Forex trading course for beginners

Required for the forex course

Forex account: free account at Markets.com

Duration per lesson: about 10 minutes

Welcome to the Forex trading course for beginners! This course will teach you the basics of trading on the Forex market.

Among other things, we will discuss: What is Forex?; How to open a position; Technical and fundamental analysis, Forex psychology. We recommend you to study the lesson in order, because every lesson assumes you are familiar with the concepts discussed in previous lessons.

Our forex trading course for beginners is completely free for everyone.

Because during the course we work with examples from the trading platform of Markets.com, we recommend you open a free (demo) account with this forex broker to be able to visualize the things we discuss.

You can very easily open an account at Markets.com. They offer a free and unlimited demo account so you can practice before trading with real money.

The Forex trading course for beginners examines the following topics:

Lesson 1 – Why Forex: “The Turtles”

Lesson 2 – What is Forex

Lesson 3 – Interpreting Forex prices

Lesson 4 – How to open a forex position

Lesson 5 – News and rumours

Lesson 6 – Fundamental and technical analysis

Lesson 7 – Forex and psychology

Lesson 8 – Ten trading tips for beginners

 

Required for the forex course

Forex account: free account at Markets.com

Duration per lesson: about 10 minutes

Lesson 1 – Why Forex – “The Turtles”

The best forex course for beginners ever was given by Richard Dennnis. In 1983 this speculator – with the illustrious nickname ‘Prince of the Pit’ – recruited and trained 13 persons to trade in raw materials. Among them were a few professional card players, an accountant and a postman. None of them had any background or experience with trading.

The reason for the recruitment was a discussion with friend and fellow trader William Eckhardt. Dennis had continuously argued that he could teach everyone to be a successful commodity trader. The result was a bet that seems to be taken right out of the movie Trading Places: two rich men who test their theory in practice on unsuspecting souls – undoubtedly for the symbolic amount of 1 dollar.

The 13 unsuspecting souls – who later became known as ‘The Turtles‘ – earned $ 100 million in four years. The secret? Dennis educated his ‘turtles’ for 2 weeks, taught them a relatively simple and straightforward trading strategy, and above all the trust and the discipline never to deviate from the strategy. These were all requirements to turn 13 complete beginners into some of the most successful traders ever.

Freely translated this is the recipe for success:

  • Knowledge about the subject
  • Discipline
  • Resilience
  • A good strategy

The message? If they can do it, why can’t you?

In the upcoming lessons you will learn what the world of forex looks like, how currency exchange rates are determined, how to open a forex position yourself, and what you need to aware of when trading forex.

Required for the forex course

Forex account: free account at Markets.com

Duration per lesson: about 10 minutes

Lesson 2 – What is Forex

Forex actually means “FOReign Exchange”, which is the international name for currency trading. When asking yourself: “what is forex” you should not think about exchanging money at the border office before going on vacation … Instead, forex traders trade extremely large positions which they often sell within a day, with various purposes. Some trade purely to speculate on small price changes, while others use it to hedge their portfolio. Nevertheless, you can also trade in forex with only a small capital. That is because only the actual price gains and losses are settled on your account; you do not actually have to deliver the purchased or sold positions.

 

The forex market is completely virtual. There is no forex exchange building where 23-year-olds are shouting to sell Dollars or Euros. Everything is happening digital and decentralized, without a central supervisor. In addition, the forex market is open 24 hours a day, five days a week. This means that everyone can trade in forex from his own comfortable chair at any time he likes. Globally, currency trading is mainly driven by banks, followed by multinationals and governments. But in recent years forex trading has become very popular among individual traders as well.

Why can you make money with forex trading?

The value of currencies is constantly changing, both with respect to the past and with respect to other currencies. For example, the value (purchasing power) of 1 US Dollar in 2011 was very different from the value of the same Dollar in 1985. And the value of the US Dollar compared to, for example, the Euro has changed considerably in recent years. The latter – the value of a currency relative to other currencies – is crucial in the forex market, because currencies are always traded in pairs. An example, of such a pair is EUR / USD.

