About Forex Trading Tips

It's about Pips, not Chips*

It was 2016, and everybody wanted to get rich quick. Like in 2015, 2014, 2013 and, all the way back to 6000 BC.

Only now, people scoured the Internet for easy money making ideas. And the sellers of forex trading software and strategies were all too willing to oblige.

Needless to say, the people who sold the software and trading strategies probably made much more money than the people who bought it. YouTube was filled with “successful traders” in hot cars, posing in front of mansions, explaining how easy it was to get rich in forex. Not many people researched whether the car and the mansion in fact belonged to the video star. Many were rented props, used for the video, and returned in time to avoid paying for an unnecessary extra hour.

How much money you made as a trader was largely “determined by you”. Oh, and "leverage", the “get-rich-quick” version of compound interest. With a leverage of 4:1 you could deposit $25 000.00 and trade to a value of $100 000.00. The highest leverage available at the time was 5000:1!

So it happened that, at that time, I moved to the city and, because I work from home and could arrange my schedule, was looking to learn a new skill. I try to learn a new skill every few years because of the positive advantages it has in different parts of one’s life.

I was already familiar with investing in stocks, trading CFD's, and investment vehicles such as ETF's and unit trusts, but thanks to the sheer volume and intensity of advertising related to forex training, and trading software, I could hardly miss this topic. So I started researching it.

What I found was that, wherever I talked to people, I would find someone who lost money on forex. If you talk to 5 random people or 5 friends and you find someone who has first hand experience, and two more who heard of either how easy it is to make money with a scheme, or how easy someone else became rich in no time, you must know that you are on to something.

When a labourer who worked on installing a swimming pool at a neighbour, was watching Youtube videos of forex software which promised to make him incredibly rich while he was labouring on swimming pools, I knew this was a money spinner - depending on which side of the deal you were.

So, I immersed myself in the process of trying to understand, not only how the industry functions, but also what lies behind what we see. Because it is what lies behind, and who controls the process, that will enlighten you about the true nature of what you are trying to understand.

My first Google search for “forex” delivered “about 158 000 000 results in 0.51 seconds”.

There is a technique I use when researching something. I read (scan) as many Google search results as I can find, and try to identify a name, or names, that occur repeatedly in different places on the Internet. Step two is to divide the results into “value-adders” and “value destroyers”. A test I use for myself, is to list people who only have success as "destroyers" and people who also discuss their failures in detail, as "value-adders". You can use whatever method you want. The important thing is that you try and separate "the wheat from the chaf".

I am unnaturally sensitive to push marketing, and become negative quite easily if sales people try to convince me that they care more about me than about themselves.

After about six months of observing a wide range of fx traders, trainers and writers on the Internet and testing some of their strategies and advice on demo accounts, I stumbled upon a quote to the effect that one should not try to mimic the successful fx traders, but rather observe what the unsuccessful traders did and then do the opposite.

That was one of my many aha! moments, and it became a moment of clarity when I read research that indicated why most fx traders lost money on their trading . There is a gold mine of information about the topic. Just Google for more.

I would have many more aha! moments in the exciting journey of learning about fx trading. This website is a collection of what I found, stumbled on, were told and shown, and what helped me in learning about trading foreign exhange. It is not meant to be an exhaustive source of trading information, or a library. It is just my story.

So, I suppose I just wanted to create a website that you can use to refer people to when someone tells you over a drink, about "this guy who became a millionaire in one forex trade", and whether you know how much money you can make in "forrex"!

* Focus on the process. If you focus on the money, you will fail.

If you remember nothing else on this website, remember this: The market doesn't know you exist, neither does it care. So don't take the outcome of a trade personally.

How to trade forex for beginners

Identify forex keywords

It is said that any industry can be understood in 4 to 12 keywords.

slippage chart image What slippage can do to a trade

Because I believe that forex trading is in the first place about control of losses, my basic keywords for forex would be:

