Prepare Before You Begin Trading
Because the Forex market is highly leveraged—as much as 50 to 1—it can have the same appeal as buying a lottery ticket: some small chance of making a killing. This, however, isn’t trading; it’s gambling, with the odds long against you. A better way of entering the Forex market is to carefully prepare. Beginning with a practice account is helpful and risk-free. While you’re trading in your practice account, read the most frequently recommended Forex trading books, among them:
Currency Forecasting: A Guide to Fundamental and Technical Models of Exchange Rate Determination, by Michael R. Rosenberg, is a short and highly admired introduction to the Forex market. Forex Strategies: Best Forex Strategies for High Profits and Reduced Risk, by Matthew Maybury, is an excellent introduction to Forex trading. The Little Book of Currency Trading: How to Make Big Profits in the World of Forex, by Kathy Lien, is another concise introduction that has stood the test of time.
Use the information gained from your reading to plan your trades before plunging in. The more you change your plan, the more you end up in trouble, and the less likely that elusive forex profit will end up in your pocket.
Diversify and Limit Your Risks
Two strategies that belong in every trader’s arsenal:
Diversification: Traders who execute many small trades, particularly in different markets where the correlation between markets is low, have a better chance of making a profit. Putting all your money into one big trade is always a bad idea. Familiarize yourself with ways of guaranteeing a profit on an already profitable order, such as a trailing stop, and of limiting losses using stop and limit orders. These strategies and more are covered in the recommended books. Novice traders often make the mistake of concentrating on how to win; it’s even more important to understand how to limit your losses.
Be Patient
Forex traders, particularly beginners, are prone to getting nervous if a trade does not go their way immediately, or if the trade goes into a little profit they get itchy to pull the plug and walk away with a small profit that could have been a significant profit with little downside risk using appropriate risk reduction strategies. In On Any Given Sunday, Al Pacino reminds us that “football is a game of inches.” That’s a winning attitude in the Forex market as well. Remember that you are going to win some trades and lose with others. As a beginning trader you might simply try to measure a bit more money gained than lost after every 30 trades or so. This incremental measure will help you strive for consistency in trading, something very few beginning traders are able to accomplish.
