Forex trading can be a tough nut to crack, especially if you’re just starting out. While experience is king when it comes to trading performance, a few quick tips can’t hurt either.
That’s why I’ve compiled a list of 26 quick-fire tips to help you become a successful Forex trader. Take the ones you like and make sure to remember them the next time you place a trade.
General Trading Tips
#1 How to become an online trader?
Let’s start with the first tip that caters to people who look to get their feet wet in trading for the first time. Forex trading requirements are quite low – all you need to become an online trader are two things: a computer and a brokerage account.
While the latter can be opened in a few minutes, prepare for a few weeks or months of training and learning before you start to see positive results in the markets. Trading isn’t hard, but you need to understand the foundations, follow the rules and always keep an eye on your trading capital.
#2 Choose a quiet place when trading from home
Most Forex traders trade from their home. Make sure you have a comfortable and quiet place in your home to go through your charts without distractions. Also, always have a notebook or spreadsheet at hand as they will be a lot of things to write down if you’re a beginner in the market. Download your free journal trading spreadsheet here.
#3 Start with longer-term charts
Whether you’re a newbie or already have some first-time experience in trading, I always recommend to start trading on longer-term charts, such as the 4-hour and daily charts. This will give you enough time to analyse the market, look for trading opportunities and observe your emotions.
#4 Trade cross-pairs
A common mistake of many Forex traders is to focus too much on major pairs. Major pairs are pairs that include the US dollar and one of the seven remaining major currencies, such as EUR/USD and GBP/USD.
Cross-pairs include any major currency except the US dollar, e.g. GBP/JPY, AUD/NZD, and EUR/AUD. These pairs often hide excellent trading opportunities and offer enough volatility to make an attractive profit. Check out the 16 most traded currency pairs.
#5 Follow other markets
No financial market is isolated from other markets, and Forex is no exception. My morning routine starts with checking the performance of major equity indices, such as the S&P 500 and German DAX, the price of gold and changes in bond yields before I even take a look at a currency pair. I recommend you read the Savvy Trader’s Guide to Major Forex News.
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Traders love trends as they offer enormous profit potential with a relatively small risk. Here’re our top tips for trend-followers.
#6 Trade in the direction of the trend
Trend-following trading strategies have a proven track-record and are among the best strategies a trader can opt for. Always trade in the direction of the established trend – never against it! There’s a saying “The trend is your friend”, keep that in mind the next time you place a trade.
#7 “Buy low, sell high”
Another popular saying in the trading community is “Buy low, sell high”. However, how low is low enough?
Here’s a tip: When trends are strong, market corrections usually reach around the 38.2% Fibonacci retracement level. Weaker trends have corrections that can reach the 61.8% level. Always get into a trend when prices start to fall. Professionals buy low, while beginners tend to buy at the peak of an uptrend.
- Learn more, take our free course: Fibonacci: Fast-Track
#8 Confirm a trade with candlestick patterns
Candlestick patterns are a great tool that reveals the psychology of market participants. While you shouldn’t trade based only on candlestick patterns, they work very good as a confirmation tool.
For example: If a strong Marubozu pattern forms at an important support or resistance level, the price will likely continue in the direction of the candlestick pattern. Steve Nison has a very popular book about candlestick patterns called “Japanese Candlestick Charting Techniques”.
#9 Mark peaks and troughs in the market
When markets are trending, they form higher highs and higher lows during uptrends and lower lows and lower highs during downtrends. Marking these peaks and troughs can provide you a clearer picture of where the market is heading.
If the price forms a fresh lower low during an uptrend, which means the price has broken below the previous higher low, there’s a large chance that the current uptrend will reverse into a downtrend. The same is true when the price prints a fresh higher high during a downtrend.
#10 Stay up-to-date on market fundamentals
Market fundamentals can send shockwaves through the market, especially if they catch investors by surprise. Staying updated on market fundamentals and important news releases for the current trading week will place you heads and shoulders above other, passive traders.
Try to identify trends in important market reports.
For example: If unemployment rates have fallen for the last few months, there’s a high chance that the next report will be strong as well. Improving market fundamentals will eventually trigger a reaction from central banks and lead to rate hikes.
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Technical Indicator Tips
Technical indicators can be both fascinating and confusing at the same time. Here’re a few tips that will help you get the most out of them.
#11 Stick to a couple of indicators
The most common mistake involving technical indicators is redundancy. Traders apply dozens of indicators to their screen so that, in extreme cases, even the price-chart can be barely seen.
Indicators come in four main groups:
- Trend indicators
- Volatility indicators
- Volume indicators
Picking one indicator from each group and applying it to the screen is more than enough.
- Learn more, take our free course: How to Use Technical Indicators
#12 Oscillators can stay overbought/oversold for a long time
Oscillators or momentum indicators give buy signals when prices fall and sell signals when prices rise. While they do a great job in ranging markets, you’ll get a lot of whipsaws when markets start trending.
Don’t follow their signals blindly – oscillators can stay overbought or oversold for long periods of time in trending markets.
#13 Exponential MAs work better than simple MAs
Moving averages are one of the most popular trend-following indicators among Forex traders. They come in two main versions: exponential moving averages (EMAs) and simple moving averages (SMAs).
EMAs place more importance on the most recent price changes, which means that they usually work better and react quicker than SMAs.