  1. pip – the smallest unit an fx price moves;
  2. spread – the difference in buy and sell price your broker offers;
  3. margin – the money in your trading account at your broker. It contains the money you deposited and the money your broker lends you to enable you to trade for more than what is covered by your own funds (goes hand-in-hand with “leverage”);
  4. leverage – the value of the trade a trader can enter based on the funds in the margin account or, the ratio with which a trader can trade based on the funds in the margin account. Expressed as a raitio: 50:1 ($50:$1), 100:1 ($100:$1) 500:1 ($500:$1) etc;
  5. Stop-loss or Stop – the price at which the trader exits the trade if the trade runs into a loss. It limits the loss a trader accepts. To me, this is the most valuable tool in the beginner-trader’s toolbox;
  6. Slippage – when the price at which the trade is done differs from the price you were willing to pay/receive as your trade price. The transaction price then “slips” past your price due to order execution speed (which is slower than the price moves) or high volatility and low liquidity (which only means there are not enough offers available to fill your order at that price at that moment);
  7. Long – buying a forex pair expecting the price to increase;
  8. See an explanation of Long (buy) and Short (sell).
  9. Short – selling a forex pair expecting price to fall. (This makes it possible that you can trade in falling markets and it is important that you understand how it works);
  10. Trade – a forex trade is the buying or selling of a currency pair e.g. USD/GBP. It means you buy/sell one currency and simultaneously sell/buy the other.
  11. See a list of forex terms.

Your technical trading setup

Choose your broker or trading platform.

You should choose an ECN broker. What is an ECN broker?

It is a broker that sends your trade order through to the market. ECN brokers do not trade themselves. They are not market makers and therefore they don’t trade against you. They are true brokers.

Market maker brokers will tell you they don’t trade against you, because it is against the law, or they will be caught or whatever. All I have to say is, get yourself an ECN broker.

When you search Google for a top broker, just make sure you by-pass the ads at the top. They are ads, that’s all.

Another piece of advice I can give you is: look at the reviews and testimonials of trading platforms and brokers. If the review is just a copy of the brokers’ website, you actually don’t have a review.

Links to lists of forex brokers and the difference between them:

(Listing does not indicate support or preference)

Note: Make sure a broker is registered in a country with a trustworthy registering authority. Good financial governance and laws are mostly a good indicator. Read more

fsb south africa
Fx registering authorities

A quick list of the main countries

Get an edge, or it's gambling

Fx is not an effective way to make quick money, because gambling is not an effective way to make money. The reason is that most novice traders trade like amateur gamblers – with no edge.

If I would wish anything for this website, it would be that all who read it, will use it to educate themselves, not look for get-rich-quick forex tips.

There are valuable advice on the Internet about the topic and you may want to check it out. The links are on the resources page.

My list of tips for the beginner forex trader cannot be exhaustive, because I have not been trading long enough to know enough. (For that, you may want to meet Peter L Brandt who has been making a living from trading for more than 40 years and this valuable podcast)

So what are my tips for the beginner forex trader?

Research, research, research.

First you research what fx trading is about – how it works technically (See fx resources), then how it works psychologically ( quotes may help you understand the psychology of the market and its participants), and then how it works practically (open a demo account)

Research again

This research entails reading.

I implore you to read, not as much as you can, but until it makes you sick to the stomach because of all the information, views, strategies and failure-and-success stories.

And then, when you have read all you can stomach ..... forget everything you read.

You need to "forget" everything because many novice traders try to remember what they read, and want to implement it as a template for their own trading. Using a winning trader’s strategy t, style or success story as a template, does not ensure that you have a water-proof trading methodology.

This is mainly because books contain a shortened version of a successful traders journey to success. An example is a book or article about the career of a successful trader that does not tell you the success rate of his strategies. But if you don’t know that a successful strategy can have a 60% failure rate, your money will be gone before the strategy can deliver the same success for you.

If you forget what you have read – which is not really what happens because of how your memory works – you will not be tempted to use that as a trading template, but it will come back when you experience a trade setup that corresponds with what you have read.

Go to my resources page for a reading list.

Don’t listen to forex gurus

guru on fx chart

Let's just sort this out: What is a Guru?

The true meaning of Guru is "one who dispels darkness of ignorance". "Gu" means "darkness of ignorance" and "Ru" means "one who removes".

Someone cannot become a guru by calling himself a guru. The Guru title is earned by the teacher and awarded by the followers.

So, what is the test? In fx trading, the question will be whether the person teaches (“dispels the darkness of ignorance”) or just want to sell something. You work it out for yourself.

Me? I am still to be convinced that another man’s software will make me rich without knowledge or effort.

So, don't listen to gurus, and don't pay them for what they "know".

Note: I have no complaint against people who sell their knowledge. I start doubting them when they try to sell it as medicine.

Forexmart

Research again, and again

Set aside time for doing research for potential trades.

This should be at least once a week, although it seems to work well for some traders to just scan the market every day (before the London and New York exchanges open).

Here are a few videos showing how different traders do their planning:
Tradeciety
Forex for Noobs
Learn to Trade the Market