The forex market in a nutshell: Over $6 trillion daily transaction, 24/5 accessibility, and decentralized.
Those three appeals put forex trading into the mainstream.
Technological advancement even made public forex participation easier. With internet access and a brokerage account, individuals can easily exploit the volatile foreign exchange markets.
For some, forex trading is an effective way to make money online – or, as they say, to make their money make more money.
But can a newbie be successful in online trading, or does success come with time?
In this article, we’ll explore the four strategies to help beginner traders be profitable. Read on and discover how you can be successful in forex trading without all the flashy experiences.
Is There a DEFINITE Path to Succeed in Forex Trading?
The forex market is inherently complex. Thus, there’s no definite path to follow for success.
For some, technical analysis does wonders for trading forex. Others thrive on monitoring currency news, economics, and fundamentals.
Other factors include market sentiments, trading strategies, reliable brokers, proper leverage, and more!
But there’s a trait every trader should have before they start trading forex.
That’s the discipline.
It’s a single word – but it encompasses different areas of successful forex trading.
- Discipline is needed to manage risks
- Discipline is a must for rational market analysis
- Discipline is essential to maximize potential profits
- Discipline is closely tied to emotional control
If you’re a new trader, discipline is the very first skill you need to master. It ensures constant profits, rather than a big but very often one.
Four Currency Trading Strategies For Newbie Success
Having a sound strategy sets profitable traders apart from unprofitable ones. Only with strategies can you realize the lucrative potential of the forex market.
These strategies apply regardless of your approach to forex trading – whether that be scalping, position trading, day trading, or swing trading.
Now, let us explore the four effective and proven strategies for ensuring success in the forex market.
Implement Per-Trade Risk Management
Repeat after me – I am a risk manager as much as I am an online trader.
The financial markets are risky. It’s been told to you by your trading mentor, broker, fellow traders, and even your spouse.
However, risks are not the end of it all. In fact, traders thrive on risk.
What they do is employ risk management so they profit from the global marketplace. With per-trade risk management, you ensure the sustainability of your trading capital.
Here are three common per-trade risk managements that beginner traders should religiously implement in their trading system:
- 1% Capital Rule. Only risk 1% of your capital to withstand consecutive losses.
- Low Risk-Reward Ratio. The R/R ratio indicates how much risk you’ll take for a relative reward.
- Position Sizing. A properly sized position aligns with your risk tolerance, account size/equity, and trading objectives.
Manage Unrealized Profits/Losses
Your profits and losses will remain unrealized or floating until you close your open positions.
Technically, unrealized P/L (floating P/L) are the running gains or losses of your open trading positions. It’s still subject to price fluctuations – you can break even from floating losses or lose your unrealized profits.
Market volatility is a staple in the daily lives of forex traders. It’s like their coffee or newspaper or Facebook!
However, this volatility makes your unrealized p/l management subject to an emotional process.
You may find the urge to prematurely exit a position because you fear losing your running profits. You may also get excited or greedy from the market potential, keeping your positions open past your trading plan.
So, how do you manage your floating profits or losses?
Simple—stick to your predetermined and strategized entry/exit. Remember, these planned actions are there to prevent you from getting too caught up in the heat of the forex battle.
Demo Trade to Mastery
No beginner trader should dive right straight into the live market.
Despite your confidence in your skill or knowledge, the market has a lot on its sleeve that could surprise you (or make you lose your capital).
A demo account helps you understand and find comfort with the market movement.
However, some may argue that demo trading is ineffective. This is because there is no emotional tie between traders and their money.
But that’s the deal with demo trading. It doesn’t just backtest your strategy or familiarize you with the market dynamic.
Traders use demo accounts to disassociate their emotions from their money. Remember, emotions are your number one enemy in the forex market.
Master Market Analysis
Whether you’re in the forex, commodities, or stock market, the ultimate way to profit is to position your trade based on the future price movement.
But how can one predict the future?
For online traders, such a crystal ball exists in the form of market analysis.
Candlestick Chart Patterns
First used by Japanese rice traders in the 18th century, the Japanese candlesticks became a valuable indicator in online trading.
Candlesticks provide a more informative and visually appealing representation of the financial instruments’ price actions. It shows the assets’ opening price, high price, low price, and closing price (OHLC).
By analyzing candlestick patterns, you have an idea of the prevailing battle of the bulls and bears – whether the market is currently experiencing buying or selling pressure.
Economic Factors
A particular currency is tightly tied to its host economy.
Thus, you can analyze and predict the currency’s potential market movement by looking at its economy.
Here are the highly influential economic factors:
- Inflation data shows the purchasing power of a currency. High inflation means more money is needed to buy similar goods or services.
- Gross domestic product (GDP) indicates the overall health of the economy. It tracks the periodic goods and services made in a country and their value.
