Top 5 Forex Trading Tips To Empower You As A Beginner

We all know the proverb “Well begun is half done”. But in reality, being a beginner in any field or profession puts you under a lot of pressure and stress. Trading in the forex market is no different than that and here the allure of profits and risk of losses co-exist, complicating the trading process. No matter how long you take to prepare and learn about currency trading, some things can only be learned by exploring the market independently. Don’t expect to get it right from the very first day as you will often make silly mistakes due to inexperience. However, these mistakes will make you a better trader over time as you will continue developing your skills to avoid repeating the mistake.

Two of the most common tips that newbies get while starting off their trading journey are to devise a sound trading plan and practise well on a demo account. You should follow these tips without fail to set a firm foundation to build your trading career in the lucrative Forex market. These two tips are more like unwritten rules that exist in the forex world.

In this blog, I will be sharing 5 more trading tips that have helped a lot of novice traders navigate the volatile market with ease. 

  1. Learn And Trade At Your Own Pace

Trading is not a sprint, but it’s a marathon. You can’t achieve success overnight. You must give ample amount of time to learning the market and creating effective strategies. Make your trading setups, backtest them in a demo account and follow them strictly to achieve success. This whole process is going to take a good amount of time.

Many traders are able to make profits in the initial days, which ruins their psychology. They become overconfident and start trading with higher capital only to make bigger losses. Don’t make the same mistake; create a strategy and stick to it. Make a trading journal and add all your trades in it along with the reasons behind taking them. Figure out your mistakes and work on them in a demo account. That is how you can become a better trader.

   2. Limit Your Leverage To Keep Losses In Limit

The high amount of leverage offered by forex brokers allows you to maximise your profits by multiplying to trade size while only keeping a smaller percentage of the trade’s worth as a margin. The amount of funds that has to be kept in your trading account to meet the margin requirement can be estimated with a margin calculator. When you use more leverage, the margin requirement will be lower and you can easily open more trades with a smaller amount of capital. 

For example, when you trade with 100x leverage, you can open a position as big as $100 with just $1. This will help you earn bigger profits and grow your trading account quickly. But the possibility of a loss is always there and it can lead to a bigger account drawdown. Thus, you should choose an ideal leverage ratio based on your risk tolerance. Beginners should use the lowest level of leverage until they gain confidence in their strategy and skills. 

   3. Always Think Well Before You Act

Trading decisions should always be logical. Impulsive decisions will lead to losses because they will be completely driven by emotions. However, due to the fast-paced nature of the currency market, traders must be good at making quick decisions. Because any delay in entering or exiting a trade can have a negative impact on the outcome. However, you should always spare some time to think, analyse and calculate before deciding the best course of action.

The frequent price fluctuations may force you to rush the trading process and execute trades faster. This does not mean that an impulsive person can become a skilled trader due to their speed. Being rational and waiting until the market responds to an event is essential to make an informed trading decision. You can improve your speed through continuous practice. But don’t skip the market analysis for the sake of speed. Always decide after considering all the possibilities.

   4. Cut Your Losses Early With A Stop Loss

Some beginners underestimate the power of a stop loss and they even question if it is important to place an SL when they are planning to exit it manually. But are you sure you can exit the trade at the right moment? It is less likely to happen when you are not prepared to deal with a loss and you might hold onto the losing trade, hoping for a sudden reversal. Some traders even close their trades too early due to the fear of losses.

Later they see the market moving in their favour and regret their decision. A stop loss saves you from all such issues as it automatically closes the trade when the price reaches the specified point. This way, you can let your trades run freely and feel at ease. You can also use tools like trading calculators to figure out the best price level for the stop loss order based on key forex metrics like pip value. You can access these tools for free on many trading platforms.

   5. Separate Your Emotions From The Trading Process

The last tip is pretty simple as you just have to avoid acting on your emotions and trade with a rational approach. However, this is one of the hardest tips to follow in live trading. It would be easier to make logical decisions in demo trading as you are not risking real money and you can explore the market freely without worrying about the potential losses. But emotions are going to hinder your thinking when actual money is being risked for a trade. Some feel fear while others feel excited and become greedy.

Both are equally harmful to a trader if they are unable to control their responses to these emotions. Separating your emotions from the trading process is challenging and this requires an understanding of trading psychology. When you study trading psychology, you will be able to recognise your own emotional bias and fight your urges better instead of giving in to them. You will be able to pull yourself up after a bad trade and come back after a break instead of engaging in revenge trading.

Final Thoughts

To summarise, surviving in the forex market will be an impossible mission without some research and preparation. You can try different trading approaches or rely on innovative solutions to simplify the process. But at the end of the day, you have to learn the forex basics and become aware of the risks to manage it in the best possible manner. The 5 tips shared in this article can truly empower you, leading to success.