The change in value of currency pairs is not entirely arbitrary. It is caused by fundamental developments in the economy and by the actions and reactions of investors. And both are predictable (to a certain extent). If you are better able to predict these developments than others, you can make money on the Forex market.

This course for beginners (as well as in other articles) is aimed at providing you with the knowledge and tools to learn to predict the foreign exchange market, to develop a strategy that suits your own personality and to manage your growing trading capital. In short, we provide the means to develop yourself into a successful forex trader.

However, eventually you will have to do most of the work yourself. In addition to this forex course, we provide in-depth forex articles, a quiz to test your knowledge, and reviews of the best Forex brokers. But it is up to you to use this knowledge, have discussions about it with likeminded people and above all to practice a lot. That is the only way to becoming a successful forex trader.

Required for the forex course

Forex account: free account at Markets.com

Duration per lesson: about 10 minutes

Lesson 3 – Interpreting Forex prices

In the previous lesson of this Forex course for beginners we have discussed the question “what is forex”. In this lesson we will first discuss the practice of online forex trading. We will explain most concepts with the help of the software of markets.com, which we also use later in the course. Markets.com is one of the best forex brokers, which is also strictly regulated by the financial authorities. To be able to experience using the software yourself, you can easily create a free (demo) account at Markets.com.

Currency pairs

As already mentioned in the previous lesson, currencies are traded in pairs. Examples of currency pairs are: EUR / USD, GBP / USD, USD / JPY (see below a list with explanations of currency abbreviations). This implies that you always speculate on the rise of one currency relative to the other currency. Opening a forex position is basically buying one currency pair while selling another at the same time. If the purchased currency increases in value compared to other currency, you will make a profit on the trade.

A currency pair is displayed as the two abbreviations of the currencies with a forward slash between them. Each currency has its own three-letter abbreviation. For the major currencies these are as follows:

  • USD = US Dollar
  • CHF = Swiss Franc
  • EUR = Euro
  • CAD = Canadian Dollar
  • JPY = Japanese Yen
  • AUD = Australian Dollar
  • GBP = British Pound
  • NZD = New Zealand Dollar

For example, the GBP / USD currency pair is the combination of the British Pound – US Dollar. The first abbreviation (GBP) is called the “base currency” and is the currency on which you speculate. So, if you buy GBP / USD, you expect the British Pound to appreciate against the Dollar. The second abbreviation (USD) is called the “quote currency” and is the currency against which you speculate. An expected increase of the British Pound in this case comes at the expense of the US Dollar.

You may have noticed that a lot of new terminology is used. As with most activities, the forex world uses its own jargon; pip, spread, bid, ask, long, short etc … do not let this put you off because you will learn this terminology very quickly. Besides, it can also be very fun when you can boast at parties with some advanced terminology of the forex market. For an explanation of all the terminology, see the forex dictionary.

Prices and spread

In the Markets software you can find the different tradeable currency pairs via the Filter. For example, for the Majors (the main currency pairs) you get an overview that looks like this (the exact prices and instruments will probably be different now since this is just a snapshot).

Behind each currency pair you will see two prices: the ‘Bid’ and the ‘Ask’ price. For the EUR / USD, the Bid price is 1.24634 and the Ask price 1.24664. The Bid Prize is the price at which you can sell Euros to the market, expressed in US Dollars. The Ask price is the price at which you can buy Euros.

The difference between the bid and ask price is the so-called “spread”. This is what you pay to the broker for opening the position. As opposed to other markets (such as the stock and options exchanges), the broker does not charge you any costs except the spread. Because of this, trading in Forex is also much cheaper for individual investors than trading on the stock market.

You should notice that the spread is very small; for the EUR / USD just three hundredths of a cent. In the forex world one would say: the spread is three “pips”. A pip is the fourth decimal place in the currency formats of most currency pairs. (Only for the Japanese Yen a pip is the second decimal point, because Yens are worth about a factor of a hundred less than most other currencies).

