The Easy To Follow Forex Trading Strategy Guide
My name is Alan Wheeler and if you’re looking for the best trading strategies and advice to maximise your trading performance, then you’ve come to the right place.
Below, I have compiled a list of 20 tips to help point you in the right direction. If you’re new to trading I highly recommend reading all 20.
If you’re an advanced trader, I also welcome you to have a read. Sometimes, even the best of us need to refresh our memories.
What Is Forex Trading And How Does It Work?
Forex is the abbreviation of Foreign Exchange, so Forex trading means Foreign Exchange trading.
Forex trading involves substantial risk of loss and may not be suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources.
However, if done right, trading can be a lucrative way of making a lot of money! Read my tips below to see how.
Learn The Basics Of Forex Trading – 20 Tips To Get You Started!
1. Learn the basics
Sounds simple but you will be surprised at how many beginner forex traders don’t know how to calculate the pip value of their position (before they are in the position, of course), or do not know they must take a look at the daily economic calendar before taking a trade.
Well, if you don’t know this, you surely also don’t know what NFP is.
In this case, you shouldn’t trade at all. Period.
Get some elementary education before opening an account with the best forex broker or forex brokers like Oanda or Dukascopy, for example.
2. Only Use Money You Can Afford
You must have heard this forex tip before (maybe from your forex brokers).
This doesn’t mean you should cross the money out entirely off your mind.
You should feel the money is still yours, and you better feel some pain when you have losing streaks.
You have to protect your equity after all, and you’ve got to have this self-preservation instinct.
But what happens in case you wipe out your account?
The amount of money you will have lost should not make your financial situation change dramatically.
3. Divide Your Capital
Don’t put all of your eggs in one basket
If you divide your forex trading capital into 50 equal parts, you will never lose more than 2% on a single trade.
If you lose 3 times in a row, you still have 47 more opportunities to get a winning trade.
Putting all of your money on the line is lethal.
It doesn’t matter much whether you trade with Oanda or Dukascopy.
4. Stay Away From Demo Accounts
Demo is for getting to know the platform and for testing. That’s all it’s good for.
It’s for your own good if you remember this great forex tip: the reason excessive demo forex trading is detrimental is because it teaches you bad habits.
Since there’s no money of yours on the line, you do not get through the same psychological experience as someone who is trading on a live account.
When you lose on a demo, you actually don’t lose anything.
So how can you learn about discipline, patience, moderation, and living with uncertainty by demo trading?
Well, you can’t!
So, only use a demo to learn the basics and to test your strategies.
5. Beware Of Over Trading
Don’t over trade
Inexperienced forex traders can quickly become overconfident after a few winning trades.
This can lead to overtrading – taking more and more trades in a short period of time.
If you lose 2 or 3 times in a row, you should stop and forbid yourself (Oh, Discipline!) to take another trade for the next two days.
The forex market will be there in two days. It’s always there.
There’s something that could disappear, however, and that is your account equity, so take it easy, boy!
Download My Top 10 Tips To Becoming A Successful Trader!
6. Pyramid a winning position
As the market moves up and you have a long position, do not double it up. Instead, buy less and less currency units.
In fact, did you know that pyramiding instructions appear on the back side of one-dollar bills?
Add less and less on the way up.
Keep an eye at the top.
See for yourself here.
Do not pyramid a losing position!
7. Always place stop loss orders. Stop Loss!
Move your stops only in the direction of your position, that is, to lock in profits as the forex market moves in your favor.
It’s not enough to have a mental stop because market prices can fluctuate quickly and in all the frenzy you won’t be able to close your trade in time to lock even a modest profit.
Also, if you decide not to use a stop loss order, ask yourself “What would happen if my computer or my trading platform blocks out, or my internet connection collapses?”
Stop loss orders help you have a life, too.
Objectivity in forex trading comes from having a healthy, balanced life, so stop loss orders help you by allowing you not to be tied to your computer screen watching the market all the time.
“I’m always thinking about losing money as opposed to making money. Don’t focus on making money, focus on protecting what you have” – Paul Tudor Jones, a famous hedgefunder worth billions
8. KISS – Keep It Simple, Stupid
However, do not equate simplicity with unsophisticated thinking.
KISS is not ‘Keep It Stupid, Simple’.
It is ‘Keep It Simple, Stupid’.
What this means is that you should not make your method or strategy complicated.
9. Be self-reliant and stop looking for that Holy Grail
The idea of searching for a guru to give you some secret for forex trading success misses the point.
You have to learn to analyze the forex market by yourself and trade by yourself. Many inexperienced traders look to others to confirm their behavior.
Some folks would prefer to adopt other people’s opinions rather than draw their own conclusions.
10. Be self-reliant and stop looking for that Holy Grail
Forex trading is not supposed to be about fun.
It’s supposed to be about winning profits.