- Trade balance refers to the difference between a country’s exports and imports. This indicates the cash flow of an economy.
- Unemployment rate suggests the people’s spending and the country’s operational wastes.
Political Events
Events like elections and impeachments are influential to the health and movement of a country’s currency.
When the country changes its leader, policies are likely to shift. This creates a period of uncertainty, impacting investors’ confidence in the currency and economic value.
Additionally, trade tensions may form between countries or regions during elections or impeachments. Heightened disputes could lead to disruption of the supply chain and tariffs.
Geopolitical Tensions
Wars or unrest are detrimental to the countries involved in trade flows and supply chains.
International sanctions are imposed by global leaders when a country is deemed to violate human rights. Such sanctions include cuts in trade activities or total economic isolation.
Additionally, geopolitical tensions disrupt the supply chain, especially during the ruins of infrastructure and halt of operations.
Natural Calamities
Unforeseen disasters deteriorate one’s economy. These calamities halt growth by inflicting serious, tangible damage to buildings, equipment, and human capital of a developing country.
Natural calamities also entail additional country debts, which weakens one’s currency valuation.
Can You Get Rich In the Foreign Exchange Market?
Forex trading is a get-rich-quick scheme – that’s why it’s so appealing to investors, traders, and speculators.
As currency pairs’ exchange rates move from time to time, forex trading offers lucrative opportunities by allowing you to profit from price differential.
Imagine buying EUR/USD at 1.2000 for 100,000 units (USD 120,000). A few seconds later, the currency pair appreciated at 1.2050 (USD 120,500). Closing your position would yield you a return of USD 500.
That simply shows the lucrative potential of buying and selling currency pairs.
However, the volatile nature of the forex market puts your capital at a high degree of risk.
The example above shows a favorable market, but if it moves against your position, your capital will surely suffer.
Here are two major reasons why the foreign exchange market fluctuates:
- Interest rate risk
- False trading signals
Remember, forex trading is lucrative as much as it is risky.
However, aside from the fluctuating price movement, buying and selling currency pairs can be expensive.
Even if you profit, you need to factor in all the trading costs. This includes spread, trading commission, swap or overnight fees, and account maintenance fees.
Top 5 Currency Pairs Traded in Forex
A pro tip when trading forex is to trade in an active market.
But what constitutes market activeness? It’s the volume of asset transactions.
When an asset is being traded by the majority of investors, its value increases due to heightened demand. When it’s in demand, more investors will flock to the market.
Ultimately, it causes the market to trend in a particular direction.
Here are the top five currency pairs per activeness (Bank of International Settlements, 2022)
| Currency Pair | Market Share (ave/day) |
| EUR/USD | 27.95% |
| USD/JPY | 13.34% |
| GBP/USD | 11.27% |
| AUD/USD | 6.37% |
| USD/CAD | 5.22% |
How to Trade For Beginners
To start participating in the foreign exchange market, you must have an internet connection, brokerage account, capital, and of course skills and knowledge!
Only when you get your skills and knowledge practiced can you start trading forex.
Step 1 – Find a Reliable Broker
Online broker is your gateway to any financial market. Without them, it’s physically impossible for retail or individual traders to participate in online trading.
However, finding one is easier said than done. The financial ecosystem is infested by dishonest brokers. Such brokers operate in a way that exploits the enthusiasm of investors.
To prevent falling from unethical brokers, always check, verify, and monitor your chosen broker’s regulation.
Step 2 – Open an Account
Once you’ve chosen a brokerage firm, it’s time to open a trading account.
Make sure to be familiar with the terms and conditions. Such documentation informs you about all the fees your account will incur, withdrawal processes, and margin calls.
Some brokers offer trading accounts for as low as USD 5. But beware of such an offering.
It’s physically impossible for a trader to open, control, and maintain a position with just USD 5.
Step 3 – Perform Market Analysis and Build Portfolio
After opening an account, the next step is to choose which currency pairs to trade. In other words, you must build your portfolio.
Your portfolio should align with your risk tolerance and trading objectives.
- Volatile Assets (major pairs) are suitable for bigger account with high risk tolerance.
- Steady or consolidating assets (exotic pairs) are fit for smaller accounts due to the fewer risks involved.
Turning Forex Potential into Reality
Forex trading offers immense opportunities, but success hinges on preparation, strategy, and discipline.
Mastering the basics can set you on the right path as a beginner. With these tools and strategies, even newcomers can perform well in the forex market’s complexities and achieve steady growth.
Remember, forex trading isn’t about quick wins but about consistent, calculated moves that compound over time.
By starting with a solid foundation and continually honing your skills, you can turn the dynamic world of forex trading into a rewarding journey toward financial success.