Long / short

There are two different types of positions; a long position and a short position. With a long position you speculate on a price increase of the base currency relative to the quote currency. If you take a long position on the USD / CAD, that means you are buying US Dollars and selling Canadian Dollars at the same time. With a short position you expect the price of the quote currency to rise in comparison to the base currency. In other words, you buy Canadian Dollars while simultaneously selling US Dollars.

The idea of a short position is hard to understand for many new traders. In fact, you sell something that you do not have. This is possible because you do not have to actually deliver the sold currency immediately; you only need to do so once you close the position. It is as if you are selling someone a bag of apples, without having those apples in your possession. You know, however, that you only have to deliver the apples to the buyer in a while. You speculate that in the meantime the price of apples will have dropped, so that at the time of delivery you can buy the apples at a cheaper price than you just sold them for. The same concept applies to forex trading as well.

To quickly get the hang of it, I recommend you make a few long and short trades yourself on the trading platform of Markets.com. See what happens to the value of your position when the price rises or falls. You will soon understand how long and short positions work exactly.

Required for the forex course

Forex account: free account at Markets.com

Duration per lesson: about 10 minutes

Lesson 4 – How to open a forex position

Now that you know what forex is and how to interpret prices and price changes, it is about time to open a position yourself. In this fourth lesson of the Forex trading course for beginners, we will explain how to do it and what to be aware of.

Leverage

Leverage ensures that participate and trade on the Forex market, even with a small starting capital.

When observing the fluctuations in the prices of currencies you will notice that they are very small. From minute to minute prices often fluctuate only a few pips and if a currency pair rises or falls a whole cent within a few hours (i.e. 100 pips), that is rather exceptional. You may wonder how one can make money when price fluctuations are this tiny. The answer is simple: by trading large amounts at once.

If you invest one dollar in the GBP / USD and this currency pair increases by 50 pips, that’s not really worth it. If you invest $ 100,000, you earn $ 500 with the same price increase. Considering that such fluctuations happen a couple of times a day, you can see how Forex trading can quickly become a lucrative source of income.

Lot size

The amount of $ 100,000 was not chosen out of the blue. 100,000 units of a currency pair is typically called a “Standard Lot”. This is the basic quantity to trade in the forex world. If you buy a standard lot, a price change of 1 pip corresponds to approximately $ 10. Because an increasing number of individual traders with smaller investment funds are entering the forex market, there are now also “mini-lots”. A mini-lot equals 10,000 units and the value of 1 pip equals about $ 1. And there are even “micro-lots”, where 1 pip equals $ 0.10.

In order to buy a standard lot, you do not actually need $ 100,000 in capital. If that were the case, Forex trading would be a privilege for the rich. Instead, you only need enough capital to cover any losses on an open position. This is the concept of “Leverage”.

With Leverage you trade larger positions than you could actually purchase. In the markets.com trading platform you can set the desired lot size when opening a trade. The smallest lot size is 0.01 lots, or 1 micro lot, where 1 pip is $ 0.10.

The maximum leverage at Markets.com is 200:1. This means that you only need $ 5 to buy a micro lot. Because every pip equals $ 0.10, if the price increases by 30 pips, you make a profit of 30 * 0.10 = $ 3. On the other hand, the price can drop a maximum of 50 pips before your position is closed. In that case, you would lose 50 * 0.10 = $ 5, which equals the initial purchase amount, and you can never lose more than the initial purchase amount.

Stop loss

Because forex positions involve Leverage, your position is automatically closed whenever it reaches a certain value (in the example above that is 50 pips). This is called a “stop loss”. You can also set a stop loss yourself which is higher than the minimum stop loss. For example, if you want to open a position with a higher price target, you may also want to give the trade some more space, and thus a more distant stop loss. When your stop loss is hit, the broker automatically closes your position. This means you can never lose more money than you deposit.

