The first steps into the world of Forex will bring with them a huge quantity of information, so we’ve compiled a list of key areas to be learning and looking for as a beginner.
Try Before You Buy
If all your knowledge of the Foreign Exchange consists of theory, it’s worth trying a demo account before launching into the real thing. Demo accounts allow you to ‘trade’ live, without risking any of your own capital. Not only will this give you a better insight into the movements of the markets, but also a familiarity with the GUI (Graphical User Interface) of the platform you will be trading on. This is important because the development of an instinctive knowledge of the layout of your chosen platform is going to weigh in heavily on your ability to trade at the fast pace necessary to be successful during times of market volatility.
Understand How and What You Can Trade
There are two main ways of trading on the Foreign Exchange, one of which is buying and selling a currency pair, and the other is derivatives trading, where you assume the right to buy a currency pair at a previously agreed upon rate in a previously agreed upon point in time. In the former, you are simply choosing either to go long or short on a currency pair depending on the direction in which you feel the market is going. This is comparable to a standard approach to buying and selling stocks, and retains popular amongst new and experienced traders thanks to the relative simplicity of the trade. As the name suggests, derivatives trading is slightly more convoluted and as such are typically used by traders with more experience of the markets and consists of using an instrument for investment through a contract. The value of the derivative therefore stems from the value of the underlying asset.
Fundamental Analysis & Technical Analysis
Trading styles vary from trader to trader, but the techniques of analysis upon which successful trades are made are likely to be comprised of a mixture of technical and fundamental analysis. Fundamental analysis refers to the practice of studying everything from the status of the economy as a whole to changes in the management of companies and the resulting effect on the markets. Technical analysis on the other hand, describes the process of studying price charts with the aim of identifying upcoming trends based on ebbs and flows in the market. Despite the latter being more numerically-orientated, make no mistake, both analysis techniques require vigilance and a keen eye for detail so as to take full advantage of future market movements.
Write it Down
This is a simple concept, and a learning tool that is easily (and often) overlooked. In a digital environment like Forex trading, sometimes simply taking a pen to some paper and logging your successes and failures can help to reinforce your learning. Did you know that, in an experiment designed to test the efficacy of self-reflection on work performance, workers who took just 15 minutes at the end of each day to write down their successes and failings performed 20% better (on average) than their counterparts in the control group? So, while you’re busy gaining as much experience as possible, try to take a little time out to log your actions. After all, experience is only valuable if remembered. (Source: Harward Business Review)
Build Your Foundation
Your best chances at success in Forex trading are in your ability to start, and stick, with the basics. Over the course of your trading career, you’ll likely see countless adverts for systems claiming to have zero-loss results, but the truth is, these are often too complex to work effectively. The best alternative is to cut back on the add-on indicators that can clutter your price chart, and simply learn and practice the basics of price action. Your focus when setting out should not revolve around quick profits, but gaining an instinctive feel for basic price action reading. This will stand you in good stead regardless of your preference for indicators or more complex systems later on.
Conclusion
The amount of information available to newcomers to Forex trading is mind-boggling, and requires more than plain theoretical knowledge; your best trading experience will come from seat time. This is why building a sturdy foundation of theoretical and empirical experience based on naked chart readings is a good idea; not only will the charts appear less intimidating, but you should also develop a feel for market movements much faster because the number of variables is stripped right back.
In the same interest of simplifying the learning process, documenting your progress is a really effective means of consolidating your progress, which in turn means a faster learning time. Similarly, Forex trading is a constant learning experience, so getting into the habit of jotting down improvement suggestions for the future is a great way of continuing to evolve as a trader and avoid a plateau.
