There are a lot of things that someone should know before they every begin trading Forex with real money. In this article, I am going to focus on three things that I think are essentials when it comes to Forex for dummies.
1. You Must Have a Strategy
Before beginning to trade in the FX markets, you need to know what strategy you are using. There are thousands of strategies, and people have been extremely successful with all kinds of different approaches, but you need to find one that works for you. You may be very impatient and like a shorter time-frame strategy with more entries, or you might like to take a longer time-frame approach and sit back and let it go.
It is important that you fully understand your strategy. You don’t want to download a whole bunch of indicators on to your platform and base entries on some guys theory that you saw on youtube. It is fine to learn a strategy from someone else, but you want to have comprehension on why you are doing what you are doing and what the logic is behind it.
You should also stick to one strategy when you are starting out. It is important that you stick to the guidelines of a certain approach and don’t change it just because you feel like something “might” work. Remember, it is impossible to know if something is truly successful based only on a few trades.
2. You Must Understand Money Management
Money management cannot be emphasized enough when trading. It is the essential ingredient to any trader’s success. It does not matter how good you strategy is, or how well you stick to it, if you do not use wise money management.
In short, money management is applied by risking a very small percentage of your account, not increasing your lot size to try to make up for a loss, not putting too many trades on at once, and being overall conservative with the way you manage trades.
No one should begin trading without realizing that success is impossible without this key factor. I suggest you read several articles on how to manage your trading account before ever getting in a situation where you are actually managing a live trade. The key to money management is understanding that you do not have to win huge to be successful; you simply cannot lose huge.
3. You Must Have a Trading Plan
A trading plan is a must-have for any trader. A plan included things like your strategy and money management, but also goes more in-depth to take all the emotion and guessing out of your trading. For instance, you may have a rule in your plan that says if you lose 3 trades in a day, you will turn off your platform and quit trading until the next day. This rule is put in there to help you stay in the game and not blow your account and when you lose 3 trades in a day, there is no hard decision to be made about whether you should stick with it and try to make your money back or just avoid more damage—the decision is already made for you.
Another thing that you may put in your trading plan is what your goals are – both long term and short term. If you see that your plan is not meeting your goals, then you need to re-evaluate the plan. Doing this, keeps you focused and aware of your situation rather than just crossing your fingers and throwing money away.
If you are a beginner in Forex, I highly recommend you reading the article on Winner’s Edge Trading about trading plans.
So, as you know, there is always way more to learn about the trading world, but that is a snapshot of where to start if you are looking for Forex for dummies information.
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