On the one hand, a tighter stop loss offers more protection, but on the other hand it is also more likely that your position will be closed due to a very small price fluctuation. A wider stop loss gives your position more space to move but it also exposes you to larger potential losses. One of the most important, and often overlooked, things in forex trading is applying the right stop loss. We highly recommend you always apply a stop loss. If you walk away from your computer to get some coffee, the price may have suddenly made a large unanticipated move with some nasty consequences if you didn’t apply a stop loss.

Take profit

In the same way as a stop loss, you can also apply a “take profit”, or a limit to your profit. At first sight this may seem weird of course; after all, you want to make as much money as possible. But the price of a forex pair often moves in waves, going up and down. If the price has increased and you have theoretically made a profit, but if you do not close the position and the price drops again, you have lost your profit again.

To prevent this from happening, it could be wise to apply a take profit; a price target at which the position is automatically closed with a profit. You should place the take profit at a level which you believe is reasonable, and after which the upside potential is limited.

Your first position

Now that you have come this far in the forex trading course you have all the information required to be able to open your own positions. You know how to interpret bid and ask prices, how to limit risk by applying a stop loss and take profit, and how to use the concept of leverage. We always recommend practicing a couple of trades with a demo account before starting to trade with real money.

The remainder of the course proposes various more advanced tools to better predict future price movements. We recommend you start applying the information you learn as you work your way through the trading course. By trading with a demo account you can immediately the concepts we explain in this course, while gradually expanding your knowledge about forex and trading techniques. Experience is an important success factor in forex trading. Ultimately, success depends on applying your theoretical knowledge in practice to gain hands-on forex trading experience.

Required for the forex course

Forex account: free account at Markets.com

Duration per lesson: about 10 minutes

Lesson 5 – News and rumors

In the previous lessons of the Forex trading course for beginners you learned how open a Forex position and things you need to be aware of when doing so. The next step is to understand how and why currency prices move and how to predict this. Forex is traded 24 hours a day from Monday to Friday. The Forex market is fast and transparent, and news often has a quick and direct impact on the price. Factual news, but also – and at least as important – speculative news (and lately even “fake news”.

News & Rumours

An important wisdom of the stock market is: “Buy the rumour, sell the news.” This means that the rumour of a certain future event often drives the price up (or down) and that by the time of the actual news event itself it is already almost entirely reflected in the price. In many cases, the actual news event often fails to meet expectations, causing the price to decrease even if the news itself still is positive.

A simple example to illustrate this. The days before the FED (Federal Reserve System) announces whether it is going to increase interest rates, the US dollar is often very volatile. People trade their expectations about possible interest rate hikes, because the actual news has yet to be announced. The most important thing often is not the actual interest rate hike itself – which is seldom surprising – but about what the President of the FED says; is it “hawkish” (“we’re going to increase interest rates”) or not? The same applies to announcements by the ECB (European Central Bank), even as the announcements of important figures in major economies such as France, Germany and Great Britain.

Whenever you expect the price of a currency pair to react on an economic news fact, try to find out if this reaction has not already taken place during the rumour phase. On the other hand, if there are new rumours which you think might be reliable, it can be rewarding to trade based on these rumours alone. Once the rest of the currency market comes to realize the rumour is gaining credibility, the price will start to move in the direction you predicted. You made a profit even before the actual news was released!

What to buy

It is important to carefully consider which position you want to take on the markets and why. Are there several sources that indicate a temporary rally in the Dollar? Is there speculation about important macroeconomic data in Japan? Will the European Central Bank soon come with a new interest rate hike? In the beginning it may all seem very difficult, but after a while you will notice that you are developing a feeling for this kind of information and the effect it has on forex prices.

An example. On the Globaltrader24 blog you read something like: “Dollar is likely to rise due to poor German economic performance”. Try to verify whether this rumour is supported by arguments. What exactly does the article on Globaltrader24 say? What do external news sources report about the Dollar and the German economy? If you cannot find anything reliable about it then the rumour does not have a lot of support. But if other sources support the news, then perhaps it might be something to trade on.

