​Finally, it’s time to start looking at how to approach trading and getting started if you haven’t already! The basics of forex should not be a strange or misunderstood concept when beginning to trade. 

Making the right trading plan is important as it will act as your compass through your decisions. A plan helps making decisions easier. While it is good to learn from others what has worked and what hasn't, also have your own success plan. Experience and time available for one trader will likely be different to another. Sticking to your rules, managing risk, psychology and discipline, will all help on the path.

 

 

Calibrate your trading compass with 10 key steps!

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Apply discipline mixed with strategy and patience.

1. Get familiar with the trading platform and broker. Know the functionality with a demo account. Don’t make accidental mistakes with real money before knowing how to place trades and applying the right risk management. 

2. Get familiar with current market sentiment. Look at charts, reports and current news.

3. Get familiar with economic data being released in advance. Check economic calendars and note when big news is released as well as the currency affected. This way there won’t be any potential surprises when entering or trading based on large data fluctuations.

4. Check what the major currency pairs are doing. Include equity indices and commodities as well as forex. Recent trends in one can determine great support/resistance, trends or entry points.

5. Pick where to apply initial focus. Be confident in a few pairs first and the opportunities presented. 

6. Set trading rules and make a plan. It is hard to tell without a consistent strategy what is working or needs adjusting. Some common examples include:

• What are my parameters for entering and exiting a trade (indicators/risk to reward/trends/etc.)?

• What is my risk management strategy and capital exposure?

• What kind of returns are expected.

• What is my goal each day/week/month/year?

7. Establish strict psychological boundaries. Use rules and risk management as the tools to help manage psychology. It is easy to lose focus, become stressed, lose sleep and not get on with every day work. If this is happening it means something should change. Decrease exposed risk, apply stricter risk management and stick to it. Peace of mind for financial risk is key for both mental health and success. Trading should not be done on money that can’t be afforded.

8. Start to develop a rhythm. Practice makes perfect and trading is no different. It takes time to develop the right rhythm based on the time available to trade each day. After a while it becomes easier to recognise patterns and applying the rules to keep probability of profit high.

9. Apply technical analysis that work best for you. Everyone has their own style they like to stick to. Many traders will have templates set with certain indicators to compare against others before trading. Some items to look at are;

• Overall trend direction

• Key support and resistance points

• Volume – when increasing this could show strength

10. Keep a journal. Keeping a journal is important. Understand what has worked in the past and what hasn’t. We won’t be able to remember each trade and without a journal we can’t develop important statistics on our wins, losses, gains, etc.

 

How much time should I spend trading?

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The best part about trading is you can do as little or as much as wanted to suit. Take a moment to think about the time available and how it will affect lifestyle.

Many traders aim to free up time working and still afford their desired lifestyle. In which case, as little as possible to still return the maximum results. Over time it becomes easier to spot opportunities to enter the market and place a trade. 

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Some traders look at charts all day and day-trade. 'Scalpers' look to trade small amounts and try pick off 5-10 pips as often as possible making smaller profits but more often. Preferred trading style will normally depend on how often you want to spend in front of the screen.

Trading economic news announcements requires familiarity with data being released. Some traders spend no more than an hour each morning and evening to quickly assess market positions and see what entry points are presenting themselves.

Stress can often come from watching a trade all day hoping it goes your way. Stop losses and take profit levels help avoid this. 

 

Brokers & platforms

 

 

Forex brokers provide the service for traders to access markets and trade on their platform. Thousands of brokers exist globally and not all operate the same way.  

Market execution looks at how a trade is executed with no/minimal slippage (lag time or market change before a trade is locked in).

It may be valuable to research broker dealing types and decide if there is a preference. These may be:

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• Dealing Desk (DD) & Market Maker (MM) Brokers

• No Dealing Desk (NDD) & Straight-Through-Processing (STP) Brokers

• Direct Market Access (DMA)

• Electronic Communications Network (ECN)

 

There isn't necessarily a better or worse option as some will offer tighter spreads and charge a commission while others will have no lag time to execution but may not be direct to the market. It will entirely come down to personal preference and trading styles. 

Elements to consider selecting a broker or trading platform

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1. Reputation and security

Sometimes it can be hard to tell who to trust. Reputation for security or a long global presence are often a comfortable choice. Know that the broker isn’t likely to shut down with your deposit.

2. Regulated by a credible governing body

Choose a broker that is regulated. Some countries won’t let brokers operate without a governing body enforcing laws to protect the customers. It will be visible on the website. Some highly reputable bodies are the FCA in the UK, BaFIN in Germany, SEC & NFA in the U.S.A. and ASIC in Australia to name a few.

3. Ability to easily deposit and withdraw funds

It's critical being able to fund to and of course withdraw from the trading account. Platforms make it easy to deposit money into the trading account. Ensure they also make it easy to take money out without restrictions. Some brokers can make it difficult for a customer to withdraw their money.

4. Spreads and trading cost

Spreads and costs are part of trading however why pay more if you don’t have to. Most brokers are all quite competitive due to the large number saturating the market offering the services.

5. Platform

A lot of time will be spent on the platform, so ensure you are comfortable with using it. Platforms can be quite different so it is good to try the demo first. Check the platform offers the markets you want to trade such as forex, stock indices and commodities.

6. Charting software

Reliable and easy to use charting helps a lot. Some traders like to use third party charting for more options, indicators and pattern recognition. Now days most platforms have integrated this already.

7. Execution model

Check the platform uses the execution model that suits you if this is important. Options such as Market Maker, Straight-Through-Processing, Direct Market Access and Electronic Communications Network. 

8. Customer support

When it comes to technology, things sometimes malfunction or don't go as planned. From incorrect execution to forgotten passwords or struggling to deposit, having a good support team will make your trading life a lot easier. Choose a broker with support teams who can answer questions or help around the clock.

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Avoid scams

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Broker platforms

Unfortunately the industry has seen its fair share of schemers and scammers. Research a company before transferring thousands of dollars to them. Many broker platforms have been shut down in the past. Strong regulation by credible national bodies is often a good sign when choosing where to deposit funds.

Managed Accounts

Choose managed funds with care. The company trades a pool of several other investors funds. If the trader loses all the money, it could be gone forever. Some platforms allow traders to link trading account to other accounts. The risk is whether the account linked to has a good trader operating it. 

Algorithm software (robots/EA's)

Growth of the tech and programming has made it very easy for trading software to recognise opportunities based on coded instructions and place trades for you. There are few successful bots out there (referred to as Expert Advisers [EA's]) that generate a good return given the market behaves the way the program is designed. Unfortunately, markets change all the time so something that worked in the last 6 months won’t always work again in the next 6 months.

Trading signals

Signals have become very popular. A trade suggestion (signal) is sent informing of a trade opportunity. A trader can then decide whether to enter the trade. It is good to know how signals are generated and how credible they are. Many signals are automated and come from software and not other traders. 

 

Put it all together

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A quick summary to consider before jumping into live trades are:

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1. Understand what drives and operates forex and financial markets

2. Understand terminology and lingo in the world of forex trading

3. Understand how to calculate pip movements for profit/loss across currency pairs

4. Understand how to read charts

5. Understand how leverage affects trade positions

6. Understand similarities between commodity, stock markets and forex markets

7. Understand your psychology and mental focus

8. Understand your risk management rules

9. Understand how stop-losses work

10. Understand technical analysis concepts to find market opportunities

11. Understand fundamental economic impacts and data to be released

12. Understand the impact of keeping trading journals

13. Understand specific and measurable goals

14. Understand the credibility of the chosen broker