Forex trading, as one of the leading markets worldwide, is a very lucrative opportunity and it can bring huge profits to traders. Forex trading can also be very risky, especially to the new inexperienced traders. That is why every trader should trade smart and develop his/her own trading strategy that works and follow it consistently.
First, learn as much as you can about forex before you even consider actual trading. Knowledge and experience cannot be substituted when it comes to trading forex. You can find a lot of forex trading resources and e-books online that can help you get started.
A very good way to understand forex trading better is to start trading with demo accounts. These demo accounts represent simulation of real trading where you trade with “virtual” money instead of real money. Demo accounts are completely risk free and excellent way to see if you are capable of making money with forex, or not. They are also very good for practicing forex trading and sharpening your skills as a forex trader.
Once you feel you are ready, choose forex broker and start real trading. Be also careful with broker selection. Brokers should be regulated by globally recognized institution and must be able to provide registration or license number. Also avoid trading with brokers that offer higher leverage than 100:1. Most brokers should offer help and training to their traders. Forex brokers should also offer ability to open demo accounts and trade with virtual money.
Keep in mind that trading with virtual money can be different from trading with real money and some traders that trade successfully with demo accounts don’t experience same success with real accounts.
Only Trade with Money You Can Afford to Lose. In the forex market, scared money is lost money. A trader who is placing trades with scared money may as well just give it to a charity. The reason this is the case is because when a trader is fearful, they will make trading decisions that reflect that. The trader who is playing with scared money will commit all types of psychological trading mistakes that will ensure that money is lost.
Learn to Trade on Higher Time Frames. Many traders have the misconception that the lower the time-frame chart, the more chances they have to make trades, and thus, make money. While it is true that traders will get more signals on lower-time-frame charts, it is also true the lower the time frame, the more false signals there are and the harder it becomes to make money.
Traders can begin to turn their trading around by taking just this point on alone! The higher-time-frame charts are where most trading should be done for beginning traders.
One of the best reasons the daily chart is a lot more powerful than a lower-time-frame chart such as the one-hour chart is because of the time that goes into making the signals. An example of this is an inside bar.
If we see an inside bar on the one-hour chart, we know that price could not break out of the previous candle's range for one hour. If, however, we see an inside bar on the daily chart, it means price has gone through all trading sessions including the UK and US sessions and has been unable to break out of the previous day's range.
One of the explanations why this happens lies in human psychology and emotions. When you trade with virtual money, you can’t really lose anything while in real accounts you can and this fear of loss emotion usually leads to bad decisions.
Emotions in forex are your enemy and you have to always stay cool. Develop your trading strategy and follow it no matter if some trades may feel right or wrong. Also trade with money you can afford to lose so you won’t have to bump your head against the wall if some trades go wrong. Remember, forex is not a way to get out of a debt and stay out of it if you are in desperate need for money. Forex trading requires patience and lack of emotions. In time, when you become experienced trader, you will know more what you can and what you can’t do and how much money you can earn.