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Six Steps to Success in Forex Trading

18 February 2018 No Comment

What is the right Forex trading strategy to achieve a long-term profit? Is it even possible or is Forex just a scam? There are a few steps to follow to become a successful Forex trader.

1.  Understand the basic terminology

First of all you need to understand what is a bid and an ask price, because these two prices combined create so called forex quotes.

The Bid Price is the price the broker is willing to pay for the base currency (e.g., EUR) in exchange for the quote currency (e.g., USD). In other words, the broker’s BID is the most you can get for your quote currency on the market.

The Ask price is the price at which the broker is willing to sell the base currency (e.g., EUR) in exchange for the quote currency (e.g., USD). In other words, the ask price is the lowest price on the market you have to pay when purchasing the base currency.

The Spread is the difference between the ask price and the bid price.

How is my profit measured? In Pips!

A PIP is a unit used to express the change in price between two currencies. A PIP usually equals 0.0001 price change. For example, if EUR/USD moves up from 1.215 to 1.216, the value rises by 10 PIPs.

2.  Choose a credible Forex broker

To be able to start trading, you need a trustworthy online platform. You should be aware of the many unlicensed brokers so choose carefully to keep your money safe! The right choice of the trading platform (i.e., Forex broker) is a crucial factor for success. One of the Forex trading platforms you can try is Plus500, my broker of choice, where you can even practice Forex trading using a demo account.

3.  Decide which currency pairs you want to trade

Forex brokers allow trading major, minor and exotic currency pairs. Most of the traders in international markets use five main currency pairs:

  • EUR/USD: Euro/US Dollar
  • USD/JPY: US Dollar/Japanese Yen
  • GBP/USD: British Pound/US Dollar
  • USD/CHF: US Dollar/Swiss Franc
  • USD/CAD: US Dollar/Canadian Dollar

Neverhless, investors who focus on trading Canadian dollar can also speculate on price movements of another 6 currency pairs: AUD/CAD, CAD/CHF, CAD/JPY, EUR/CAD, GBP/CAD, NZD/CAD.

4.  Learn the basic Forex trading orders

  • Market Order: The Market Order sends a signal to the broker to immediately buy or sell the currency at the current market price
  • Limit Order: The Limit Order instructs the broker to trade the currency when its exchange rate reaches a prescribed Therefore, you can make a purchase when the price is convenient for you or you can sell the currency when its value decreases.
  • Stop order: The Stop Order tells the broker to sell the currency under its market price to prevent any possible loss.

5.  Know how to analyze the market

Technical Analysis: Technical analysts study past price movements using charts and historical data on which their predictions of the future development are based.

Fundamental Analysis: Fundamental analysis uses basic information about a particular country and relevant factors influencing its economy to help you adopt the appropriate trading strategy.

The right analysis is a crucial tool for skilled Forex traders to identify market entry and exit points.

6.  Proceed with caution

Keep calm and avoid hasty decisions! To become a successful trader, you need to be able to control your emotions so beware of that and do not get carried away. The Forex market is unstable and you will encounter many ups and downs. If you are new to Forex trading, start small with a budget of about $500-1000. Get familiar with the principles of business psychology and money management and use only 5% of your account balance. For example, if your budget is $1000, you should only use $50 for each investment. The forex market is very volatile and it is good to have enough money to cover the potential loss.

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