Can you become rich with foreign exchange (forex) trading? Although the answer instinctively feels like a ‘yes,’ a more cautious answer would be, ‘it depends.’ Forex trading can be financially beneficial right from the start if you are a skilled trader or have deep pockets.
However, for the average trader, forex trading is a risky intricate pathway that can involve heavy financial losses or potential bankruptcy. A recent Bloomber article suggested that 68% of novice traders suffered losses in their forex endeavours.
Hence, a smart way of forex trading would be to educate yourself thoroughly in all the intricacies of forex before starting to trade. You should also stick to smaller trades in the beginning to reduce the risks of losses.
Here are a few handy forex trading tips to get you started.
- Have a defined set of goals and trading styles
It is important to have a clear expectation of what you hope to achieve from forex trading even before you start. Having a set of clear goals will make it easier to set practical deadlines and risk management parameters to achieve them.
Apart from the goals, you should also pick up a specific forex trading style that suits your personality instead of blindly following any technique. For instance, if you can’t go to bed without knowing the result of your trades, you should pick up day trading.
- Choose a broker and trading platform that suits you
Once you have your goals and trading style, you need to pick a reputable broker and trading platform. Do a thorough analysis of the differences between different brokers and their policies. Then, go with a broker whose policies suit your risk appetite.
Other than a suitable broker, you must also pay heed to an appropriate trading platform. The platform must support all the trading strategies you intend to apply. For example, if you want to trade as per Fibonacci numbers, select a platform that supports Fibonacci line trading.
- Calculate your expectancy from the trade
Trade expectancy is the formula you use to calculate the expected results from your trading strategy. You should go back and calculate the trade expectancies of all trading strategies to determine which ones are working and which ones are faulty.
Here is a working formula to help you determine your trade expectancy.
E = [ 1+ (W/L)] * P- 1, where:
- E = Expectancy
- W = Average of all winning trades
- L = Average of all losing trades
- P = Percentage Win Ratio
- Don’t use livelihood money for your trades
If you are funding your own trading account, you must remember that it is your money at risk. Therefore, you must never use the money intended for your living expenses, as your trading capital.
Instead, consider your trading capital as your vacation money so that you don’t have any expectations from it. This mentality can psychologically prepare you to accept small losses.
If you intend to become a seasoned trader, you must go over and above in researching more about different forex trading strategies and their pros and cons. Attending trading webinars or pursuing trading courses can provide you with targeted knowledge that can improve your trading skills.
Therefore, you should invest in an appropriate trading program today to start your forex trading journey.