The importance of education on the Forex Market
Forex is a very complicated market on which you should be educated in advance if you want to succeed. For this, there are certain guidelines we recommend you to follow.
Zero awareness translates to 100% Failure
Before considering yourself strong enough to accept the challenge that Forex represents and to place your first trade, previous and serious training is mandatory. Without it, no matter how self-reliant and capable you are, you will experience the sour taste of failure. For this, you must understand the basics of currency markets and the way Forex works for trading business. Fortunately, some Forex brokers offer free tutorials on Forex trading that you should consider checking out to become a trading expert.
Forex is a Strategic Business
It is very important to have a defined strategic philosophy to start trading, otherwise you are pretty much doomed to failure. Thus, the strategy you are more familiarized with will assist you to set your own trading path. By keeping a communication with other experienced traders, you can learn about the different strategies that you can adopt according to your needs and personality. It is also important to be enough disciplined to tolerate any trading eventuality and not give up immediately when things don’t go as you predicted.
Reason over Emotions
Deciding through emotions is not good advice because you will either enter or exit the market at the wrong times or get stuck on a bad trade you don’t want to be. In other words, you need to learn how to recognize trading signals and keep an eye on the trends to actually know when to go into or out and which currency pair to trade. To interpret trading signals, you can use graphs and charts. This will allow you to have a useful record of the business movements every time you trade.
Knowing how to administrate your own money is the key to profitable Forex trading. As a trading apprentice, you will be encouraged to employ countless strategies to well administrate your money. Nonetheless, what is definitely important for every strategy is having a very detailed record of what is known as your core equity. Core equity is the total amount with which you start trading minus the funds that you might have in open positions. For instance, if you begin trading with $40,000 and have $2,500 in open positions then your core equity is $37,500.
How to deal with risks?
Trading risks are the most expected factor in the business. You should be careful and limit your potential risks at the level of between 1% and 3% of each trade. For instance, if you are trading a standard Forex lot of $100,000 you should limit your risk to $1,000 to $3,000 most advisable starting with just $1,000. You can do that by putting a stop loss order 100 pips (1 pip = $10) above or below the position at your trading enter.
Trading ups and downs
When trading, your core equity adjusts itself to the up-or-down movement of the price of a specific trade. In such a way, the risk factor will always be variant. Let us see it closely with the same example we used above. If your core equity is standing at $37,500 and you take out a second position with the same amount of $2,500, your new core equity will result in $35,000.
If you want to be risky or forewarned, it all depends on you and your trading philosophy. If, for example, you obtain $10,000 with $30,000 core equity, you then have two different options. You can either raise your risk level by trading the same amount you have traded till now or raise your risk even more by adding to the amount originally invested.
Brokers like ETX Capital suggest that when trading Forex, one of the most important control tools to be aware of is risk management. Being educated on it and employing a strategy that fits your needs and trading philosophy will guarantee you the total control of your own business. Conversely, not having the right control on your risks would leave you very few opportunities to become a successful Forex trader.
Finally, not all investors might find the high level of risk that trading Forex implies as a convenient fact, since it can work either for or against you. Due to this fact, you need to evaluate your investment objectives, level of experience, and risk appetite before investing in Forex. It is possible that you lose a part or the entire amount of the initial investment. However, trying to re-invest money that you cannot afford to lose will never be an option. If any doubt, do not hesitate to talk to an independent financial advisor.