Check the forex charts

Next, take a look at the forex chart of the EUR / USD over the past months (You can find it at the Markets.com trading platform). Was the increase of last week the continuation of a longer trend or just a temporary upswing? Did a correction already seem to have taken place, or is it still to come? If the rumour seems to be valid but the price has not yet responded, then it might be a good time to take a position. If it seems that the US Dollar is also going to appreciate relative to other currencies, you might take multiple long positions on the US Dollar.

You decide to short the EUR / USD and open a position at a bid price of 1.2511 on the trading platform of Markets.com. You choose 1 micro-lot of 1,000 units. Because you know it is wise to always apply a stop loss, you place a stop loss at 40 pips. Meaning that your position will be automatically closed once it moves 40 pips in the wrong direction, which is at a price of 1.2551. However, you expect the EUR / USD to be able to drop as much as 100 pips, thus you place your take profit at 1.2411 (Remember, with a short position you make money when the price falls). You enter the conditions of your trade, confirm the order, and let the market do its work …

Be steadfast, have perserverance

Once you have decided what would be a good stop loss and take profit, it is important not to doubt your initial judgement. Many traders lose because in the process they keep adjusting their stop loss, (thus accepting a large loss), hoping that the price will still move in their favour eventually. Or they close their position with a small profit, so they miss out on a large part of the potential profit.
Of course, you will not make this big mistake. After all, you have studied the forex trading course of Globaltrader24!

Required for the forex course

Forex account: free account at Markets.com

Duration per lesson: about 10 minutes

Lesson 6 – Fundamental and technical analysis

What is the best forex strategy? Well, THE BEST forex strategy does not exist, but all successful strategies have one thing in common: they anticipate the next move of the market. The exchange rate of a currency pair is determined by the law of supply and demand. For example, if many people believe that the price of the euro will rise against the dollar, they will start buying the EUR / USD. That automatically boosts the price of this currency pair, causing the Euro to appreciate against the dollar.

Whenever you take a position it is important to anticipate what the market is going to do. Never trade against the market, because the market is always right; by definition, forex prices will reflect the expectations of the crowd, even if there is actually no good reason behind it.

Anticipating what the Forex market is going to do seems easier than it is, because the crowd is not screaming to everyone what he or she is going to do. Just like you, all those other millions of Forex traders are behind their PC screens placing orders without you seeing them. There are, however, means to predict what all these people are going to do: fundamental analysis and technical analysis. By developing a better understanding of these techniques, you learn to predict prices faster and better.

Fundamental analysis & Technical analysis

In general, the Forex market distinguishes two “schools” when it comes to obtaining information: that of Fundamental analysis and that of Technical analysis.

Fundamental analysis

In fact, you have already briefly encountered fundamental analysis previously in this course. Fundamental analysis is the study of economic, political and international events and their impact on exchange rates. Put more simply: studying the impact of the news of stock markets. This is exactly how we determined what positions we wanted to take in previous lessons.

Technical analysis

Technical analysis is often considered to be more successful, although almost everyone agrees that a mix both is what makes a successful trader. Technical analysts do not look at actual events, but only at the price and price movements. The idea behind this is that all developments in the economy are ultimately incorporated in the price and that, therefore, only the price trend can be used to determine the future direction of the price.

The six most important figures for technical analysts:

  • Open: the opening price at the beginning of a period
  • High: the highest quoted price within a period
  • Low: the lowest quoted price within a period
  • Close: the closing price at the end of a period
  • Volume: the number and size of transactions throughout the market within a period
  • Open Interest: the total number of open positions in the entire market at a specific moment

Because Forex is an open market (in contrast to the stock exchange, for example), analysing the last two figures (volume / open interest) is very complex. However, the first four are easy to follow. Forex traders even use special candlestick charts that accurately represent these figures for each period. To find out more about candlestick charts read this article.

Technical analysis in practice

To give you an idea of the kind of information you can get from graphs as a technical analyst, we show you an example below. It is a graph of the GBP / USD currency pair over the past seven days.

From this chart two important issues can be deduced. First, the GBP / USD is clearly in an uptrend. That is, the exchange rate has been moving up for a while. Because trends are more likely to continue than to reverse, we could speculate on a further increase.

