Forex Trading Tips

Trying to find some forex trading tips that can help you get started? From identifying your trading style to acing your money management skills, here are eleven key forex trading tips to help you start earning profit on your account.

Forex Trading Tip #1: Identify your trading style

Tailor your trading style to your personality and lifestyle. Trading strategies work differently for everyone, but you might find that combining elements of different styles can help you achieve success.
You should also take your financial goals and risk tolerance into account when deciding which strategy to use and how much time and money you want to invest in trading. Here are some of the basic trading styles:

Scalping is a type of high-frequency trading that involves making many trades throughout the day to achieve a small profit on each trade. The idea is to make small profits from numerous trades instead of waiting for a single big win.

Day trading typically means buying and selling currencies within 24 hours. Most day traders hold positions overnight and try to make money from price fluctuations during the day (hence the name). Scalping and day trading involves holding positions for a concise period, which means traders use very tight stops.

Position trading is a method of entering the market for a more extended time, usually days or weeks. Your trades will be based on fundamental analysis and technical analysis. You will be holding your positions for a more extended period with the expectation that you will exit at a profit once the trend has been established.

Not sure which trading style suits you best? Take our quiz>>

Forex Trading Tip #2: Know your forex trading risk management

When a forex trader opens a position, they should also immediately consider the risk management techniques to minimize losses. Here are some forex trading tips on risk management:

Only invest what you can afford to lose. It's a dangerous game, and things can go wrong quickly if you don't know what you're doing. Losses are a considerable part of forex trading, so make sure you have money in reserve that you can afford to lose.

Don't try to trade against market trends. When buying or selling currencies, it always pays off first to understand how your chosen currency is moving. Trying to go against prevailing market trends rarely works out for inexperienced traders (and anyone else for that matter).

Don't forget about leverage. While leverage makes it possible to open more significant positions with less capital and potentially earn greater profits over time, it also amplifies potential losses exponentially. The real key here is knowing how much leverage you should use when given multiple options by your broker—if they aren't clearly explained, ask more questions before signing up!

Keep track of margin calls. Margin calls occur when your account equity falls below a certain level set by your broker. If you fail to meet these margin requirements, your position may be liquidated at whatever price is currently available to protect yourself against further loss.

Use stop-losses and take profit levels. A stop-loss is a limit placed on each trade to help you not to sustain an enormous loss if your original prediction goes awry. On the other hand, a take-profit level tells your brokerage when to sell at pre-determined prices set beforehand.

Forex Trading Tip #3: Know your basics

When it comes to currency trading, most people think of it as a complex process that is only for the most serious traders. The truth is you don't need to be a professional trader to succeed. In fact, with the right trading platform and some essential forex trading tips and techniques, you can achieve your goals.

The key? Make sure you’re educated on forex before diving in. Your forex education should cover the basics of charts and technical analysis. Once you can read charts, you will understand price movements and develop your theories on price action.

You can also use your knowledge of charts and technical analysis to determine what factors may have influenced past price movements so that you can predict future price movements as well.
Also, make sure you understand the following basic terminologies – here’s our basic glossary:

Long position: When a trader expects the price of a currency pair to rise, they will buy it (i.e. go long).

Leverage: Margin requirement for riskier trades. For example, leverage of 100:1 means that only a 1% margin is required for buying or selling an instrument.

Pips and spreads: In forex, one pip is the smallest unit of price movement for any given currency pair. Spreads are the difference between ask and bid prices for each currency pair.

Ask price (also known as offer price): The ask price is the best possible price at which someone can sell a given currency.

Bid price (also known as the market price): The bid price is the best possible price for someone to buy a given currency.

Market order: Buy or sell at the current market price.

Stop order: Execution of an order once the price reaches a predetermined level (stop loss or take profit).

Currency pair: Currency pairs contain two currencies paired against each other. The top ten major currency pairs are EUR/USD, USD/JPY, GBP/USD, USD/CHF, AUD/USD, NZD/USD, USD/CAD, USD/RUB, and EUR/GBP.

Spot market: Spot market refers to the buying and selling of foreign exchange on the same day.

Forward market: This is a market in which transactions take place between sellers and buyers at some future date.

Liquidity: Liquidity is the degree to which a market (or individual security) is deep and active, allowing assets to be bought or sold in large quantities without causing drastic price changes.

Volatility: Volatility refers to the amount of uncertainty concerning the size, direction, and speed of price movements in a market. The greater the volatility, the greater is the likelihood of substantial price movements in either direction.

Setup: The arrangement of the chart and the data fields, for example, a chart with one line or two lines.

Open position: An open position is a trade that is still in progress and not closed yet. It means that you have an active trade that may profit or lose depending on the prevailing market conditions.

There are a bunch of strange terminologies in forex. For example: what’s an ‘abandoned baby’ or a ‘stick sandwich’? Here are a few fun trading terms you might not know…>>

Forex Trading Tip #4: Fix your money management

The number one mistake we see novice traders make is poor money management. To avoid becoming part of that, you need to remember a few essential forex trading tips on money management.

1. Never risk more than 1-2% of your account on any trade. It's far better to wait for a high probability trade than it is to try and catch that elusive home run every time. After all, home runs are rare, while singles and doubles will help pay your bills. And don't forget: dollar-cost averaging can work in your favor too.

2. Take into account the risk-to-reward ratio. If you are trading with a risk of $200, it is better to avoid trading opportunities that have an expected gain of $100 or less. This is not worth risking your hard-earned money. There are too many great trade opportunities available. Don't risk your money on anything less.

