Avoiding Mistakes – Forex Tips for beginners

currency graph

Depleting your capital account with your online broker is undesirable.

As an inexperienced trader, what are the ways that you can cut out mistakes and limit trading losses?

We highlight what essential controls need to be maintained to at least give yourself a chance to make profits as a forex trader.

Essential controls to avoid trading mistakes

1 Master one strategy at a time

If you are new to forex trading, trying to learn too many strategies could slow up your learning process and cause losses on your trading account.

As you become more experienced, it is reasonable to use different trading strategies, but at the beginning, master one strategy at a time.

2 Simplify your trading

Novice traders tend to overcomplicate trading creating technical indicators and trying different expert advisors.  If you use chart software, your chart may obscure by all the technical indicators flashing up on the screen.

It is best to focus on the raw price action that presents itself on every chart. Learn what the price is telling you, and the simplicity of trading will become apparent to you.

3 Avoid trading in different markets

Novice traders tend to trade on multiple markets with little understanding of the market. Known as noise trading, traders enter trades without the proper technical or fundamental research to justify the trade. If you want to trade on different markets, it is essential first to trade them on a demo account.

4 Over leveraging positions

Inexperienced traders are often susceptible to using too much leverage in their trades. Online brokers offer levels of leverage that put the capital account of a new trader at risk. Leverage of more than 100:1 is not uncommon. As the amount of leverage magnifies the profit and loss on a trade, it needs monitoring.

5 Lack of research

Proper research of a currency pair or currency market is essential to trade successfully. In-depth analysis should shed light on entry and exit timings and market trends. There may be slight differences between currency pairs and how they work. Detailed research is essential to put a proper strategy in place.

Simulated Forex Trading: Vital Research for Traders

Simulated trading uses a theoretical trading balance to practice on instead of using your capital held in your brokerage account. There are two types of simulated trading which we will now cover for you.

A Look at Back Testing

With backtesting, you use trading software along with historical data to place theoretical or dummy trades to simulate as if you were trading during the period under analysis.

back testing historical data

It does not matter if your dummy trades are manual or employ automated trading software. It is an excellent way to test new trading software, which you may be considering using to form part of your broader trading strategy and is essential work.

Looking back through historical data allows you to fully understand how a currency pair moves and how it reacts to specific macro events, particularly economic data. Backtesting is crucial as it is entirely relevant to the market conditions at the time.

For a novice trader backtesting is crucial. It builds confidence that a trading strategy you want to implement will work. Undertaking specific trades or a strategy when your capital is on the line with a low degree of certainty is undesirable.

You will understand the statistical expectancy if you can undertake fifty dummy trades or more using historical data as a trading basis. It is the likelihood of knowing if your strategy has a good chance of making a profit over the long term.

Employing Demo Trading

The second type of simulated forex trading is using a demo trading account or demo trading. Most online forex brokers give the option of practicing with a demo account, which is just like a live trading account except you trade with a theoretical balance.

The trading platform and the price action are similar to the experience of using your capital in live market conditions.

Simulated forex trading is an excellent way to build experience because you can take the fundamentals you get from backtesting and apply them using your funds and find out if the system you developed will work.

Our Final Thoughts on Simulated Trading

Simulated trading is essential. For the new trader, it allows for the exploration of a strategy that will work based on positive expectancy. A robust trading system will lead to trading with discipline, not on emotion, the forex trader’s bane. It is a great start to moving forward and trading on your brokerage account profitably.

The Importance of Demo Trading in Forex

A vital forex tip is to use a demo account when you first start trading online.

forex charts on a screen

Undertake demo trading for the first three months before you start trading with real money. All good online brokers will offer a demo account.

It is a crucial tip to cut your teeth on the forex trading demo account. Familiarize yourself with the software and the platform. It is essential only to study one or two of the major currency pairs; the major currency pairs are the best to follow as they are the most liquid.

