. Make sure your broker’s trading platform is suitable for the analysis you want to do. For example- if you want to trade off Fibonacci numbers, be sure the broker’s platform can draw Fibonacci lines. A good broker with a poor platform, or a good platform with a poor broker, can be a problem. Be sure to get the best of both.
- Methodology should be consistent-
Before you enter any market as a trader, you need to have some idea about how you will make decisions to execute your trades. You must know what information you will need to make the appropriate decision on of the entering or exiting a trade. Some people choose to look at the underlying fundamentals of the economy as well as a chart to determine the best time to execute the trade. Some only use technical analysis. Choose whichever methodology, be consistent and make sure your methodology is adaptive. Your system should keep up with the changing dynamics of a market.
- Determine Exit and Entry points-
A lot of traders get confused by conflicting information that appears when looking at charts in different timeframes. What shows up as a buying opportunity on a weekly chart could, in fact, show up as a sell signal on an intraday chart? Hence, if you are taking your trading direction from a weekly chart and using a daily chart to time entry, be sure to synchronize the two. If the weekly chart is giving you a buy signal, wait until the daily chart also confirms a buy signal. Keep your buying in sync.
Forex trading for beginners is thus an exciting field and should be done using the above tips.