If you are planning to pursue trading in the forex market, then you surely need to start learning about the trading concepts and also explore the technical aspects for choosing the best strategy for yourself. You also need to do some research about forex brokers and trading platforms to select the one that fits your criteria. The majority of beginners prefer to kickstart their trading journey on the MT4 platform due to its user-friendliness and powerful features.
MT4 is available on all platforms, so you can access its web version or download the app on your computer or smartphone, and place or monitor your trades on the go. But there are some things about forex trading that you need to know before joining a trading platform. In this article, you will get to learn the basics of forex trading and how to master them to get the desired trading results in the end.
Importance of Research and Learning
As I said earlier, a newbie trader needs to do a lot of research before stepping into the forex market. Without this research, you will be confused and overwhelmed with the number of options and opportunities you get for trading.
Even though there are a lot of opportunities to tap into, not all of them will lead you to success as only some of them will suit your needs and requirements. You won’t be able to make a wise choice without learning about the world of forex trading in detail. Thankfully there are a lot of platforms and websites where you can get all the relevant information without spending a single penny.
Such free resources for learning have made the forex market even more accessible to newbies who were reluctant to get into trading due to a lack of knowledge. A lot of professional forex traders are also well-known authors and they have written some great books to educate new traders about the forex market and trading.
You can also use these books for gaining in-depth market knowledge as the authors share their experience in the currency market along with some valuable insights about best forex strategies and methods for analysis. You can also join various online courses to make your foundation strong as a beginner.
Understanding Market Dynamics
One step that you should never skip while learning about the forex market is understanding how the market works. The currency market that operates on a global level is very volatile and dynamic in nature which makes it an attractive place for traders.
The Forex market is considered to be a lot more complex in comparison to other financial markets as it is highly liquid but also very volatile and the market situation can often be unpredictable at times. The currency market is driven by a number of factors including economic indicators and sentiments of traders, based on how they react to a news event that affects the currency pair prices.
The fluctuations in exchange rates are the very basis for all trading activities in the forex market as traders try to predict the potential price movements based on what they see on the price charts and market fundamentals.
However, fully understanding the market dynamics and developing analytical skills requires both experience and market exposure. Hence, trading on a live account without any prior experience increases your risk of losses. Thus, you need to utilise the demo account facility to get familiar with the real time market conditions and get some hands-on trading experience without any risk.
Relevance of a Trading Plan
It is impossible to become a profitable trader without following a well-defined trading plan. A trading plan is like a guideline that helps you to navigate the market with ease and make decisions that can give a positive outcome.
The trading plan outlines your trading goals, profit targets and what methodology or strategy will be used for achieving these goals and targets. It also defines your trading style and the timeframe that you will be using for analysis. You should also decide on the analysis method and the indicators that you will be relying on for confirmation.
Apart from these, you should also decide the amount of risk that you are comfortable with as the market can move in any direction and it is almost impossible to win every single trade that you execute.
You should be prepared to encounter losses as a part of the trading process but the risk can be controlled by choosing a suitable strategy. Hence, you should consider your risk appetite while devising the trading plan. However, trading discipline is something that needs to be built to stick to your trading plan till the very end.
Developing Emotional Resilience
Trading with real money can be a stressful experience for a first-time trader. But it also brings a lot of excitement and it quickly changes into fear if the trades don’t go as planned. In short, you are about to go through a rollercoaster of emotions while trading on a live account with actual money at risk. The only way to stay calm and composed in this situation is to develop emotional resilience. Eliminating these emotions is not possible in manual trading and you won’t be able to make sound decisions while being overpowered by these emotions.
Over time, you will become a lot more immune to these emotions and that’s how professional traders are able to remain rational even when the market is unfavourable. They don’t panic when the market moves in a different direction as they are mentally prepared for any kind of scenario. This saves them from making poor trading decisions as they always stick to their plan. You should also be able to develop patience and avoid emotional trading by training your mind to think and act logically in any situation.
Self Assessment
Self-assessment is necessary to improve your performance as a trader and it also helps you to track your progress and identify any trading mistakes in time. It is normal to make some mistakes at the start of your trading journey and these mistakes are a part of the learning process.
But you won’t be able to spot these mistakes and correct them without continuous evaluation. Keeping a trading journal would be ideal for such periodic assessments and it also helps you to evaluate the performance of your trading system by comparing the actual results with expected results.
If you see any kind of mistakes during this self-assessment, you need to review your strategy and reflect on your decisions. Using tools like trading calculators to estimate key metrics like pip value and potential profits allows us to make informed decisions and avoid any trading mistakes. Besides this, you should also be updated with the changes that happen in the forex market and adapt to the market situation to get better trading results. It is important to stay true to your plan but you should also be flexible and modify the strategy as and when needed.
Risk Management
Even with a lot of knowledge, and skills along with the perfect strategy, many traders fail to remain profitable as they underestimate the risk. Risk management skills are just as important as analytical skills for a forex trader.
Because the forex market is inherently risky and those who are not good at handling the risk will end up losing a lot in the long run. Limiting the risk per trade to 2% and placing a stop loss order for every trade can surely minimise the potential losses to a great extent in any situation. Another thing that you need to do to avoid excess risk is refraining from overtrading.
Leverage is a powerful tool for maximising your profits but the amount of risk is also amplified by leverage as the potential losses can be just as big if the market does not move as per your expectations. Hence, you should only use a limited amount of leverage based on how much risk you can afford to take. You should also be trading on a secure platform with a regulated broker as the trading platform you choose needs to be stable and fast to remove the risk that comes with delayed order execution or slippage.
Seeking Advice and Guidance
Some trading concepts are hard to learn or understand on your own and a faster way to study such complex topics is by interacting with other traders on forums or other platforms where you can interact with each other. You will also be able to seek advice and guidance from experienced traders which is a great way to get started as a beginner. If you can find reliable coaches or mentors, you can surely get some valuable tips for trading and follow them for better results. It is normal to get confused and puzzled as a novice trader and having an expert to clear these doubts surely makes a huge difference to your overall performance.
Final Words
Finally, mastering the basics of forex trading will be your very first step towards success in the forex market. However, this cannot be done in a short period of time and requires continuous learning. It may take some time to get the expected results but being patient and disciplined will surely take you closer to your goals in the long run. Perseverance is the key to being consistently profitable as you should be committed to improvement and polish your skills with a professional approach.