Second, the price seems to move within a certain bandwidth, which is about 100 pips wide. Because there is an uptrend, the bandwidth itself is trending up as well. Every time the currency pair touches the top or the bottom of the bandwidth, the price starts moving in the opposite direction.

Right now – the right-hand end of the graph – the price is in the middle of the trend channel, making it difficult to make a statement about what will happen next. This is not a good moment to open a position. But at the circled points in time, where the price touched the trend channel, it could have been a good moment to open a trade, speculating on a short-term reversal of the price. The first and fourth points were good moments to open a long position and speculate on a price increase. The second, third and fifth points offered opportunities for a short position to speculate on a price decrease.

More advanced indicators

In the more advanced forex articles we explain much more techniques to perform technical analyses. Make sure not to learn too many techniques simultaneously. Reading over a 100 pages about technical indicators without ever doing a trade yourself, will only make it more confusing. Instead, try to make a few trades based on a certain strategy or indicator. Once you understand how to apply the indicator, you try adding new technical indicators to practice with.

Required for the forex course

Forex account: free account at Markets.com

Duration per lesson: about 10 minutes

Lesson 7 – Forex and psychology

Trading on the forex market is not for everyone, but if you have made it this fare in the trading course you probably still find it interesting. Forex trading could be something for you. The beginning is in fact the most difficult. All those new forex terms, following the Forex news, learning to read Forex charts, and Forex trading psychology… it requires some perseverance and courage. But the positive side is clearly there; Forex is fun, exciting, addictive, and potentially very profitable! You do not have to take big financial risks at all, because even with a small starting capital you can already make a lot of money.

Do you belong to group 1 or group 2?

The beginners who are getting increasingly enthusiastic when reading the articles in this forex course can be divided into 2 groups:

Group 1 finds it very interesting and is keen to learn more about it, but first wants to absorb as much knowledge as possible before investing money. Traders in this group prefer to first trade with a demo account, and deposit real money on their forex trading account after they practiced with a demo account.

Group 2 prefers to get started as soon as possible and immediately deposits $ 1,000 to start trading immediately. These traders prefer to experience the tension of trading with real money.

Both groups are right in some way. To become successful in Forex you need knowledge. After all, you want to be able to predict the market better than others, which requires studying some trading techniques. That means reading articles, asking questions, discussing with other traders, and perhaps reading a book about forex. In this respect group 1 is right.

Forex trading, however, is as much an art as a science. You need to develop a feeling for the forex markets, for the effects of news reports on the markets, and for the application of technical indicators. The only way to develop this feeling is by practicing.

Besides, trading with demo money is not the same as real money forex trading. If there is real money at stake, your suddenly start feeling emotions. You are confronted with your own greed because you want to get the most out of a profitable trade. You are confronted with your fear, because you are afraid of losing any money. Finally, you will be confronted with self-deception because you keep a losing position instead of closing it. Developing self-knowledge and discipline to deal with these emotions is perhaps even more important than gaining theoretical knowledge and technical skills. In that respect, the Group 2 approach is the right one.

Forex trading psychology

Beginners from both groups can eventually develop into successful traders. You should not try to change your learning approach, because you are who you are. Just be aware that both groups exist and both groups are right to follow their approach.

If you belong to group 2 by nature, take a step back from the market a bit more often and start reading some more background information. For your next trade, try to find a new trading instrument instead of those you already knew. If, on the other hand, you belong to group 1 by nature, start trading with real money more often. You do not have to trade with large amounts, but just the effect that there is actually €10 at stake makes you feel different than when you just trade with demo money. It is very important to experience this feeling.

Your own trading account

To find a good balance between the two groups, we recommend not to start with too much money. Never trade with money you cannot afford to lose. First of all, there is always the risk that you will lose, but also because if the money is too important for you, you will make worse trading decisions. If you depend on your trading performance to pay your bills next month, your trading decisions will almost certainly be influenced, and not for the good.