Demo trading allows you to develop a feel for the market

A demo account allows you to get a feel for your chosen currency pairs’ movements. Demo trading also allows you to hone your wider forex strategy through backtesting and paper trading until you are ready to progress to real money. F

or example, Cable or the GBP/USD can be very busy in the morning European session but is quieter once the American market gets into full swing. Learn and get a feel for these and other such trends before you start trading with real money.

The best way to trade forex is to confirm a trend. A trend is confirmed by looking at a chart, a process known as technical analysis. Many traders make it their business to predict where the market is going before it happens and trade accordingly. It is a crucial and essential for forex trading.

Bonus tip

Depending on what time frame you want to take a strategic position will make a big difference for your overall strategies. A bonus tip is if you are taking a position over the short term, perhaps one week to one month, then you do not want to be looking at a long term chart. When you are starting, have a plan, and keep everything simple.

Considerations When Buying Forex Trading Software

Purchasing the right forex trading software at the outset is crucial if trading software is part of a broader FX strategy that you want to pursue. Opting for the wrong software and your forex trading career could go from very good to very poor in a short time.

FX software

The concept of using forex software, which provides you with charts and graphs and sends signals, may seem desirable. However, to justify the implementation of software, your sole concern when undertaking research should be functionality alone.

Search online and find out as much as you can. Do your homework and make sure you understand what you need to know. Unless you know how all the features in forex trading software works, you will not be in an excellent position to analyze the software by backtesting and paper trading as part of a broader strategy.

Forums as soundboards

If you feel you may have identified the right forex software package, hold off instead of purchasing it immediately. Authoritative reviews and forum feedback on the software are essential reading. You need to invest in the software only when your exhaustive research has identified that it is the best option for any more comprehensive trading strategy.

The best forums for foreign exchange where you can interact with the Forex Community, including for trading software include but are not limited to the following:

EarnForex

A forum with a large community ensuring quick answers to your questions

MT5 Forum

A valuable forum dedicated to software around the MetaTrader trading platform

Forex Abode Forum

A forum with a large community with a heavy emphasis on the subject of analysis

Babypips Forum

A forum focusing on the needs of beginners which is the overall aim of the Babypips site

Historical charts, patterns and signals

chart software on a screen

Professional forex traders use charts to check the markets daily, and view historical data to make informed decisions as part of their overall trading strategy.

Basing decisions on historical forex charts, records and patterns in order to make sound and rational decisions is common sense. For example, cable has sat below 2.40 since 1980 and has never been back to the same spot ever since. Such data, must be valuable to a position trader.

Charts can give you a long term report of the position and strength of certain pairs. Inevitably there will be pairs that remain strong throughout.

charts on a screen

Charts are crucial for making rational decisions based on signals and patterns

As well as trading software, credible historical forex charts are made available by economic institutions that have been involved in the long term analysis of fundamental and technical trends.

It is important that you derive your historical charts from a reputable institution as the value of the chart is diminished based on the lack of accuracy.

The Difficulty With Short-Term Forex Trading Strategies

chart analysis

Trading in short time periods, typically within a trading day, for day traders means volatility is more unpredictable than the effect of volatility over the longer term for position traders.

Support and resistance levels in short term charts are less reliable to use than long term technical indicators. It is challenging to try and trade from hourly charts or even shorter time frames.

If your forex trading strategy does rely on using a system to trade the short term, it necessitates having a tight stop loss. It allows you to get in and out of trades up to several times a day if you are scalping the market.

Scalping using leverage and a strategy with a narrow edge to make money from the market does not leave much margin for error.

Without a tight stop-loss and disciplined money management trading 1% to 2% of your trading capital account, then short term strategies can cause significant losses. A tight stop-loss may be as low as ten pips from the current underlying market

The Effect of Macro-Events on Short Term Trading

The problem with short term trading lies in an unexpected macro-event or news that moves the market more than your hourly chart or technical analysis on a given day.

If there is a catastrophe or an unexpectedly lousy piece of economic data that comes out, the currency pair you are trading could quickly move more than one big figure. Without a tight stop-loss and a disciplined strategy, your forex trading losses would rapidly get out of control.