Passion is one thing, thrill-seeking is another.
Stop trading and analyze yourself if you’re into forex for the thrill and the emotional highs and lows it might be giving you.
If you’re looking for a thrilling and fun way to lose your money, go to a casino.
11. Tidy up your charts
Why do you need all those MA lines, MACDs, RSI, Ichimoku clouds and what not?
In forex forums, you have probably run into people who post bewilderingly complicated hard-to-read charts that cloud the thinking of the uninitiated forex trader into believing that the guy who posted them must know something.
The fact is he might not know more than the next person you meet down the street.
Why don’t you reorganize your charts so that you can clearly see what’s happening right now?
You need the price line, and perhaps have a couple of trend lines, resistance and support lines, and not more than 2 indicators.
Even that would be too much.
12. Stick to trading one or two time frames, always having in mind the situation on the daily and/or higher chart
This is yet another way to keep stuff simple, and ease your work.
Looking at one or two time frames allows you to focus on learning the intricacies of only one or two time frames which you will agree is easier than learning about a bunch of time frames.
But never forget the trend or range as shown on the higher-level charts.
If you’re trading the 15-min chart, you should know that there’s been a down trend for the last 4 days, for example.
If you’re a swing trader trading the daily chart, make sure you keep in mind what’s happening on the weekly chart.
If you find yourself switching from the daily to the hourly to the 5-min to the 15-min back and forth, you’re doing something wrong – you’re trying to overanalyze your pair, and that leads to confusion.
13. Stick to one or two forex pairs
Here we are at it again – keep it simple.
By focusing on one or two currency pairs, you will be able to better comprehend their respective behaviors, or rather the behavior of the guys trading them.
You will know what daily range and volatility levels to expect on different days of the week, you will get a hang of why at XX:XX o’clock usually the pair will move abruptly in one or the other direction, etc.
You will be under less stress if you trade only one or, at the most, two forex pairs whether trading on a platform by Saxo Bank or MB Trading.
14. Beware of the forex broker
The forex market is littered with what remains of day traders and genius ‘systems,’ and to survive in the long-run, forex traders have to realize that they are playing a game where the cards are clearly stacked against them.
Slow order filling, stop hunting, slippage, trading against clients (i.e. not offsetting your trades), weird spikes that don’t show on other platforms, and a few more are all in the bag of dirty tricks of the unscrupulous forex broker.
Don’t get us wrong – you can make money trading forex, but you must be aware of the practices of your best forex broker.
15. Have an exit strategy
That is, place a take-profit order and a stop-loss order when opening a position.
Not having an exit strategy is a recipe for disaster. Don’t leave your account to the vagaries of nature.
Just as you set goals for yourself in life, set goals for each trade you take.
And, of course, you will always want to have a Plan B, right?
Plan A is your target (take-profit order, or TP), and Plan B is your stop-loss order (SL).
16. Regularly withdraw some of the profits
This is so rewarding yet so few do it.
Well, of course, considering that the fatality rate in the forex business is 90-95%, very few people get to enjoy profits in the long-term, but even if you just happen to have a winning streak for a few weeks, send a withdrawal order to your forex broker, and get part (or all) of your profits.
Your profit is yours to do with it as you please.
Don’t be greedy and thinking that you have to reinvest it all back into the account and double it and triple it and quadruple it and quintuple it because this attitude is not a winner’s attitude.
Take some profit out, and enjoy it with your loved ones.
17. Have a trading plan
If you fail to plan, you plan to fail.
You’ve heard that.
It sounds trite but it’s true, you know.
You have to set up a plan in writing which will guide you in your trading.
A good forex trading plan should be able to answer the questions about what your goal for your forex account is (double it in a year?), what is the maximum distance between your entry and your stop (53 pips?), what percentage of your equity you can risk in all open positions (2.79%?), what emotional pitfalls your regularly get into and how to go about handling them (if I lose a trade I will immediately try to make up for it no matter what?), and so on and so forth.
18. Cut your losses early on. A vital forex tip!
Capital preservation is of paramount importance in forex trading because of the huge leverage traders use.
If you do not abide by this rule, you will probably not become a consistently profitable forex trader.
If you’ve already traded forex unsuccessfully, chances are this is your biggest mistake.
Please take a look at your trading history and notice whether you lost more pips for your average losing trade than you made for your average winning trade.
If that’s the case, what use is it to have a 70% winning rate?
Winning 7 out of 10 trades sounds like a great score until you notice that the 3 times you lost cost you more pips than the gains of the 7 trades combined!
Also, if you have a losing streak of 2 or 3 trades in a row, take a couple of days off the charts.
A losing streak can grow into an abysmal whirlpool sucking most or all of your money in.
Don’t rack up your brains too much.
Cut your losses, take a rest and come back in a few days with a clear mind to sort things out.
