One of the most common dangers around new Forex traders is not having a specific strategy for trading, as the many attractive characteristics of the Forex market as that it’s 24/7 and the ability to trade in short and long term, and the ability to use the leverages, and so on, pushes the majority of new traders who are entering the market to exaggerate in their self confidence so they trade non-strategically and non-systematically, as they believe they can make big profits and create wealth at a relatively small time, but that confidence quickly turns to tension and declining psychological situation that helps to accelerate their failure, and that’s why we find that most successful Forex traders are people known to be humble and people who have commitment to their plans, and those features are collected through the experience, as well as via accepting the basics of the Forex market and its nature.
The first step in order to begin to get profits in the Forex market is to place a strategy or a plan for trading, as putting a plan to trade is of high importance even though it is relatively easily done, since all you need to develop a plan is to think about the following things:
1. Think about the reasons for opening a trade, why will you buy or sell?, And on which pair of currencies will be used?
2. The timing of opening a trade, why opening it now? Should you open it before or after the release of some economic data?, Do you prefer to open it in the morning or the evening?
3. The objective of trading, what is your profit goal?, Where is the point at which you want to stop the losses?
4. Managing your funds properly
5. Recording the results of all trades for analysis
Before you open a trade, you must have a good reason to open it, in a lot of cases, traders open trading simply because of boredom or because they feel that they want to buy or sell, and this usually leads to losses of course, as you should you open trades on pairs that you find a compelling reason to open trades on, whether the reasons are technical or fundamental, you should always have a reason.
And you should also determined what pair you will use to open a trade, as it can be easy to feel lost with all the possible currency pairs, but from our experience we recommend that you focus on some, but not all, of the major currency pairs, such as the EURUSD, GBPUSD, USDJPY, and do not waste your time with exotic pairs which lack liquidity, you also need to decide when will you trade and what is the rate of opening new trades, will you be trading on intra day basis, or will you leave your trades for longer than this?, as your life and your responsibilities can affect this.
You should determine whether you will be trading before or after the release of economic data, it is very important that you select those basics so you can start having a strategy and a clear plan.
The second step is to select the goals of trading, what is your ultimate goal?, And at what level you will collect profits, as well as at which level will you stop losses? Always try to define those levels before you open any trade, even though you can change those levels later if something important happened in the markets after you open them.
Most traders tend to take profit early on while they tend to leave their losses continue to increase, hoping that the direction of the market will change, it is difficult for novice traders to accept that they are wrong, and therefore determining the level of stop loss before opening trades helps you to determine the final borders for yourself.
On the other hand, most beginners have unrealistic profit targets, but making substantial profits in the first year of trading is possible, but not likely, those unrealistic expectations push many investors to leave the market before they have an opportunity to learn how to trade properly, while the reality is that if you finished your first year without a gain or loss is impressive, traders who achieve profit of 20% to 30% in the first year are considered to have a very excellent performance.
Money management might be the most important tip related to trading, you first have to accept that there is no person who wins all the time, and that everyone, even the extremely experienced traders, lose and make wrong decisions sometimes, that is why accepting that there’s a probability for you to be wrong is very important, so the goal here is to realize that you are wrong before your fault becomes greater than necessary, and to do so you must determine the amount of your capital, then you should select the proportion of risk that you would like to take on each trade, most experts risk between 1% to 4% of the total value of their accounts in each trade, this percentage may seem very slim for new Forex traders but it will help you inevitably to avoid making significant losses.
It is also very important that the ratio of profits is bigger than losses, as if the ratio of your losses is twice the percentage of profits, you need to make profits in 10 trades until you cover 5 losses. In addition to money management, you should also keep a record of your trades and their results so you can see your mistakes and refine your strategy.