If You Can, Trade for The Long Term

Many forex traders cannot trade for the long term and becpme position traders. Day traders need to make money every day to earn a living by scalping the market. A couple of pips here and there only create a decent trading profit through frequent trading.

Taking a longer-term strategic position will require a deeper stop loss and trading with a higher percentage of your capital account. A larger transaction size justifies inactivity in the market by holding out for more significant currency moves.

A long-term trading strategy means that you are not affected by what happens on any one given day. You can forget trying to predict short term trends.

A Parting Thought

The forex markets are a market of probabilities and not certainties. Trading long term forex trends make big profits; if you have the means forget about trading the short term where unpredictable or unforeseen events will always mean that the odds are always on a knife edge.

Take the Easy Path to Forex Trading

charting software

The key to successful trading, if you are new to forex, lies in choosing only one or two major currency pairs to trade.

Whether it is GBP USD, EUR USD, or USD JPY, you must follow these currency pairs until you have a good feel for price action and understand how they react in certain market conditions and to your selected technical indicators. You will need to use charting software as part of your overall FX strategy.

Before you start trading, it is essential to decide upon a strategy and not just enter the market blindly. 

  • Decide whether you want to trade based on fundamental analysis, technical analysis, or both.
  • Do you want to be a scalper or a position trader?
  • Do you want to include manual or automated software as part of your forex trading system?
  • Do you want to trade one session spanning either the European, US, or Asian trading day?

The Importance of Technical Analysis and Charting Software

Most forex traders use technical analysis. In technical analysis, the charts supply plenty of data on what is happening to a specific currency pair, and in most instances, the fundamentals reflect in the charts.

Many believe that a trader is only as good as the charting software employed as part of a trading system. There are excellent software charting tools on the market, and many can also plug into your brokers’ Electronic trader platform. Good charting software includes Trendspider, an AI-powered technical analysis tool, and TradingView, which provides cloud-based charting software that you can access from anywhere.

open a forex demo account

Online forex software available to suit all trading styles is why online forex trading has become so popular. From manual charting software to the growth in Expert Advisors, which help you trade using algorithms, the choice can appear overwhelming.

As a beginner, you should also open an FX demo trading account to practice and test your techniques. Most online broker companies will allow you to open a demo account without committing to trade through a live brokerage capital account. It will also enable you to undertake backtesting of multiple trades to test your trading system against historical data and see how the statistical expectancy looks.

Our Takeaway

It would help if you remembered that technical analysis will always be an essential element of your forex trading strategy. For an easy path to a profitable strategy, spend time learning technical analysis and integrating the best charting software that you can find.

Seven Short Forex Trading Tips

There are so many fundamental forex trading tips that you will be aware of and try and take on board when you begin forex trading.

forex trader

We have included the following seven pointers that may be of value for your future trading endeavours if you are a beginner

Many new traders go on to make a good income from their trading. Why should you not be one of them!

1. Your trading style should reflect your personality

It would help if you found a profitable forex trading style that suits you and your personality. It can range from scalping to the other end of the spectrum, where you position trade holding trades for longer to follow a trend.

2. Never over trade

Only trade in amounts that you are comfortable with until you are completely confident with your ability to trade Forex. If you over trade, emotion rather than logic will start to rule your decisions.

3. Let a winning trade run

For profitable forex trading, once you have a winning trade, always let the trade and profits run. It’s essential to move your stop loss up as the market moves in your direction to protect your profit but let the trade run. Allow the market to decide when the trade is over.

4. Cut your losses quickly and accept them

and never move a stop loss on a losing forex trade. Once the trade goes against you, stick to your guns and keep rigidly to your original stop loss allowing you to get out of the trade and minimize your losses. It will ensure a profitable, forex trading career.

5. The trend is your friend

Some traders use contrarian strategies, but one of the best forex trading tips is the old saying – the trend is your friend. Effectively, once you have identified the direction of the market, always trade with the trend. Never get emotionally involved with any trade by trying to out-guess the market.