“When the market goes against you, you hope that every day will be the last day – and you lose more than you should had you not listened to hope.
And when the market goes your way, you become fearful that the next day will take away your profit and you get out – too soon. The successful trader has to fight these two deep-seated instincts.” Jesse Livermore, legendary stock market trader.
19. Sometimes staying aside is the best course of action
Most newbies think that if they don’t hold open positions they are not trading.
That’s not true.
Not holding a position is a position, too.
Successful trading is supposed to be boring (yet rewarding).
Gambling is not boring (and definitely unrewarding in the long haul, though your forex brokers will love you).
If your analysis shows that there’s no good setup in the forex pair you’re trading, then stay on the sidelines.
Do observe the action in the market, if you will, but don’t trade when you have no clue about the probabilities of the price going one way or the other.
20. Learn to measure your P/L on a monthly basis
Learning to measure your Profit/Loss on a monthly basis will help you become more long-sighted about your forex trading.
If today you had a couple of losses, it doesn’t mean you’re a loser.
And, vice versa, if today you came up with a couple of winning trades, it doesn’t make you a forex champ.
Long-term profitability is what you have to be after, if you want to be successful.
Need A Mentor?
If you’re a beginner and want to learn what it takes to become a successful trader, I highly recommend investing in some Forex education.
The best forex trading course and mentoring program that I’ve ever seen is Forex Mentor Pro.
With step by step video training and daily analysis of trades, this course is designed to force you to succeed.
Watch this video presentation to learn more about Forex Mentor Pro.
BONUS TIP: This One Is Important! Stop looking for forex tips!
Ha ha! Yeah, enough of it! Basta!
We’ve got you covered with the most important ones.
Now go ahead and look at the forex market with a different attitude.
But before that we’ll leave you with a collection of quotes by successful traders.
Forex Quotes Food for Thought
“If what you’re doing is right, it will work even if people have a general idea about it. I always say that you could publish trading rules in the newspaper and no one would follow them. A key is consistency and discipline.” Richard Dennis, legendary Chicago commodity trader, who set up the ‘Turtles’ trading group
“They don’t know anything about bonds. They don’t know anything about currencies. I don’t either, but I’ve made a lot of money trading them. They’re just numbers. Corn is a little different than bonds, but not different enough that I’d have to trade them differently. Some of these guys I read about have a different system for each market. That’s absurd. We’re trading mob psychology. We’re not trading corn, soybeans, or S&Ps. We’re trading numbers.” Tom Willis, Richard Dennis’protégé
“The trend is your friend, except at the end when it bends” Ed Seykota, commodities trader
“Money management is the true survival key.” Bill Dunn, trend following trader, founder of Dunn Capital
“Trading without a predefined exit strategy is a recipe for disaster”, Bill Dunn
“Fundamental economics are nice but useless in trading. True fundamentals are always unknown.” Jerry Parker, one of the ‘Turtles’
“They say patience is a virtue. For me patience is synonymous with discipline. You must have the discipline to know that markets change and poor periods are followed by good periods. Longevity in this business – I have seen it again and again – is measured by discipline.” John W. Henry, futures and forex trading advisor, and a principal owner of Boston Red Sox
“There’s always part of a trader’s psyche that wants to make losses back tomorrow. But traders need to remember you lose it really fast, but you make it up slowly. You may think you can make it up fast, but it doesn’t work that way.” David Druz, a student of Ed Seykota
“Wall Street never changes, the pockets change, the suckers change, the stocks change, but Wall Street never changes, because human nature never changes.” Jesse Livermore, legendary stock market trader
“Don’t count on gaps being closed unless you can distinguish between breakaway gaps, normal gaps, and exhaustion gaps.” Richard Donchian, originator of the managed money industry
“It’s easier to trade for one’s self than it is to trade for other people.” Richard Dennis
“When I’m bearish and I sell a stock, each sale must be at a lower level than the previous sale. When I am buying, the reverse is true. I must buy on a rising scale. I don’t buy long stocks on a scale down, I buy on a scale up.” Jesse Livermore
“I’m more concerned about controlling the downside. Learn to take the losses. The most important thing about making money is not to let your losses get out of hand.” – Martin Schwartz (Buzzy), a great Wall Street trader who wrote Pit Bull: Lessons from Wall Street’s Champion Day Trader
“The best traders have no ego. You have to swallow your pride and get out of the losses.” Tom Baldwin, a bond trader, described by the Wall Street Journal as the trader who can single-handedly move the T-bond market
“The elements of good trading are cutting losses, cutting losses and cutting losses.” Ed Seykota
“It’s the intricacies of the game itself that drives me. It’s about getting up everyday and trying to figure out how to beat the market.” Bill Lipschutz, forex trader featured in the ‘New Market Wizard’s by Jack Schwartz
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