Forex trading provides a sea of opportunities for prospective investors—provided they have the right knowledge, mindset, and strategy. And while it’s a popular option for many, not everyone has the expertise to reap its lucrative rewards. This can all be daunting for aspiring forex traders looking for a steady income source.
But don’t let that discourage you! Here are five actionable forex trading strategies to set you on a winning path.
#1 Educate Yourself
Trading without a proper understanding of the forex market is playing with fire. There’s no point in trading if you’re just blindly following what some investment “guru” or trading community tells you. Frequently, forex traders who fail have little to no knowledge of the market—or are simply too impatient to test and improve their skills.
So, how do stand out from the herd? Start by educating yourself. Learn basic concepts, trading strategies, risk management, and market nuances. The first rule for every new trader is to read about forex trading strategies, watch videos, join online courses, go to seminars, and get to grips with the fundamentals of analysis. This includes learning about:
1. Types of forex trading strategies
2. Economic indicators
3. Data-driven technical analysis
4. Currency pairs, time frames, and trading sessions
5. Developing the right trading mindset
You’ll also be hearing a lot of new forex-related terms and concepts. Make a point of knowing about pips, leverage, trading plans, and the effect of emotions and biases on the forex market.
Another way to gain an education in forex trading is by becoming an apprentice under an experienced funded trading firm. Platforms such as The Funded Trader have beginner-friendly resources that you can use to learn more about the market and fellow traders’ experiences, such as TFT’s trader interviews on their YouTube Channel.
#2 Start Small
It’s important that new forex traders start small. For instance, begin trading with a demo account. You’ll receive dummy funds that you can use to understand the basics of trading and test-run different strategies. Once you have a better grasp of how things work, switch to live trading. At this stage, you’ll need to invest your own money.
But how small can you start? There are trading apps that let you begin trading for as little as $100. Most brokers start at around $2000 minimum for standard accounts, with some up to $10,000 for accounts that allow access to standard lots. However, keep in mind that your profits at this stage will be minuscule. Even so, this is an opportunity to gain something more important—experience.
No matter how much you trade on a simulator or a demo account, it can never fully prepare you for live market conditions. Your trading psychology will be different when real money is at stake. Furthermore, you’ll need to constantly evaluate and test your trading plan—and learn to keep emotions in check. The more experience you gain, the better your execution will be. Initially, profit shouldn’t be your main concern; rather, aim for consistency. By trading small amounts, you can practice without risking your capital.
More experienced forex traders can also apply for funding with prop trading firms. This way, you won’t have to risk your capital at all.
#3 Manage Your Risk
There are two types of people in this world, the risk-lovers and the risk-averse, and both of them need to learn the art of risk management. In forex trading, poor risk management can potentially wipe out your account in one session. Effective risk management requires you to learn two vital concepts—stop-loss orders and take-profit orders.
The purpose of these twin strategies is to mitigate possible losses and navigate through the unpredictable waters of the market. The forex market is volatile; no matter how good your trading strategy is, you cannot control macro factors such as monetary policies, geopolitical stability, and market sentiment. As such, think about protecting your investment first before seeking profits from the market.
Consider these elements:
Risk Appetite
How much risk can you take? Invest only as much as you’re comfortable losing. Generally speaking, don’t risk more than between 1% and 2% of your account. Liquidity is another critical factor. Some currency pairs are less liquid, making it harder to plot entry and exit positions at your desired price. That's why new forex traders should avoid volatile currency pairs.
Position Size
Position size is the number of trading lots an individual can take for the trade. This concept works in alignment with pip cost, lot size, and risk percentage.
Emotions
Emotions can play a significant role in trading—and it’s crucial that they don’t upend your trading decisions. For example, you may become risk-averse or deviate from your strategy when riding a winning wave. In addition, some forex traders might employ revenge trading when faced with a streak of losses. In both scenarios, emotions run high, which only heightens the likelihood of a loss.
#4 Develop a Trading Plan
A trading plan keeps you disciplined and focused. You don’t have to rely on memory and gut feeling—a plan will tell you precisely what to do, and how to do it consistently.
Here’s a quick breakdown of a good trading plan:
Develop a Strategy
Determine your trading style and risk appetite. Focus on trading only one pair in the beginning and avoid taking more than one trade per day. Try to practice different trading times to determine which session is ideal for you.
Define Your Goals
Keep your goals realistic. Otherwise, you’ll set yourself up for frustration and disappointment. Remember, slow and steady wins the race!
Manage Reactions
Discipline is what separates good traders from average traders. After all, everyone has access to the same resources for trading, yet very few succeed. To achieve success, you need patience, discipline, and a consistent strategy. Don’t get swayed by feelings, news, and social media. Stay focused on your strategy and you’ll be able to build wealth in the long term.
Continue to Practice and Learn
The forex market is evolving all the time—and you need to stay up to date. Invest in courses and read daily to keep on learning techniques that can help maximize profits.
#5 Keep a Trading Journal
A trading journal includes all the information about trades, strategies, profits, losses, and the overall performance of the trader. In this way, it eventually becomes your biggest source of learning. Be sure to include the following details:
1.Reasons for investing in a trading pair
2.Name or identification of the strategy used
3.Results of the strategy
Further, a trading journal works both as a record keeper and a planning tool. Careful journal analysis allows forex traders to align strategies with goals. This will allow you to understand your trading style better—and help prevent impulse trading!
Ready to Start your Trading Journey?
New forex traders should tread the market with caution. It takes time and effort to become a successful trader. That said, every trader must start somewhere, and these strategies can help set you on the right path.
If you’re looking to start your forex trading journey—or to become a full-time trader—then The Funded Trader may well be the right fit for you. Our traders come from diverse backgrounds. From stay-at-home parents to students and office workers, anyone can start trading with us! Many of our traders have evolved from newbies to winning a funded account and are now receiving substantial payouts.
How? Sign up with The Funded Trader to find out more.
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