Forex Trading Tip #5: Keep an eye on both fundamentals and technicals

Many traders ignore the fundamentals and only focus on technical indicators. These are two different approaches to trading in the financial markets. But this is one of our most important forex trading tips: it's essential to balance both of these when you're making trades.

Technical analysis involves examining the price and volume statistics of a financial instrument (stocks, bonds, or currencies) to derive useful information that can be used to predict future events.
The characteristics of candlestick charts, moving averages, and the RSI are some of the most popular tools used by traders. Trying to rely solely on technical indicators is a mistake because sometimes things happen that are beyond your control.

The market might be getting ready to crash – as indicated by major world events, such as Brexit – but if none of the technical indicators you've been using are picking up on that fact, you'll miss out on a huge opportunity. That’s why fundamental analysis is also crucial to your trading success – don’t neglect it!

Do you rely more on fundamental or technical analysis? Take the quiz>>

Forex Trading Tip #6: Make a trading plan

A forex trading plan is an objective, clear-cut document that defines how you want to trade in the currency market. Besides helping you control your emotions, it can also significantly increase your chances of success in the market. A well-thought-out trading plan can be one of the best tools at your disposal, so don't rush through this process.

It all starts with setting up realistic goals for yourself that align with your current level of experience and knowledge about the market. Do not set too many objectives for yourself just yet – simply have one or two at first and then go from there. If it proves too difficult for you to stick to them, then lower them and try again next time around.

What should a trading plan look like? Here’s our forex trading plan template.

Forex Trading Tip #7: Don't trade on emotions

Emotions have a way of creeping into trading, which is why it's crucial to stay in control and keep emotion out. If you're feeling anxious or stressed, take a break from the markets.
It's not uncommon for traders to be doing well in a particular market and then suddenly start losing money as soon as they begin to get anxious or angry.

A common trigger of this behavior is getting "in over your head." If you're feeling overwhelmed by all the information you're learning as a trader, take an hour off to clear your mind. Iif something stressful is going on at work or home, don't try to trade until you can get back on track. Put simply: the recipe for successful trades? A positive and calm mindset.

Forex Trading Tip #8: Know your entry and exit points

Interpreting the position of the market in more than one time-frame at the same time can be a little confusing to traders. If you are using a daily chart, for example, to gauge buying opportunities and a weekly chart to gauge market direction, you need to be sure that the two are in sync.

That means that when you see a buy signal on your daily chart, it should also show up on your weekly chart as a buy signal. Otherwise, you may miss some of your entry points that could have provided high profits.

The best example is when we have a strong rally from one specific area on the weekly chart, but we might not see that move if we focus on our daily charts. This is because the daily chart only looks at five-minute bars, which are too small to take advantage of that particular move on the weekly chart.

Forex Trading Tip #9: Keep things simple

The best forex trading tips are those that prioritise simplicity. There’s no need to overcomplicate! Many traders make the mistake of over-complicating their analysis with multiple indicators, which is very time-consuming and can also lead to confusing signals. One way to look at this is to analyze the price action in three ways:

● Is there a trend? If so, what is the strength of this trend (i.e., how fast is the price moving)? If there's no clear trend, do nothing.
● If there's an upwards trend, look to buy. If there's a downward trend, look to sell.
● Are there any support and resistance areas? If so, place your trade based on these levels.

Trading on a BluFX account? Here’s our guide to trading profitably on your funded account>>

Forex Trading Tip #10: Don't overtrade

This is one of the most critical forex trading tips. Some traders place lots of trades in the market without a clear strategy, then jump from one trade to the next, hoping to make a profit. This is called overtrading. Overtrading is extremely risky and can be financially disastrous!
This is because if you overtrade, you increase your risk by increasing the number of open positions you have at any point in time. For example, if you have a 10% risk threshold per trade and decide to overtrade by placing five trades, your total risk exposure would be 50%, which is far greater than your limit of 10%.

The most common reason why people overtrade is greed. When someone's account balance goes up due to profits made on several trades, they usually end up taking more risks hoping to turn those profits into larger ones. This can be extremely dangerous because losses in trading are a lot more common than gains, so it's more likely that you will lose money than make money.

So stay calm, have a clear strategy – and think the trade through before entering.

Forex Trading Tip #11: Learn how to handle losses

In order to be a successful trader, you need to have great discipline, which means always staying true to your trading system. We know that it is challenging to stay disciplined when losing trading capital or profits – but you need to understand that losing is part of trading, and it will happen from time to time.

If you know how to handle losses, you will be more likely to stay disciplined and more likely to become profitable over the long term. Here are some forex trading tips on how you can learn how to handle losses:

Analyze why you lost. The most important thing you can do after a trade has gone against you is analyze what went wrong. Think about what would have happened if you had done something differently; then make sure that another similar situation does not happen again. The goal should be winning in the markets in the long term.
Learn from your mistakes. Don't let a loss drag down your entire account balance. If a trade goes against you, cut your losses as soon as possible and put the rest of your money into another position that may turn out better.
Trade less frequently. When your account balance is low, it might be tempting to try and recoup losses through high-risk trades with lots of leverage or by taking more prominent positions with the hope of making up for smaller ones that did not work out in your favor.
Ready to take the plunge and start trading? At BluFX, we offer fully funded forex trading accounts.

There are no challenges, trials or demo accounts – just a fixed monthly subscription fee, and no liability for your losses (yes, really). Get your instant funding today.

Explore fully funded forex accounts