Trading forex is not rocket science, but it might seem overwhelming. Why is that so? Talking about newbies, the main reason for their pretty reasonable fear is having delusional expectations. They want everything right here and right now; thus, they skip the basic principles, ignore rules, and prioritize quantity over quality. The result of such "style" is pretty disappointing – say hello to financial losses, lack of motivation, and perplexity. Professional traders didn’t become professionals overnight. They have been honing their expertise through discipline and practice.
Top 9 Forex Trading Rules
Let us guide you through the rules that will help you keep the line and grow as a trader.
Reliable Broker
It may sound obvious, but there are a lot of beginners who skip this important part and don’t devote enough time to the analysis of reliable brokers in the forex market. Why is that so important? Well, your trading conditions depend on a broker you work with, so choose wisely. You should definitely focus on reading clients’ reviews on independent platforms like Trustpilot. That’s where traders share their experience without any marketing tricks. The unvarnished truth is all you need.
Read more: Forex Trading for Beginners in 2022
Start with a Demo Account
Practice makes perfect. As a beginner, you have an opportunity to see how the market works inside out and conduct trading operations without depositing any money. Even professional traders can use a demo account to test strategies before using them on a real account. The critical point to remember is that your trading attitude on the demo account will always differ from the one on the real account since depositing real money and opening/closing trades makes you more deliberate. Hopefully.
Less Emotions, More Rationality
Your mental state significantly impacts your decisions. There isn’t even an approximate number of traders who constantly lose money because of being too emotional. The thing is that that adrenaline can direct you to the dark woods. It’s hard to find recommendations on how to deal with the emotional part since it’s your responsibility. Prioritize reasonableness and always think before you make a move.
Read more: The Importance of Discipline and Patience in Forex Trading
Choose Your Timeframe
There are many timeframes available in the trading platform: 1-minute, 5-minute, 15-minute, 30-minute, 1-hour, 4-hour, daily, weekly, and monthly ones. Without defining what timeframe to trade on, there is a big chance to end up with analysis collapse. For example, the 4-hour timeframe can demonstrate a downtrend while there is an uptrend on the 1-hour timeframe. Define the timeframe that meets your trading expectations and focus on it.
Without defining what timeframe to trade on, there is a big chance to end up with analysis collapse.
Money
Money on your trading account is the sum that shouldn’t play a crucial role in your financial plans. Remember that there are ups and downs in trading due to different situations starting from your lack of experience to just unexpected turn of events that influence the market. So, you should be psychologically prepared for small losses to manage risky situations successfully.
Follow the Price
The market is moving higher and higher; you should look for opportunities to buy. If the market is going down, it’s a signal for selling opportunities. Your forecasts should always be based on facts and when there aren’t any - the trend that you see is what matters.
Trading Style
Your trading style strongly depends on your personality. For example, if you can’t even imagine finishing your working day with an open position, then day trading is just for you. Or quite the opposite – position trading. That’s where an individual holds a position for a long period of time without the need to constantly monitor the market.
Your trading style strongly depends on your personality.
Implement Analysis
Make it a habit to learn from your mistakes. Experienced traders made analysis an integral part of their trading activities. Starting your analysis on the weekend is a good idea since the market is closed, and you can concentrate solely on the issues that took place during the week that shouldn’t be ignored in the future. Once you have more experience and expertise, you’ll gain a better understanding of when it’s time to assess, let’s say, the effectiveness of your trading strategy.
Read more: How to Buy and Sell Forex for Beginners
Fundamental and Technical Analysis
When it comes to the fundamental analysis, traders mainly focus on the economic welfare of a certain country and hence its currency. There are also other factors that shouldn’t be ignored, like the political situation, government policy, inflation and GDP data, etc. The list is actually long; currency stability can be influenced even by devastating weather conditions.
How does this type of analysis help in the decision-making process? Well, traders can determine the actual value of a currency – whether it’s over – or undervalued. If it’s overvalued, a trader will consider selling a currency. Conversely, if it is undervalued, then it makes sense to buy an asset.
In the case of the technical analysis, traders dive into the analysis of market statistics based on the historical prices to determine the direction of the asset. That’s the case where the use of various charts is the best way to identify patterns and visualize past prices. Technical indicators can also greatly help assess market price; here are some of them: Bollinger Bands, MACD, RSI, and others. So, we have two completely different types of analysis, but this is where this combination plays a crucial role and propels your trading achievements to the next level.
Final Words
Following forex trading rules is rewarding. It makes you more organized and stable. Don’t try to understand everything at a time – take the step-by-step approach that will prevent you from risky situations. For example, you can focus simultaneously on three currency pairs and get lost in the amount of information, or you just develop your expertise by starting to trade one currency pair. Yes, it takes time and effort, but what doesn’t?
About JustMarkets
JustMarkets is an international broker with clients from 197 countries. Millions of people have already opened trading accounts on JustMarkets to benefit from the best conditions, including low spreads, commission-free withdrawals, and a helpful team of support, working round the clock to ensure that each of our clients has the most convenient trading experience.
Open a demo account on JustMarkets to try your hand at currency trading. It’s a risk-free way to learn to trade in the most liquid financial market. A teaching account will help you learn trading basics and develop your own strategy before you invest any money. Learn trading today to take care of your future tomorrow.
by , 2021.06.17