6. Always keep to the rules

An inexperienced trader will feel testing to the limit in times of high volatility. When the spot moves rapidly, losses can occur if a trader does not stick rigidly to their trading strategy. It includes

  • Always having a tight stop-loss
  • Trade with no more than 1% to 3% of your capital account
  • Never revenge trade following a loss

7. Keep a trading journal

A trading journal is essential to gauge your trading performances. The best traders are those that keep detailed records of trades. A journal can get a review at any time. If completed correctly, it will provide notes of emotions you felt when undertaking a trade. It will also flag up trades that are inconsistent with your overall trading strategy.

An Insight Into Forex Trading Software

An FX trading robot uses a computer program to monitor currencies and does calculations using a pre-programmed algorithm to work out the best time to buy and sell.

computer screen with chart

It takes the guesswork out of trading by instilling statistical expectancy in a system when buying and selling. It helps a trader to identify currencies that meet specific criteria, or when certain currencies perform in a particular way.

There is lots of research available online about forex trading software. Like any other tool, it needs proper research. Trustworthy reviews from authoritative sites and feedback from forex community forums are essential before buying software. To successfully use trading software, you need to fully understand how it works and how best to apply it as part of a strategy.

Risk managing automated software

Most selling points for forex robots revolve around setting them and watching the profits accumulate. In some cases, this may work, but mostly you have to carefully monitor the program to ensure it is adjusting to trends in the market. Expert Advisors offer more control for a trader than the complete automation including trade placement available with forex robots

While it can be very profitable, automated trading software does require a certain amount of intervention to be run effectively.

Backtesting is vital

Backtesting is essential before trading live using automation as part of your trading strategy. Testing for weeks or months is not unusual to accurately test a system offline using both historical data and demo trading for system validation. Used properly, and with the patience to research the best software for your specific forex strategy thoroughly, it can become a powerful tool.

Key thought

Forex trading software can be a crucial addition to a broader trading system. If you read about the psychology of trading, automated software helps take the emotion out of trading. For success, the software must backtest appropriately, and only then should it be considered for live trading.

What is Forex Charting Software?

charting software

Forex charting software is a computer program which helps traders compare the price of a currency pair using different trading indicators. The most popular technical indicators includes moving averages, bollinger bands, fibonacci retracement and relative strength index.

The practice of studying charts and patterns is known as technical analysis. It is used by traders to analyze the market and find indications about the future performance of a currency pair.

Identifying trade signals and price patterns may seem confusing at the beginning. There are excellent online courses, tutorials, and books on technical analysis essential for those learning charting as part of their trading education.

Charting software as part of a trading strategy

Charting software helps traders undertake their technical analysis and is a vital tool in implementing a successful forex trading strategy.

Focusing on one specific trading approach using charts and implementing it into a disciplined strategy is recommended.

Simulated paper trading can be employed to help traders understand how technical trading indicators identified as part of their strategy behave in live markets. From charts, beginner traders may choose to paper trade a simple crossover strategy tracking two moving averages on a currency pair.

Should you invest in charting software?

Most online forex brokers offer free charting software to support your trading activities when you open an account on their forex trading platform. The MetaTrader platform, which is popular with online brokers, offers excellent charting software.

Other platforms may not have competitive charting software. Many traders prefer to use their charting software purchased independently. The following software development companies offer good FX charting software:

  • NinjaTrader
  • eSignal
  • MetaStock
  • ProfitSource

What constitutes good charting software?

Proper technical analysis focused software should have interactive charting features allowing you to work to implement a charting strategy as part of your broader trading system.

Features must include technical indicators, including moving averages and oscillators and also patterns such as shapes and trendlines. Charts will include bar and candlestick charts and opening and closing prices. Time frames vary from a minute up to multi-year intervals. Traders usually employ candlestick charting as it displays the broadest amount of data.

Takeaway thoughts

Before you consider purchasing charting software, make sure it has useful support features, including advice and support for trading on the Forex market, a possibility to ask questions about using the software’s features, and technical support.