Forex Trading Tips
1. Protect your capital - Always use stop losses. Never risk more than a small fraction of your cash on a single trade. Never invest more in a FX trading account than you can afford to lose. If you can't make good profits, the next best thing is not to lose any money.
2. Practice - practice on a demo or virtual account first. Try different currency pairs and experiment on different levels of gearing. After each position is closed try to identify whether your positions made/lost money because you were lucky/unlucky, or if your analysis was right/wrong. Pay particular attention to setting your stop loss the right distance from your execution price. If it's too close market 'noise' will trigger it unecessarily, and if it's too far you are risking too much cash on one trade.
3. Choice of trade - at first stick to currency pairs with the lowest spreads, USD/JPY, EUR/USD, USD/CHF, GBP/USD. It's easier to make money when the spreads are smaller. Also trade when there is more liquidity in the market. Generally US and European open hours are fine, though Asia open hours are also good for JPY, USD and AUD. Also, learn about the relationship between currency pairs. Some pairs are highly correlated (similar in behaviour) like EUR/USD & GBP/USD whilst others tend to move against each other or have lower correlation for example AUD/JPY & USD/CAD.
4. Don't trade emotionally - the best traders are calm and rational. Trading when you are angry, stressed or emotional will greatly increase the chances you will lose money. If you have 2-3 bad trades in a row, take a break. There is always tomorrow.
5. Research - always be learning. Read up on the currency fundamentals and news flow. There are dozens of great sites to help you including Bloomberg FXstreet CNBC FT.com CEPnews. Also, take regular breaks from trading to check up on the latest FX and economic news.
6. Strategy - define a trading strategy and target return. Just try to make relatively small profits every day, they really add up. Decide if you are going to trade on technical signals, or fundamentals, or a combination of both. Look closely for clear trends. If a currency pair are trading in a narrow range you are unlikely to make profits.
7. When not to trade - try to avoid having a position open when key economic news is imminent especially interest rate announcements. Markets are particularly irrational then and the increased volatility is more likely to trigger your stop loss even if you have called the longer term trend right.
8. Contacts - build a network of contacts. Learn from others and share your experiences. Chat on-line for free with other traders using Gmail chat or register with Xing network . It's outstanding for its breadth and depth of FX investor contacts, forums, and events. Its private messaging functionality is excellent too.