A starting capital of between $ 300 – $ 500 should get you a long way already. This is sufficient to experience the tension of trading with real money without the risk of losing too much money. Choose your stop losses wisely, so that you that you do not risk losing your entire starting capital in a single trade. As your capital grows, you can gradually take on larger positions.

Another important success factor is that you use forex software which you like and understand. If you are trading for a while you will notice that you can starting spotting certain opportunities in a glimpse. However, you need a clear graph which you are used to working with. One of the best forex trading platforms is that of Markets.com, which we also used in this course to explain things. It is very clear and easy to use. Another trading platform we highly recommend in Plus500.

For more information about forex brokers please visit the page with forex broker reviews.

Required for the forex course

Forex account: free account at Markets.com

Duration per lesson: about 10 minutes

Lesson 8 – ten tips for beginners

A couple of lessons ago you were still a forex rookie, but now you have almost arrived at the end of the Forex trading course for beginners. You learned how the forex market works, you got to know the most important terminology, have a basic understanding of technical analysis and fundamental analysis, and gained a bit more understanding of your own psychology. You’ve probably already made a few trades to put your new knowledge into practice and, admit it, you’re are liking it already.

But actually, the real fun is only starting now. Well, it was already fun, but now it is getting even more fun. All the new knowledge you gain from now on no longer serves to understand the basic principles of trading (you know them already), but to further develop and refine your strategies. If Forex trading were a language, you would by now understand most basic grammar and vocabulary and you could start singing songs and understanding fascinating literature.

In the forex articles we will dive into many factors that determine the forex market; what you should know to become a better trader; how to apply Technical and Fundamental analysis in practice; how to discover a trading style that best fits your personality; and many more new and exciting things. But before you really jump into the deep and start trading a lot, we want to give you some final tips. These ten forex trading tips for beginners will help you avoid making stupid mistakes that many beginners make.

Always apply a stop loss

While it does not really require any specific knowledge, it is the most important aspect of trading since it prevents financial catastrophes. Numerous small and larger traders have seen their trading capital vanish, either when they went out to do groceries, or when their computers crashed. They could have easily prevented this by applying a stop loss to their trading position. There are no excuses: always apply a stop loss!

Always apply a take profit

Partially for the same reason you have to set a stop loss. Maybe you need to leave your computer, or you lose your internet connection, etc. But what is more important: it forces you to think more extensively about the potential of your trade. How far is the price going to move? The predetermination of an entry and exit point is the most important aspect of a successful trade. You do not have to nervously watch every price tick and be glued to the screen when the trade is running. You can just patiently wait for the price to either hit the stop loss or your take profit.

This does not mean that you can never deviate from this. If a new development in the market advocates to step out, even if your take profit (or stop loss) has not yet been reached, then of course you can do so. But in general, you do not want to adjust the stop loss or take profit during the trade.

We also recommend you determine the ratio between your stop loss and take profit beforehand. For example, you can set a stop loss at 25 pips and a take profit at 75 pips; a ratio of three to one. This means that only 25% of your trades needs to be successful in order to break even in the long term. (After all, if you lose 25 pips three times and you win 75 pips once, you will break even.)

Never add to a losing position

This is one of the biggest pitfalls in Forex trading. You opened a position, applied a stop loss, and then the trade is starting to move against you. Your stop loss is hit, and you make a loss. You are feeling bad and you want to make up for your loss by buying the same instrument again, now at a lower and better price. However, the price continues to move against you.

Markets.com trading platformNever do this. Just accept the loss, leave it, and analyse why it did not work out the way you anticipated. Remember that no trader can only have winning trades. Every trader has losing trades; the point is that you win more with the winning trades and lose less with unprofitable trades (hence the ratio between the stop loss and the take profit). It may be worthwhile to open a new position at a cheaper price. But try to consider it as a stand-alone decision, not as a way to make up for your initial loss.

Don’t get overconfident

The fewer the knowledge, the bigger the boast. At least, in many cases. But you should not be trading forex to boast or prove something; you should do it for the money. If it is also fun and exciting, that is nice, but in the end it should just make you money. It is very easy to overestimate your own knowledge and talent after some lucky trades on the forex market.

