The foreign exchange market (forex) is the official platform for trading foreign currencies with the intent of making a profit and it is one of the fastest growing markets in the world. Those who truly want to succeed with forex need to have a thorough knowledge of it. To help you get started, we’ve put together a two-part blog post offering tips for entering the market.
Not a Get-Rich-Quick Scheme
Too many people enter forex thinking they will have wild success immediately. However, triumph only comes with patience, perseverance, and a thorough knowledge of the market.
As a result of the get-rich-quick mentality many novice traders have, beginners often make the mistake of starting with big, busy trades. However, true success comes from starting small and working your way up. Though the profits will be small initially, you will learn much more and have greater returns over time.
Learn Your Market
Success in the forex market comes with doing what you know. Because of that, you need to know as much about the market you’re trading in as you can. Know how each foreign market intercorrelates, reacts to global events, and how they impact each other.
To help you get to know your market, start with a single currency pair. This will limit your focus, allowing you to make smarter choices as you dedicate all of your time to learning one market without other distractions.
Know Your Strategy
To make the most of your trading experience with forex, you need an overall objective and a plan for each trade you make. Take into account what types of currencies you plan to deal with, how much time you can commit to the project, and the amount of leverage you will use for each trade.
For every trade you make, have a good exit strategy. Know when you should close positions and take the profits. Also, know how long you should hold a position before closing it. All of this will take ample research, study, and experience to get it just right, but once you have a set strategy, stick with it.
Rely on Discipline
Your strategy won’t do you any good if you don’t have the proper discipline. You need to rely on consistent actions in order to be a successful trader. With that in mind, recognize how your emotions impact your decisions and remove them from the equation. Emotions will cause you to second guess and make impulse decisions that you will regret later.
As the markets shift, it may be tempting to move past your “take profit” point and hold out for a higher return. However, the markets are so unpredictable, you could easily find yourself suffering a huge loss because of this impulse decision. To help you get your highest returns, have the discipline to stick with your strategy.
These are the first four tips in our two-part series on understanding the foreign exchange market. Check in later for the second installment with even more tips to help you find success in your trading endeavors.