Beginner traders entering the trading market have garnered much attention lately, hitting top news headlines. One in five Americans entered the stock market since the start of the pandemic.
Many novice traders have struck gold by taking the next step into the trading world. But how does forex trading work, exactly? And which forex trading strategies are best for newbies?
This guide will give you some great forex trading tips that will give you a great advantage in the growing foreign exchange market. Keep reading to learn how to start forex trading.
Forex Trading for Beginners
A lot of novice traders wonder: Is epic trading legit or just another pyramid scheme? The forex trading platforms are not only legitimate but are some of the biggest trading posts in the world. It trades trillions of dollars a day around the clock.
It’s important to note the risk involved when dealing with these trades. If you don’t have a clear strategy and risk these funds through intuition, you might end up operating at a loss.
But, rules are also meant to be broken. If you follow the herd way of operating, you may fall into the same losing scenarios.
No Oversold Indicators
Do not use overbought or oversold indicators. Beginner traders following this strategy will always be chasing but never reaching the highs and lows of the market. This means you’ll be trading against the trends which is a pitfall for retail traders.
The banks and wealthy elites understand these trends and can act on this information. So, these indicators don’t relay reliable information about future prices. It will become a lagging indicator that only charts part trades.
Trade Your Timeframe
Define the timeframe in which you are trading your stock. If you don’t know your set timeframes, they will be all over the place. The purpose of honing into your own patterns is to encourage upcoming traders to learn about these systems.
Random charting will lead to analysis paralysis which will spiral into confusing patterns that will not be fruitful for future trades. If you focus on a set timeframe, you will yield results without focusing on unnecessary clutter.
Trade With the Trend
There are several tools available that will allow you to follow the latest trends. Sometimes, many traders will go against or won’t rely on trends. Many times, this can damage their savings.
These applications or blogs will analyze the timeframes and present the collected information. For example, there may be color-coded blocks that may signal uptrends or downtrends. Either way, find a way to chart out and follow the trends of the market.
Trade H1 Time Frame or Above
Trading timeframes such as M1 and M15 can often lead to more chaotic trades. Many herd traders are known for risking these trades because of their own ignorance of these zones. So, these lower timeframes are usually recommended against because of the turmoil involved.
The decisions needed for these trades can be more serious because of the at times unclear data, with a not solid zone. Focus on the H1, H4, and the Daily, as these are more grounded zones.
1:1 Risk to Reward
Recently inducted novice traders should use a 1:1 risk to reward ratio. A major flaw with beginner traders is using a skewed risk to reward ratio. You can see by recent Win/Loss charts that the herd was able to predict the wins more than 50% to 60% of the time.
We can also see that people that used at least a 1:1 risk to reward ratio turned a higher net profit within a twelve-month period. This is as opposed to people who did not that operate with a far lower return.
Trade Contra Crowd
Another conclusion this data presents to us is that the majority of the herd are net losers. But, big financial institutions and hedge fund traders are ranking in profit by going against the herd.
So, it’s wise to trade against the flow of the herd, this herd encompasses retail traders. This is a useful aspect of any tool or app that pulls in the market sentiment. Through understanding the workflow of higher-earning traders, you can align yourself with their profitable trades.
Small Losses Big Wins
Traders should understand how to trade with small losses that garner but big wins. This follows the same concept of trading with a 1:1 risk-reward. But, traders will mistakenly accentuate their fat-tail risks but cut off their rewards in the process.
We want to keep the risk low, but we don’t want to equalize the risk to the point where we only break even. One of the best ways we can do this is by trading with the trend. Having a favorable risk to reward ratio and actually using trailing stop losses.
If you follow the charts and use a trailing stop loss, this allows you to trail. If the market goes in your favor on these big trends, then you can capture the big fat tail reward at the end of the spectrum like fun88.
Tops and Bottoms
One major tip is to not attempt to catch tops and bottoms. This is a trend that happens among herd traders that end up not yielding results. This entails encouraging traders to always buy low and sell high.
The problem occurs when traders don’t understand the depth of the lows and the peaks of the highs. Trying to catch the timing can be disastrous to anyone who lacks statistical research.
When herd traders see a small uptrend in the market, they panic and decide to sell believing it to be a sign of a quick downtrend. This is the problem with novice traders, who don’t always understand the potential in an uptrend. Not trying to catch the tops or bottoms encourages traders to have a more profitable risk to reward ratio.
Start Trading Today With These Forex Trading Tips
These eight forex trading tips will help improve your trading results. But, it’s important that trading even when using these strategies should still be a cautious activity. The money used should be from your capital, money that is not important to lose.
Market analysis is mostly hypothetical, so patterns followed may not necessarily be the impending result, so it’s important to know the risk involved before embarking on trades. If you want to improve your trading, be sure to catch the next trend on our products page!