Forex Trading Tips

Trading the Foreign Exchange means buying a currency and at the same selling another. There are hundreds of reasons for a currency to appreciate or to depreciate against another currency. In this truly complex and dynamic trading environment these are some important tips for all Forex traders.

1. Find the Right Partners

Finding the right partners when trading Forex (brokers, signal providers, etc) will make the difference in your future trading performance. Don’t be in a rush to open a trading account. Review your potential partners, using the web (Google Search, Forex Peace Army, etc). When you have come up with 2-3 good choices then start asking questions using the Live Chat service. Learn everything about your potential partners before depositing any money.

An easy way to evaluate a Forex Broker is to use the ratings of TradingCenter.org (Forex Rating Formula v4).

► ForexExperts RatingFormula Reviews

2. Apply a Trading Strategy

When you trade any financial market one of the first things that you should do is to seek and apply a trading strategy. Any chosen trading strategy must be oriented to your trading style, to your risk profile, and to your personality. There are several different Forex Trading styles and a great variety of strategies for each style.

■ Scalping Strategies

■ Day-Trading Strategies

■ News-Trading Strategies

■ Swing-Trading Strategies

Selecting Timeframes and Charts

If you apply a manual trading strategy it is very important to apply it in the right timeframe. For example, if you implement a day-trading strategy using the popular RSI tool, you can select the M5 (5-minute) timeframe (30-70 levels). On the other hand, if you implement a Swing-Trading strategy based on MACD you can’t select the M5 timeframe, you must select the M30, H1, H4, or D1 timeframe. If you apply MACD on a M5 chart the results will mislead you and any good performance will just be the outcome of simple luck.

3. Test Your Strategy without Risk before Trade Real Money

Before anything else make sure your strategy is effective by using it in a Demo Account. Usually, the trading conditions (requotes, slippage, etc) in Demo Accounts are better than in Real Accounts, therefore if a strategy proves unsuccessful in a Demo Account doesn’t have a chance to prove successful in a Real Account.

Historic Back-Testing

If you decide to use an Automated-Trading Strategy then you can apply Historic Back-Testing. You may backtest a strategy using any trading platform, for example, MetaTrader-4. It is better to conduct historic backtests across many different time periods in varying market conditions in order to be sure that it is really effective.

4. Follow Strong Forex Trends

Forex Currencies trend very well so there is no reason not to take advantage of these trending market conditions. The common pattern of a Currency Uptrend involves 3 phases:

◙ Trend Riding Phase: 6-8 weeks

◙ Correction Phase: 2-3 weeks

◙ Accumulative / Ranging Phase: 2-3 weeks

Then a new Trend Commence again.

You must try to trade only during Phase-1. Don’t try to trade the trend reversals of Phase-2 as it is very difficult to identify them right. Forex Pros usually use the MACD divergences and other tools to track reversals but if you don’t know how to apply these tools right most commonly you will end up with false signaling. Good entries can occur also during Phase-3 after a strong breakout. If you decide to trade Phase-3 then use positions scaling (more on Tip-7).

5. Using Trading Leverage and Stop-Loss Placement

One of the key factors determining your trading success is your ability to measure your risk right. This ability will be transformed in avoiding being stopped.

“Forex Trading is more about Not-Losing Money than Making Money”

Using high capital leverage and closing stop-loss orders is the shortest way to lose all your funds. Always keep in mind that high capital leverage increases both your trading risk and your risk cost. Use leverage very wisely and leave sufficient space for your stop-loss orders.

6. Learn to Trade the News or simply Lean How to Avoid the News

When trading Forex important news and updates may instantly alter any market conditions. Learn when important news is released using an Economic Calendar and either trade it or avoid it. An important fundamental update can make the market extremely volatile and reverse the course of any strong trend. Don’t ever ignore the impact of news in the market because you will pay it very costly.

These are the times (EST) when Forex Investors should pay extra attention either to trade the news or to avoid them.

7. Scale your Positions (Entry / Exit)

Position scaling is a very wise technique used by all Forex professionals. Nobody knows how the market will trade after some hours, therefore, a very clever way to limit your risk is to scale your entries. In simple words that means splitting any trade into small orders and placing these orders according to the evolving market conditions. Scaling positions is very important, especially as concerns entering in Ranging Market Conditions. You can use the scaling positions technique in both bullish and bearish markets.

8. Emotional Control and Trading

Emotional control is a key factor in trading success. Our Prehistoric Human Brain is very large compared to our Logical Brain and it frequently generates extreme emotions such as fear, anger, and greed. Controlling those prehistoric emotions is very important for all traders no matter their trading style and time horizon. Your decision-making should be made exclusively by your Logical brain without the influence of your emotions. This is very difficult but in the long run, it will determine to a high extent if you will prove a successful trader or not.

■ Forex Trading Tips

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