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chenzo

A Beginner’s Guide to Foreign Exchange Trading

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The world of foreign exchange trading can look very intimidating to a beginner as he begins to wade into the waters of global commerce and country fundamentals. So much information to read and assimilate; so many charts to study and understand; so many of everything! For the moment, just remember that every seasoned trader was a “newbie” like you at one time. Every journey starts with the first step, and there are many experts out there that will guide your initial steps in the right direction.

 

Like any other profession, foreign exchange, or forex or FX, has its own terms and lingo. Your first assignment is to Google “foreign exchange”. Over 80 million items will come up. No, do not read all of them, but do visit a few sites and familiarize yourself with what is presented. If you see jargon that does not make sense, Google the word or phrase. The goal here is to get your feet wet and acquaint you with the topics involved before we move to a more structured approach. After a few hours, your first assignment is concluded. We now need to discuss preparation, knowledge, experience and a disciplined approach to the market, the four key components of success in this industry.

 

You have actually begun your preparation by reading up on the subject. However, the next step is to enroll in a forex training class to learn the basics from experts in the field. As in sports or any other endeavor where performance matters, the best path initially is to observe successful people and discern how and what they did to get that way. You will learn how to select a broker and choose a settlement bank. They will teach you how to avoid fraud and the con artists that prey on gullible newcomers. They will teach you about charts, trading, and how to use leverage to your advantage.

 

Your teacher will also show you how to go about gathering useful information on country fundamentals, what it means, and how to put it to good use. Next topic will be the “technicals”, the information that you can glean from forex charting. An introduction to trading platform software will include reading charts, analyzing them, and obtaining trading signals from various indicators. Pay close attention at this point. Detecting patterns and trends is the key of good trading. Knowledge requires a commitment.

 

There is no substitute for experience in a trading environment. It is not about luck. It is all about consistency. You will win some and lose some trades, but the objective is to maintain a consistent “net” positive result. The path to experience has no short cuts, and you must obtain it BEFORE you ever trade one transaction. How you might ask? Brokers make no money on you if you lose your investment capital in six months, the result achieved by many after jumping the gun before they were ready. Brokers created “free” virtual demo trading accounts for this purpose. The money is not real, but the experience is. Some traders have taken six months to over a year to gain the confidence necessary to trade real time with real money. Practice, Practice, Practice! Perhaps “bolding” the words would drive home the point more effectively, but success is all about the Demo!

 

Lastly, you must approach the forex market in a disciplined manner, absent of emotions that will surely undermine your trading strategy. The more your routine follows a pre-determined pattern for buying and selling, the more consistent and confident you will become in your new abilities. Investment Psychology is a field of study that suggests that your personality traits will attempt to interfere and influence your decision-making process. Don’t let them.

 

Foreign currency trading is risky business, but the rewards can be great for those who follow the initial training regimen discussed above. When you do trade, never risk more than you are willing to lose. You may also want to focus on one currency pair before broadening your trading perspective to include others. As you gain experience real time, be flexible and modify your style as appropriate. Consistency is the goal, and success will be your reward.

 

Vincenzo Desroches

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