Realize that on a scale of 1 to 10 – where 1 is a monkey that randomly trades and 10 is Bruce Kovner, one of the most successful forex traders in the world – you might now be at 3 or 4. This may already be higher than the average individual forex trader, but there are also many losing traders. Start trading with modest amounts, but remember that you are working on a learning experience and have a long way to go before you can trade millions.

Do not create wrong expectations

It is not the end of the world if you lose $ 100 due to a stupid mistake; similarly, you should not start dreaming of buying large mansions when you just made $ 200. Take the time to learn and improve yourself and keep looking at your progress realistically, without becoming obsessed with how exactly you’ve done over the past week or month.

It may be that in the long run you make more money with Forex trading than with your regular job. But it is equally likely that you will not make it that far because you lack the time, interest or discipline. Do not to quit your job; at least not too soon. It’s better to just see how far you get, gradually get better and increase profits, than to set yourself hard financial goals. After all, you do not always know what will happen in the future.

Never trade with money you cannot afford to lose

NEVER TRADE WITH MONEY YOU CANNOT AFFORD TO LOSE! The best thing about forex is that it is the least risky of all trading instruments. You can never lose more money than you invested, and if you use the stop loss well you can never lose more than the number of pips you have specified in advance. It is therefore not necessary to put money at stake which you cannot afford to lose.

Just reserve a certain amount for your forex trading and realize that there is a possibility that you lose it – especially if still in college this is important. If there is one thing you don’t want when trading forex, it is sleepless nights. So, just don’t put yourself in that position.

Never trade without a plan

A headless chicken is usually eaten. Think before opening a position. Do not trade because you have some vague suspicion or because a distant acquaintance at a party argued that the Dollar is now really going to collapse. Base your trades on extensive Fundamental and Technical analysis.

Before entering a trade, try to determine an entry and exit point as well as possible. What is the best moment to get in, and what is the right time to get out of the market? Determine an entry point and stop loss level beforehand. In the beginning you may notice that your plan does not always work out as expected and that sometimes the market does something unexpected. However, this way you will increase your experience and you will develop a feel for the market.

Do not open a position when in doubt

Americans have a nice expression for this: “When in doubt, stay out.” Of course, you should not be a coward either, but if you have made your analysis and you are still in doubt as to what the price is going to do, then start looking for another opportunity or get some coffee. You place a trade for a certain reason and if you cannot even convince yourself, then it is probably not a very good reason.

Do not exit a trade due to a whipsawing price

Another saying from the US: “Monitoring extended periods or whipsawing is like watching paint dry.” A price on the forex market of whipsaws back and forth before choosing a definitive direction. The market is building momentum before it makes a large move. Looking at such a whipsawing price is not only boring, it can also bring your head full of (unjustified) doubts. Did I make a justified decision? Did something suddenly change? Should I quickly close my position?

The whipsawing of currency prices is the result of a large group of traders (mostly computers) making many flash trades. Make sure you do not trade these small price fluctuations. As an individual trader, should you pay attention to larger price movements.

Focus and concentrate when opening a position

It has probably happened to almost every trader: button here, button there and … Oops! The wrong button. By accident you went long instead of short; 10 lots instead of 1 lot; purchased Australian Dollars instead of Canadian Dollars; etc. Of all Forex trading tips for beginners this is the simplest (even the monkey can learn this): focus and concentrate when opening a position. Check whether you have set all fields correctly before clicking “Open”.

Trading tips for beginnersIf you open a wrong position, this means that at best you pay double the spread; once when opening the wrong position and once when opening the right position. This will cost you a few pips. But if you do not realize that you have made a mistake, the consequences can be huge. Imagine that you accidentally went short instead of long and only find out later, after you have lost 200 pips. Concentration is essential!

And with that you have come to the end of the forex trading course for beginners. These eight lessons explain the basics of forex trading. Also have a look at our other interesting forex articles.

We wish you a lot of success!