#14 Indicators can be contradictory
Indicators from different groups often provide contradictory trading signals. Trend indicators give you a buy signal when prices rise, but oscillators say “sell”. When prices fall, trend indicators send a sell signal while oscillators become oversold and yell “buy”. Bear in mind that all indicators have their advantages and disadvantages.
#15 Learn how to trade on divergences
Trading on divergences is among the most important trading concepts that you can use with technical indicators. Divergences form when the price and the value of an oscillator start to diverge.
A bullish divergence forms when the price makes a lower low, but the indicator makes a higher low. Similarly, a bearish divergence forms when the price makes a higher high, but the indicator forms a lower high.
Oscillators such as the RSI, Stochastic indicator and MACD histogram are popular indicators to use when trading on divergences.
- Learn more, take our premium course: Trading for Beginners
Forex Broker Tips
Your broker is your window to the world of financial markets. There are hundreds of currency brokers which compete for every new client – some of them advertise very low trading costs while others attract traders with extremely high leverage.
As always, the truth is usually between the lines. Here are a few tips when choosing your next Forex broker.
#16 Cheaper is not always better
Don’t fall into the trap of looking for the cheapest broker. Unless you’re a scalper or very heavy day trader, trading costs won’t make a large difference to your bottom line.
Most brokers have competitive spreads and you won’t feel a large difference with any of them. It’s much more important to look for licensed brokers that offer all trading instruments you want to trade.
#17 Avoid unregulated brokers
Always look for brokers that are regulated and secure. This ensures that the broker follows high industry standards and that all your funds deposited with the broker are kept segregated and safe. Popular regulatory authorities include the Cyprus-based CySEC and the FCA in the UK.
#18 Make sure your broker offers a range of trading instruments
Having a wide range of tradeable instruments at your disposal makes sure that you never miss a trading opportunity in one of those markets. Some brokers offer only major pairs and cross-pairs, while others provide access to certain shares as well.
Risk & Money Management Tips
Risk and money management can make or break a trader. If there’s one thing you need to learn as early as possible in your trading career, it’s how to manage risk to preserve and grow your trading capital.
#19 Respect the 2% and 6% rules
The 2% and 6% rules refer to the risk you’re taking in the market. The 2% rule says that you shouldn’t risk more than 2% of your trading capital on any single trade.
The 6% rule refers to the total risk of all your open positions. You should never risk more than 6% of your trading capital on all your open trades.
For example: If you risk 2% per trade, the total number of trades you’re allowed to take under the 6% rule would be three.
However, if you risk only 0.5% per trade, the total allowed number of trades increases to 12. The 6% rule prevents you from losing a large portion of your trading capital if you have a bad trading day or week.
#20 Don’t overtrade the market
Overtrading the market is a common mistake among beginners. Unfortunately, it’s also one of the biggest mistakes a trader can make. Overtrading refers to trading very high position sizes that exceed the 2% and 6% rule and can ruin a trader’s account in a matter of minutes.
Beginners often feel invincible after a series of winning trades and believe that they’ve mastered the game. That’s exactly when they start to feel the urge for placing new trades and increasing their risk – an urge that will eventually blow their account.
#21 High leverage is dangerous
Many traders feel attracted to the Forex market because of the very high leverage offered by brokers. However, trading on high leverage can be quite dangerous.
Leverage allows traders to control a much higher position size than their trading capital, but leveraged trades magnify both your profit and losses. One single bad trade taken on very high leverage can wipe out your entire trading capital.
#22 Take advantage of trailing stops
Trailing stops are a type of stop-loss order that move with each price-tick that goes in your favour. If the market moves one pip in your favour, a trailing stop will automatically move your stop-loss for one pip and lock a part of your profits.
Trailing stops are often neglected by traders, even though they can play an important part and be an effective tool in risk management.
#23 Move your stops to break-even
Besides using trailing stops, you can also move your stop-loss manually to breakeven in a profitable trade.
For example: Once a trade reaches 33% of your profit target, you could move your stop to the entry price. Once 66% of your profit target is reached, move your stop to one-third of your initial profit target to lock those profits in case the market reverses against you.
Trading Psychology Tips
#24 Keep a trading journal
Trading journals consist of journal entries which explain why you’ve taken a trade, your entry and exit prices, position size, date and time of the trade and any other element that you deem important.
Keeping a trading journal and making regular retrospectives allows you to identify common trading mistakes and trading patterns that caused losses in the past. It also helps to fine-tune your trading strategy and entry and exit points.
#25 Have a written trading plan
A written and thought-out trading plan is the holy grail of trading. Your trading plan includes all elements of your trading, including your system, strategy, risk and money management rules.
Forget about trading plans stored on your hard-disk – to take the most out of a trading plan, you need to have it written on a piece of paper so that you can refer back to it whenever you feel difficulties in your trading.
#26 Take a break after a bad week or month
Let’s face it – even professional traders experience periods of time when things don’t go as planned. A bad trading week is not the end of the world.
Chances are that you’re tired or the market just doesn’t align with your trading system. In that case, don’t overtrade (see tip #20), take a look at your journal entries (see tip #24), and just take a break from the markets. You can also use that time for studying Forex trading.
Whether you’re a beginner, intermediate or experienced trader we can help you improve your trading: