How do I do a forex trade?
When novice traders ask this question, they usually get a course in forex trading. But what many new traders have difficulty with, is how to actually go about placing their first trade.
Here are the steps to do a forex trade:
- Find yourself a broker.
- Deposit the smallest amount the broker allows you to deposit.
- Study how trading works on your broker’s platform.
- Your broker’s platform has a “help” section, usually on the menu at the top of your computer screen but I have found that forums and blogs give better (clearer) explanations of what you want to know.
- Google the term you need info about e.g. “how to place a trade on (your platform name)” or “how to set a stop-loss on the (your) platform”
- Then do a demo trade or ten to become familiar with the platform.
Decide what your trading strategy is going to be:
- Scalper – super-short-term trader who may open and close positions within minutes;
- Day Trader – short term trader that usually holds position only intra-day and close out before the market closes;
- Swing trader – short to medium term trader that may hold positions over days or weeks;
- Position trader – longer term traders that may hold positions for days, weeks or years.
- Investopedia’s definitions
- Baby Pips’s list and discussion.
- Another discussion of trader types
- Other types acccording to Investopedia
- Traders according to motivation
- Price action trading – a trading technique that uses price movements in fx pairs to make trading decisions.
- Rolf at Tradeciety who is a reversal trader, and his partner, Moritz, who uses more advanced trading strategies which you may find interesting.
- Nial Fuller of Learn to Trade the Market
- Price Action Trading
- Nic Bencino at Forex4Noobs
- Trading Setups Review’s beginners guide to reading price action
- The Forex Guy, Dale Woods
- Kim Krompass at The Price Action Traders Institute
- Trend trading – a trading technique that identifies the direction of the momentum as reflected on a chart. It depends mainly on the concept of “higher highs” and “lower lows” to define a trend.
- Michael Covel of Trend Following
- Rayner Teo at Trading with Rayner
- James Stanley on Dailyfx
- The Balance
- Colibri trader
- Momentum trading – a more specialised form of trading where momentum trading opportunities are identified inside trends and other trading patterns.
- Reversal trading – trading reversals in trends. It is more a part of price action trading than a trading style by itself.
- 10 Trading styles
Choose the currency pair you want to trade
- You want an fx pair that has some activity so you get enough opportunities to trade.
- The EURUSD is the most actively traded fx pair with about 27% of forex trading volume. That makes it a good pair to start trading.
- Then also the USDJPY (13%) and GBPUSD (12%).
- A quick guide
- Good currencies for a beginner to trade.
- This will give you a good background.
- Using currency correlations.
- A nice list of currency correlations.
- Just keep in mind the correlation between currencies (currencies that move in relation to one another). Don’t buy and sell the same pair, because that gives you double exposure to the same pair.
Example of a chart (Tradingview)
Write down your trading plan
- Date of trade;
- Size of trade (see calculator below);
- Time of entry of trade;
- Time of exit of trade;
- Currency pair you are trading;
- The price at which you enter;
- Trading strategy you are using;
- Whether you buy or sell (long or short);
- Stop-loss in pips;
- Target profit in pips;
- Reasons why you do the trade – reasons are at least the requirements of your strategy;
- The price at which you exit;
- Profit or loss in pips – use pips rather than $ so you get focused on successful trading, and not money;
- Risk/Reward (RR) – Potential profit/Potential risk. See Forex Terms;
- Your emotions (feelings) when entering and exiting the trade to enable you to build a history of how your emotions affect your trading decisions.
- According to your trade plan, click on “buy” or “sell
- Enter your take-profit (TP) price or pips.
- Enter your stop-loss (SL) price or pips.
- Click the button that places your trade (send it to the market)