Many forex traders will start out as enthusiastic novices, spurred on by stories of huge profits and self-employed, dream lifestyles. In reality, however, these stories and media portrayals of the lives of real traders become only distant possibilities for new traders. Many will lose some or all of their initial investments and experience small periods of success overshadowed by larger periods of loss. All of these are the normal experiences of anyone embarking on a new career but the process can be much less painful financial if a number of key preparations are undertaken.
Practice using a forex demo account
Training for anything requires practice and, just as a pilot doesn’t immediately start by flying a plane alone, new traders should learn and simulate their trades as much as possible before risking any money. Almost all decent brokers will offer a free, no-obligation demo trading account using the company’s trading software and simulating the actual market price of a good range of forex pairs. Although it is true that there is no absolute substitute for risking real money in the markets, as far as testing trading skills and strategies goes, demo accounts are by far the best and most worthwhile experience. There is no timetable on how long a novice trader should practice trading, some january take several weeks before they feel confident to enter the markets for real, whilst others january take years developing a profitable strategy.
Money management is critical
Beyond simple practice, money management is the most fundamentally important element in any trading success. Given the fact that all traders will experience losses at some frequency during their trading careers, the ability to control the financial risk of each trade will be essential to the survival of any new trader. It is important to emphasise that even the world’s best trading strategy will fail over time if basic money management is not adhered to. This includes things such as the sensible use of stop losses to prevent huge, negative price swings against a position (even if these january not be guaranteed stops) and maintaining exposure to a maximum of 3% of an accounts value on any single trade. Additionally, ensuring that each forex trade has a positive risk-to-reward ratio, for example ensuring that profits on a single successful trade will always be at least equal to a single unsuccessful trade.
Learn what makes markets move
Finally, preparing to be a forex trader requires some basic education on what moves currency prices in order to avoid trading in to important news releases or major events. For example, the trade set-up can be absolutely perfect, but if it is on the wrong side of the Non-Farm Payroll data release the stops will very likely be hit before the trade even has the chance to develop. Similarly, gaining a basic understanding of some key technical trading patterns, which many traders use to base their decisions, will be incredibly useful and also profitable. Given the way that currency markets are linked to fundamental global events and specific interest rate decisions, keeping track of those which january affect market sentiment and influence the underlying trend will be enormously beneficial to all traders.
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