7 Forex trading tips you can use immediately
Almost every article for beginners includes tips such as choosing a broker wisely, testing strategies on a demo account, examining the trading platform, etc. In this article, you won’t find basic tips. Forex is a huge market that has unique features. In 2022, $6.6 trillion on average has been traded on it.
This article will focus on top recommendations regarding your first trades that will reduce the risk of making mistakes. Read on to learn the most effective Forex trading tips and strategies.
1. Choose long-ranging markets
There are two market conditions—it either trends or moves sideways. These phases change around. Therefore, a strong breakout will occur soon when you see the price moving within a narrow range for a long time. The hardest thing is determining whether the period is long or if the sideways movement just started. The length of trends and sideways movements depends on the timeframe. You should check how the price acted before. Define the average number of candlesticks it forms during consolidation and be ready to take action if the price is near a breakout.
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2. Higher lows into resistance and lower highs into support
Have you learned triangle patterns? If not, you should after you finish reading this article. There are ascending and descending triangles. The first one signals an uptrend will continue. The latter reflects the continuation of a downtrend.
As you can see, the price forms higher lows near the upward breakout and lower highs near the downward breakout. The idea is simple: bears lose their power in solid uptrends, while bulls aren’t strong enough to push the price. The easiest way to determine such market conditions is to use trendlines. They will frame price fluctuations.
3. Pending orders
Pending orders are set when the price hasn’t reached a certain level, but a trader doesn’t have time to wait. There are four pending order types. A Sell Limit is used when the price is expected to rise but reverse down from a certain level. A Buy Limit order is the opposite. Traders place it if they expect the price to fall and reverse after reaching a predetermined level. If you want to trade on a breakout, you can place Buy and Sell Stop orders.
4. Test overnight trading
Forex is less volatile than other markets. Therefore, in many cases, traders prefer to hold their positions open for at least several days. Overnight trading has unique features that must be considered ahead of time.
First, you shouldn’t keep trades open if any significant event is scheduled for the next day—for instance, an economic release or a political event. Second, there is a rollover fee. It’s calculated automatically by a broker and is displayed on the trading platform. The fee depends on the interest rates of the instruments you trade. The sum can be added and taken from your account.
5. Develop healthy attitude
Having a healthy attitude is one of the critical Forex trading tips for beginners. Although it’s constantly mentioned, adjusting your attitude to losses is vital because any financial activity bears risks. It’s recommended to view trading as serious work. However, your attitude to potential losses should be healthy. Think of your trading budget like the one you spend during a vacation. You know you will pay for satisfying things, and when the vacation is over, you won’t regret it. If you focus on returns and don’t count every small loss you have, you will move forward faster.
6. Avoid short-term trading
Day trading is one of the basic approaches and includes various strategies. However, it requires lots of experience because traders monitor the market constantly, find perfect entry and exit points quickly, and measure potential returns and losses ahead of time. Therefore, another tip on Forex trading for beginners is to avoid short-term trades until you are sure you can handle enormous price fluctuations. To gain experience in this trading method, read comprehensive guides.
7. Risk/reward ratio
This is a Forex trading tip for newbies and experienced traders. It’s essential to calculate risks against potential returns. If you place orders randomly, you can’t be sure you won’t meet a margin call. 1:3 is a reasonable risk/reward ratio for beginners, while 1:2 is a good ratio for professionals. An example of a 1:2 ratio—if you expect to gain $400 per trade, you shouldn’t risk more than $200. With a 1:3 ratio, you shouldn’t risk over $200 if you expect to gain $600 per trade.
These are the top Forex trading tips for today. If you implement them at the beginning, you will eliminate many mistakes in future trades. Most of these recommendations can also be applied to other markets.