It’s often said the expert in anything was once a beginner. Successful and consistently profitable traders in forex, like any other field, all underwent a steep learning curve as newbies where they knew very little.
While the core principle of foreign exchange is simple and can be described in a few words, there’s much more to unpack beneath the surface. However, as a beginner, you’d want to save yourself a lot of time and effort by being armed with sure-fire tips to navigate the forex market successfully before becoming more advanced.
#1: Gaining the correct education
As with any endeavor, the correct knowledge is paramount. Retail forex trading is largely semi-regulated. This means there are many education sources to observe, although many may not necessarily be professional.
Gaining the best education encompasses various aspects. As a beginner, you’ll need to understand complex topics at a basic level before diving deeper into them later. In this regard, Babypips is probably the best online resource for newbies in tackling the fundamental concepts of trading forex without being overwhelmed.
The second aspect relates to expectations. Online derivatives trading has long been a hotbed for unscrupulous marketing from organizations and individuals who tend to sensationalize being a trader.
As a newbie, you need to adopt a down-to-earth approach and never focus on thoughts of six-figure incomes and materialistic possessions.
#2: Using the MT4 platform for trading software
MT4 is probably the first piece of software you’ll encounter when starting out. While it’s one of the oldest and technically inferior to modern charting packages, it’s pretty beginner-friendly.
Although more sophisticated charting software exists, services like NinjaTrader and TradingView, you’ll at least want to start with something simpler. Once you’ve grasped MT4, you can decide to stick with this trading platform or move onto advanced software.
#3: Staying on a demo account for at least a year
One common mistake rookie traders make is not staying long enough on a demo account. There isn’t necessarily a recommended period for how long this should be, but a year is a reasonable amount.
However, in many cases, one may need to remain at this stage even longer if they aren’t completely ready. A year is a fair amount of time to prove a few things, the main one being whether you are profitable or not.
While producing a record of consistent profits is commendable, you’ll need to weigh your performance during less favorable conditions. So, the whole demo account process is naturally time-consuming as you can only monitor the different ‘moods’ of the markets and collect comprehensive data over time.
It’s not to say transitioning from demo to live trading is seamless. However, one should have fewer things to iron out at the latter stage. Overall, staying on a demo account for sufficient time ensures maximum practice.
#4: Experimenting with different strategies
This tip extends from the last one and reinforces the importance of time and patience. One of the main benefits of demo trading is experimenting with various strategies without real monetary loss.
As a beginner, it may be easier to copy from already-existing or popular trading systems, which would require less work. However, as with any market, there’s more than one way to skin a cat.
You don’t necessarily have to reinvent the wheel as a new trader. Yet, dabbling in a few different trading philosophies and concepts may open up to a whole new world where you can have a strategy truly resonating with you or a system that you believe can be implemented better.
Yet, there’s also a limit to this component as you don’t want to chop and change too much when facing challenges with a particular strategy.
#5: Picking the right broker
As you become more advanced, you’ll undoubtedly use a number of brokers for different purposes. Understanding the other brokerage models, the types of services being offered, and any applicable restrictions are beneficial.
One of the most crucial considerations for any forex broker is being appropriately licensed and regulated. No new trader would want to use an unregulated brokerage or one with a predominantly unfavorable reputation in the industry.
#6: Starting small when funding a live account
Even if a new trader can prove an impressive consistency level demo-trading, it’s not a sure indication of their performance in the live markets. When live-trading for the first time, you should fund with a fraction of your disposable income rather than the entire amount.
Although a trader’s account size is mostly irrelevant, newbies will likely behave differently with a few extra or fewer zeros after the decimal. In a nutshell, a trader’s journey begins with trading micro lots successfully before comfortably opening mini lot positions.
Once you’ve been able to handle trading these lot sizes profitably, you can invest more money into your account or use the existing profits to scale up to standard lots. We should treat trading like a business.
Even if entrepreneurs may have the capital to afford big-budget marketing and operating costs, they still need to function more like a startup trying to build its name. Similarly, it’s quite rare for someone with little or no trading experience to comfortably start trading tens of standard lots.
#7: Having patience
The part of being a successful trader is managing your behavior in the markets. So, perhaps the most essential characteristic to have is patience.
This element applies to many things, from the amount of time it takes to reach a mastery level, how you make decisions in the markets, to waiting for the right opportunities, and holding your positions. Ultimately, trading prosperity is a journey and not a destination.
#8 Sticking to major and cross pairs
As a beginner, one should stick to the 28 combinations of AUD, CAD, CHF, EUR, GBP, JPY, NZD, and USD, the major and cross pairs. These markets are relatively stable, highly liquid, possess reasonable volatility, and cheap spreads.
With more experience, a new trader can begin studying exotic markets if need be, although these instruments are more volatile and expensive to trade.
Like any endeavor, it’s crucial to know the basics. Forex trading may appear daunting at first, but once you slow everything down through ‘baby steps,’ you can gradually transition into the advanced stuff with ease.
As the Chinese proverb says, a journey of a thousand miles begins with a single step.